ACIT, NEW DELHI vs. M/S. EDUCOMP INFRASTRUCTURE & SCHOOL MANAGEMENT LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’, NEW DELHI

BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER

ITA No.6894/Del/2015 Assessment Year: 2012-13

ACIT, Vs. Educomp Infrastructure & Central Circle-2, School Management Ltd., New Delhi 514, Udyog Vihar, Phase-III, Gurgaon PAN :AABCE6852E (Appellant) (Respondent) And

ITA No.545/Del/2016 Assessment Year: 2013-14 And ITA No.193/Del/2017 Assessment Year: 2014-15

ACIT, Vs. Educomp Infrastructure & Central Circle-2, School Management Ltd., New Delhi 1211, Padma Tower-1, 5, Rajendra Place, New Delhi PAN :AABCE6852E (Appellant) (Respondent)

Department by Shri G. Johnson, Sr.DR; Assessee by Shri V.K. Aggarwal, AR Ms. Shweta Bansal, CA

Date of hearing 03.09.2019 Date of pronouncement 29.11.2019

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ORDER PER O.P. KANT, AM:

These three appeals by the Revenue are directed against three separate orders dated 07/10/2015; 03/11/2015 and 10/11/2016 passed by the learned Commissioner of Income-tax (Appeals)-23 , New Delhi, for assessment years 2012-13 ; 2013-14 and 2014-15 respectively. As common issue in dispute permeating from same set of facts is involved in all the three appeals, same were heard together and disposed off by way of this common order for the sake of convenience and to avoid repetition of facts.

ITA No.6894/Del/2015 Assessment year 2012-13

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contractors to inflate the carrying cost of its capital assets through booking of inflated bills in their books of account. It was found that the employees of the assessee company were managing/supervising the affairs of the companies or business entities of its contractors to whom funds were given in the forms of advances for construction/development work.

3.1 Thus, according to the Assessing Officer, the assessee has claimed excess expenditure on construction of the building through these two contactors, and thus claimed excess capitalization of asset of building and consequently claimed excess depreciation on building, which the assessee was not entitled for. 3.2 The Assessing Officer issued a detailed show cause notice to the assessee, the reply of which has been reproduced by the Assessing Officer in the assessment order. The assessee explained that various advances are given to contractors on account of

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construction contract on a progressive basis and those contractors furnished the various running bills against which the payment was released by the assessee. Regarding booking of bogus bills by contactors and inflated cost of construction of the projects of the assessee, it was submitted that the assessee was neither aware nor colluded in their misdemeanors. It was explained by the assessee that none of the proceeds of their misdemeanors were either received or utilized by the assessee or the assessee is benefited in any manner from the acts or misdeed of their contactors. The assessee submitted that it had acted in the most bonafide manner and given the impugned advances under trust and cost of improvement/construction of its capital assets can neither be reduced not disturbed. Accordingly, the assessee claimed that no depreciation can be disallowed to the extent of such abortive expenditure in the case of the assessee company. The Assessing Officer rejected the contention of the assessee and asked the assessee to file details of bills raised by the above referred two contactors and the corresponding expenditure capitalised in books of accounts. On the basis of the details submitted, the Assessing Officer worked out excess depreciation of ₹ 2,10,53,292/- claimed by the assessee. The finding of the Assessing Officer reproduced in para 12 of the assessment order is extracted as under: “12. In view of the above, the capital cost of assets as mentioned in the financial results of the assessee company is in excess to the extent of Rs. 21,05,32,916/-. Therefore, a sum of Rs. 21,05,32,916/- is hereby reduced from the Written Down Value of the block of assets being 'Building' which is eligible for depreciation at the rate of 10% as per the Income Tax Act, 1961. Consequently, depreciation amounting to Rs. 2,10,53,292/- is hereby disallowed and added back to the income of the assessee for the F.Y. 2011-12 relevant to the A.Y. 2012-13. Since the

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assessee has furnished inaccurate particulars of its income, penalty proceedings u/s. 271(l)(c) of the Act is being separately initiated. (Addition: Rs. 2,10,53,292/-)”

3.3 On further appeal, the Ld. CIT(A) deleted the disallowance observing as under: “4.2.3 During the appellate proceedings it has been submitted that the directors of the contractors are different persons who are not related to the directors of the appellant company, and that the allegations of the AO that the activities of sub-contractors were being managed by the personnel of appellant is against the material on record, and that neither any document nor any evidence was found to establish the fact that the appellant had authorized its personnel to manage or supervise the affairs of subcontractors, nor any benefit in the form of salary or otherwise was derived by the personnel of the appellant from the contractors which may suggest in any manner that the operations of the sub-contractor companies were being used to inflate capital cost of assets. It has also been submitted that the total receipts offered by the sub-contractors is same as the cost of assets accounted for by the appellant and the appellant accounted for as the cost of assets the amount which was paid to the sub- contractors and it is not the case of the AO that the cost of assets is more than the expenditure incurred by the appellant, nor has the AO brought on record any material to establish that the cost of assets accounted for in the books of accounts is more than the expenditure incurred, and that the sub-contractors offered the inflated expenditure in their accounts as their income in their cases and they have been assessed accordingly, and therefore the question of alleged inflation of cost of assets by the appellant doesn’t arise. They have also submitted copies of their audited accounts for F.Ys. 2009-10, 2010-11 and 2011-12. It has been also submitted that the amount of Rs.147,51,91,619/- taken by the AO as the cumulative capitalization of assets by the appellant is incorrect in as much as it includes Rs.21,35,32,916/- related to work contracts given to companies/persons other than the above two contractors, and after reducing this' amount of Rs.213532916/- from the figure adopted by the AO, the balance amount is Rs,126,16,58,703/-. The date wise invoice amounts of which have been submitted, and is summarized hereunder:

S.No. Name of person Amount (Rs.) 1 3 S & Company 524741 2 Chettinadu Constructions 5648879 3 Datta Steel Mart 4649946 4 H20 Technologies 1800000

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5 Macro Developers Pvt. Ltd. 47333261 8 Nice Projects Pvt. Ltd. 19196420 7 R.S. Builders 6936636 Rama Sanjay Builders & 3680790 8 Contractors Pvt. Ltd. 9 Ramcons Engineers & 12756906 Builders 18612482 Ramtech Engineers and 10 Contractors P. Ltd. Reliable Powertech Pvt. Ltd. 2576312 11 12 S.R. Brothers 7363496 13 S.S. Enterprises 2882516 14 Shri Ji Projects 11491533 15 Shristhi Constructions 21589334 Tanu Constructions 4728399 16 17 Thomas & Company Pvt, Ltd. 10386437

18 Ram Singh 6706500 19 Kamdhenu Ispat Ltd 1456798 20 Le Qualitas 1134448 21 Design Plus 110300 The Climate Makers 559338 22 23 Gold Star Realtors Ltd 14546982 24 Blues Developers Pvt. Ltd. 254998 25 Asra Real Estate Advisory 1705000 Services 26 Trimurti Concast Pvt. Ltd. 1893683 27 Fortune Metals Ltd. 1698612 28. Aircare Engineers 1307869 Total 213532916

4.2.4 On consideration of the above facts, following the method adopted by the AO and utilized for arriving at the impugned disallowance of depreciation at page-5 para-8 of the assessment order, by adopting the figures as per the balance sheets of the above mentioned three financial years, the computation for excess capitalization of assets by the appellant is as under:

S.No. Name of contractor Amount paid (In Rs.) FY 2009-10 FY 2010-11 FY 2011-12 (A) Jubilant Developers & Management Services Pvt. Ltd. i. Total Advance Given 158,59,85,370 180,71,91,299 (5,96,49,496) ii. Cumulative capitalization by (101,77,25,278) (126,16,58,703) EISML iii. Less: Cumulative inflated 15,00,00,000 10,00,00,000 expenses offered iv. Net capital work-in-progress (91,77,25,278) (111,16,58,703) V. Invoices raised by JDMS 101,77,25,278 24,39,33,425

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vi. 32,73,66,279 126,16,58,703 126,16,58,703 Cumulative invoices raised by JDMS vii. (34,39,33,425) (15,00,00,000) Excess of invoices vs capitalization by EISML (iv - vi) viii. Depreciation on excess capitalization (B) OSN Infrastructure & Projects Pvt. Ltd. i. Total Advance Given 138,84,99,263 7,05,29,978 ii. 23,22,34,166^ Cumulative capitalization by EISML iii. Less: Cumulative inflated 14,70,00,000 expenses offered iv. Net capital work-in-progress (8,12,34,166b V. Invoices raised by JDMS 23,22,34,166 4,02,07,799 vi. Cumulative invoices raised by 27,24,41,965 JDMS vii. (19,12,07,799) Excess of invoices vs capitalization by EISML viii. Depreciation on excess capitalization

From the above data it would be seen that there is no excess capitalization of asset relatable to the cost of construction. Hence, no disallowance on account of any excess depreciation claimed by the appellant is called for.

4.2.5 It is also worth mentioning that the AO has adopted two different principles to make the disallowance on account of depreciation on the alleged excess capitalized assets - for JDMS the AO reduced the cumulative invoices raised by JDMS from the , net capital work-in-progress after reducing the alleged inflated expenses of JDMS from the capitalized of the appellant (though the figure of the latter adopted by AO was incorrect as mentioned above) since the resultant figure was positive; and for 01 PPL the AO simply adopted the figure of the inflated expenses of OIPPL since had he followed same method as for JDMS the resultant figure would have been negative. The AO cannot adopt different methods for computing similar accounts as would suit his intention. Disallowances, and additions, cannot be made on such defective computation but the accounts have to be appreciated in perspective with a holistic approach.”

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submitted that it was found from the papers seized from the premises of the assessee that two of its employee ‘Sh. Shalabh Raizada’ , Senior Executive and ‘Brig. (retired) Vikram Singh’, Vice president of the assessee company, acted in the capacity of authorised signatory of those contractor companies. He submitted that the contractors has further subcontracted the work and computed the actual rate of the construction work, which is very small as compared to the payments made to those subcontractors and the contractors have accepted in their assessment, the receipt of the money by way of cash from those subcontractors. According to the Ld. DR, the documents seized in Annexures A-3, A-4, A-5 and A-8 seized from the premises of the assessee, wherein the actual low rate of the work is mentioned, clearly indicated that the assessee was aware of the actual rate of work and money which flowed back to the contractors. According to the learned DR, it is apparent that the money has actually routed back to the assessee as flow of cash back from the subcontractor to the contractor was within the knowledge of the assessee. In view of the learned Departmental Representative, it is against human probability that assessee would allow such bogus payment to the contractor knowingly that actual rate of the work is very low and money is routed back from the subcontractor to the contactor. Regarding the computation of the depreciation by the Ld. CIT(A), the learned DR submitted that in case of Jubilant Developers and Management Services Private Limited, the amount of excess capitalisation has been computed at ₹ 15 croress, whereas it should have been the amount of ₹ 25 crores, i.e., the amount which has been offered by the contactor as

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undisclosed income. The Ld. DR also filed copy of the assessment order in the case of two contractor companies. 5. The Ld. counsel of the assessee, on the other hand, filed two paper-books containing page 1 to 74 and 1 to 104 respectively. He relied on the finding of the learned CIT(A) and submitted that the assessee has made payments to the contractors according to the invoices raised by them for the work done and there are no evidence that the assessee has received cash-back from the contractors. The Ld. counsel submitted that no disallowance can be made in respect of the depreciation in the case of the assessee based on the undisclosed income accepted by the two contractors. According to him, this will amount to double taxation of the income, firstly, as undisclosed income in hands of the contractor and secondly disallowance of depreciation in the case of the assessee on the same amount included in the capital asset of the assessee. In support of his contention that same income cannot be taxed twice, he relied on the decision of the Tribunal in the case of M/s. SSIPL Luxury Fashion Private Limited reported in ITA No.5368/Del/2012 for assessment years 2009-10. He also referred to the judgment dated 18/02/2013 of the Hon’ble Delhi High Court in the case of CIT Vs Discovery Holding Private Limited in ITA No. 1089 & 1090/2011 to highlight that no addition can be made merely on suspicion and surmises or by taking note of “notorious practice” prevailing in trade circles of real estate. 6. We have heard rival submissions of the parties and perused the relevant material on record including the paper-book filed by the assessee. In the instant case, the assessee has filed balance

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sheet along with the details of fixed assets for the year ending on 31/03/2012, which are available on page 59 and 71 of the paper book containing 104 pages. According to the detail of fixed assets as per the books maintained by the assessee, building was having grass block value as on 31.03.2012 of ₹ 314,90,38,122/- and after claiming depreciation of ₹ 20,71,79,834/-, the net block of the building stood at ₹ 294,18,58,288/-. The assessee claimed depreciation on the capital cost of asset being building in the return of income filed as per the Income-tax provisions and rates prescribed in Income-tax Rules, 1962. Out of the depreciation claimed on building in the Income-tax Return, the Assessing ₹ Officer has disallowed depreciation to the extent of 2,10,53,292/-being depreciation on account of no assets created in respect of the contracts given to M/s OSN Infrastructure and Project Private Limited (in short ‘OSN’) and M/s Jubilant Developers and Management Services Private Limited ( in short ‘JDMS’) to the extent of amount accepted by them in the return of income as expenditure not incurred actually. Thus, the Assessing Officer has excluded out of cost of building, the amount which has been admitted by the two contractors as not actually incurred. In facts of the case, the issue in dispute is what should be the depreciation which the assessee should have been allowed. In terms of section 32 of the Act and Rule 5(1) of Income-tax Rules 1962, the deduction of depreciation is allowed on building owned, wholly or partly by the assessee , and used for the purposes of the business or profession at the rate of 10 % of the written down value of the capital asset of building. The term “written down value” has been defined in section 43(6) of the Act

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means in the case of assets acquired in the previous year, the actual cost to the assessee. The term “actual cost” has further been defined in section 43(1) as actual cost to the assessee deduced by the portion of the cost which has been met directly or indirectly by any other person or the authority. In the facts of the case, we have thus, to examine what is the actual cost in respect of the building, on which, the assessee has claimed depreciation. 6.1 Regarding the claim of Assessing Officer as no capital asset came into existence corresponding to the expenditure not incurred actually by those two contractors, the Assessing Officer in the case of OSN Infrastructure & Projects Pvt. Ltd. has brought on record the facts in details. For ready reference, the relevant part of the assessment order in the case of OSN Infrastructure & Projects Pvt. Ltd. for assessment years 2012-13 is reproduced as under: “5.1 Initially, survey action was conducted at the business premises of assessee company situated at 301/18, Udyog Vihar, Gurgaon. Various evidences were found and impounded which raised sufficient doubt about the genuineness of various expenditures claimed by the assessee company. It was also found during the course of search action at Educomp Group that one room at the premises situated at H 35/1, DLF Phase 1, being the office premises of Mr. Ashish Mittal, the advisor of the assessee company was also utilized by the assessee company for its business. Various incriminating documents were also found and seized from the said premises, the details of which are being narrated at length in the succeeding paragraphs of this order 5.2 In response to summons u/s. 131 of the Income Tax Act, statement of Sh. Sanjay Saini, D rector, M/s. OSN Infrastructure & Projects Pvt. Ltd. (OIPPLj was also recorded on oath on 25 08.2011 at the office of M/s. Educomp Solutions Limited situated at 514, Udyog Vihar, Phase-lll, Gurgaon. After detailed questioning and confrontation of various papers and events which occurred during the course of search/survey operations, he offered an undisclosed income of Rs.75 crores to tax, out of which Rs. 59.25 crores was

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offered to tax in the hands of the assessee company. Relevant extracts of his statement are as follows:

Q.No.3 During the course of survey at your office premises on 18.8.2011, on verification, it was found and asserted by you that no genuine activities have been conducted by your group. It was a iso found that corroborative evidences of various expenses claimed in your companies were also missing. You had also stated that Sh. Ashish Mittal is at helm of the affairs. Various records and other documents pertaining to your activities were also not produced and no satisfactory explanation to the quarries raised were rendered by you and other office bearers of your group. Do you agree on the said state of affairs? Explain the same?

Ans. I agree that certain corporative evidences to establish the genuineness were missing at the time of survey. To cover the stated discrepancies, we in consultation with Sh. Ashish Mittal, the person supervising the accounting/compliance/other business activities, agree to offer Rs. 75 crore as income of the OSN group, its principals who have allotted contracts/ jobs other vendors/contractors who have performed work for as or our principals or our sub-contractors for the relevant period i.e. FY 2010-11 and 2011-12 with the understanding that neither any penalty nor any punitive action of any nature., whatsoever shall eitner be initiateo/imposed against ail the entities/concerns, individuals who have been covered in the action conducted by the department/'s. 132 and 133 A of the Act. The bifurcation of the above said offered income for the relevant period in the hands of different entities/individuals will be provided after verification of the contents of the seized/impounded material within next three working days. Necessary tax due thereon will be informed to be deposited in the different entities after such verification..."

5.3 During .the course of search at the premises located at H-35/1, DLF Phase-1, Gurgaon being the office premise of Mr. Ashish Mittal, the advisor of the assessee company on 18.08.2011, it was learnt that one of the rooms was being used by the assessee company for its own business. Restraints were temporarily placed on 18.08.2011 at the office premises of Sh. Ashish Mittal and on the room adjacent to the office of the Sh. Ashish Mittal, which wasbelng used by the assessee company.

5.4 On lifting of restraint from the said premises on 13.09.2011, various mating documents were found and seized which established beyond doubt that the assessee company was booking inflated/bogus expenditure in its profits and loss account on one hand and was receiving cash back on sale of certain lands from the vendors of said lands. The lands were acquired under the

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agreement to sell for and on behalf of Educomp Group and were transferred to them for a consideration in the form of commission. In the process of acquiring such land on behalf of its principal, i.e. Educomp Group, the assessee company received certain funds in cash from the vendors of such land outside the books of account in a clandesti le manner to the exclusion of the Educomp Group.

5.5 During the course of vacating of restraints on 13.09.2011 from the above premises, various incriminating documents were found and seized vide Annexure AA-1 to AA 3 of the Parichnama date 13.09.11.

5.6 Annexure AA-1 pages 1 to 129 and Annexure AA-2 pages 1 to 36 are the copies of the ledger accounts of various sub-contractors in the books of account of M/s. OSN Infrastructure & Projects Pvt. Limited, copies of_ their running bills, cheques issued to them, general correspondence, etc for the Financial Year 2010-11, relevant to Assessment Year 2011-12.

5.7 These papers are an indubitable and concrete record of the transactions undertaxen by M/s. OSN Infrastructure & Projects Pvt. Limited. Page No 128 & 129 of Annexure AA-1 and page no. 36 of Ann.AA-2 are summary sheets highlighting the following details:

a) Value of total contracts obtained by OSN Infra from EISML, b) Billing for work to be done during the financial year 2010-11 and 2011-12 c) Amount of cost of work and bills issued by various sub contractors along with their names for FY 2010-11 & 2011-12. d) Actual cost incurred for the work and e) The difference received in cash by M/s. OSN Infrastructure & Projects Pvt. Limited from such sub contractors. f) Details of brokerage received from the sellers of land not booked in the books of accounts of M/s. OSN Infrastructure & Projects Pvt. Limited. g) Details of cash received back from sellers of land at Distt. Alwar, Rajasthan and Hyderabad not booked in the books of accounts of M/s. OSN Infrastructure & Projects Pvt. Limited.

5.8 Scanned copies of pageds 128 and 129 of Annexure AA-1 and Page 36 of Annexure AA-2 respectively are reproduced herein

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5.9 The contents of the above sheet were compared with the books of account of the assessee company. On the reconciliation of the transactions as recorded in Annexure AA-1, page no. 129 and Page no. 35 of Annexure AA-2, it is seen that M/s. OSN infrastructure & Projects Pvt. Limited allotted contract of Rs 25 crore for the restoration of hill for Mussoorie International School, Mussoorie to M/s. Dharamraj Contract India Pvt. Limited, DDA Commercial Complex, New Delhi subject to the escalation cost. The said sub-contractor has billed M/s. OSN Infrastructure & Projects Pvt. Limited for Rs 20.79 crores and Rs. 3.72 Crores in FY 2010-11 and 2011- 12 respectively. However, on the perusal of page number 25 to 48 of Ann. AA-1 it is seen that out of billed amount of Rs. 20.79 crores, the actual cost of the work was only for Rs. 6.09 crores and the balance amount of Rs. 14.70 crores was received back in cash outside the books by the assessee company.

5.10 Other relevant documents like the copy of account of M/s. Dharamraj Contracts India Pvt Limited, a copy of details of costing of the work and agreement with M/s. Dharamraj Contracts India Pvt. Limited with the assessee were also found and seized as page 25 to 48 of Annexure AA-1 and pages 12 to 25 of Annexure AA-2.

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5.11 In these pages the various components of the bill amounting to Rs. 17.40 crores for whxh bills have been obtained and no work has been done sre highlighted with the marker. On the perusal of the books of accounts of the assessee, it is found that that it has debited the Profit & Loss Account by Rs 20.79 Crores for F.Y. 2010-11 on account of work done by M/s. Dharamraj Contracts india Pvt. Limited. However, the actual expenditure was Rs 6.09 crores for F.Y.2010-11. Therefore it has over booked the revenue expenditure in its books of account by obtaining excess/infiating of bills and thus suppressed its profit on this account by Rs. 14.70 crores for FY 2010-11.

5.12 Similarly, incriminating material was found with respect to contract given for excavation, leveling of agricultural land at Distt. Hanumangarh, Rajasthan to M/s. ARSS Infrastructure Projects Limited, Mancheshwar Industrial Estate, Bhuvaneshwar. A part of this work was given to M/s. OM Builders also The details of these two sub-contracts are available on page 5 to 13 of Annexure AA-1 The details of bogus billing pertaining to this contractor are available on pages 128 &129 of Annexure AA-1 and it was seen that out of total bills of Rs. 8.01 crores on account of Hanumangarh work, the actual cost was for Rs. 0.91 crores and the balance amount of Rs 7 10 crores represented undisclosed income of the assessee for the relevant period under consideration.

5.13 incriminating documents were also found and seized pertaining to the contract allotted for clearing, leveling, filling, removal of boulders, rock excavation, blasting, stacking, consolidation of soil, kuchha road etc. of agriculture land at Village Pata, Tehsil Ramgarh, Distt. Alwar, Rajasthan to subcontractor M/s. Patel Engineering Limited. A part of this work was also performed by M/s. Orris Infrastructure Pvt. Limited. The details of these two sub- contracts are available on page 14 to 24 of Annexure AA-1. On page number 128 & 129 of Annexure AA-1 it is shown that out of total bills of Rs. 9 crores on account of Alwar work, the actual cost was for Rs. 1 25 crores and therefore, amount of Rs. 7.75 crores represented excess/bogus billing.

5.14 In addition to the above there were other small works which were handled by the assessee company and allotted to other sub- contracts details of which are available at page no. 49 to 127 of Annexure AA-1 seized from premises no. H-35/1, DLF, Phase-1, Gurgaon. On a composite perusal of such papers alongwith seized papers marked as pages 127 tol29, it is crystal clear that bogus billing from all other petty sub-contractors was to the extent of Rs. 26 lakh for the F.Y 2010-11, relevant to A.Y. 2011-12.

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5.15 The seized papers marked as pages 129 of Annexure AA-1 and 36 of Annexure AA-2 also 'evealed that the assessee company has received brokerage from various land deals outside the books of account from the land transactions in Alwar and Hyderabad The assessee company gave certain land advances to various other persons for the purchase of land at Alwar and Hyderabad. The land at Hyderabad was registered in favour of the Educomp Group whereas agreement was entered with the land owners at Alwar, Rajasthan for and on behalf of the Educomp Group as discussed above. The details of such brokerage being received outside the books of account aggregating to Rs. 4.53 crores is available at Page 129 of Annexure AA-1 out of which a sum of Rs 3.03 was received during the F.Y. 2010-11, relevant to A.Y. 2011-12.

5.16 It was also noticed on perusal of page 36 of Annexure AA-2 that the assessee company also received back certain cash outside its books of account from land deals in Alwar amounting to Rs. 20.8 crores during the in F.Y. 2011-12, relevant to A.Y. 2012 13 The details of these cash received back outside the books are further recorded on from page number 26 to 35 of Annexure AA-2.

5.17 Thus, a perusal of the contents of the seized materia! clearly revealed that the assessee company was invariably earning income outside the books of account from Its activity of construction as welf as trading in land.

Q. No. 23 I am showing you pages 1 to 129 of Annexure AA-1 of the material found and seized/impounded during the course of lifting of restraints placed at the premises of yourconsuitant, Mr. Ashish Mittal who has stated to belong to you. Please identify the papers andexplain the contents thereof.

Ans. The said papers pertain to the various bills raised by the sub contractors of OSN Infrastructure and Projects Pvt Ltd, their ledger accounts and a summary sheet of 1) Contract Value 2) Amount of total bills raised 3) Cost of bills 9) the actual cost incurred and 5) the difference received by us in cash from the said sub contractors on account of inflated/excessive expenditure charged by us in our books of account. As apparent from the papers, the said excessive/inflated expenditure aggregates to Rs. 30 crores (Approx) for the financial years 2010-11 which is appearing in a summarized manner on page 129 of the above stated Annexure AA1.

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The same may kina'iv be treated as part of the total income offered by us to the extent of Rs. 75cr in the course of my statement recorded on oath dated 25/08/11.

Q. 2A I am showing you pages 1 to 36 of Annexure AA -2 of the material found and seized/impounded during the course of lifting of restraints placed at the premises of your consultant, Mr. Ashish Mittal who has stated to belong to you. Kindly identify the papers and explain the contents thereof.

Ans. The said papers/documents pertain to the bills raised by one of the sub contractors on OSN Infrastructure and Projects Pvt Ltd, its ledger accounts and a summary sheet of 1) Contract Value 2) Amount of total bills raised 3) Cost of bills 4) the actual cost incurred and 5) the difference received by us in cash from the said sub contractor on account of inflated/excessive expenditure charged by us in our books of account. As apparent from the papers, the said excessive/inflated expenditure aggregates to Rs. 2.70 crores (Approx) for the financial years2011- 12 which is appearing in a summarized manner on page 36 of the above stated Annexure AA 2. A/so, Page 36 of Annexure AA 2 of the material has mention of cash received back aggregating to Rs. 20.80 crores from the vendors of lands at A/war. Copies of their ledger accounts and summary of cash received against various cheques are also available at pages 25to 36 of AA 2. The said cash was received by us with a tacit understanding with the said vendors which was over and above the brokerage payable by them to us. The said cash was withdrawn by the said consolidators either out of their own accounts or from transfer of funds to the account of other collection agents/land consolidators as per my instructions to them. The said cash received from the vendors may be treated as our income for the financial year 2011-12. Therefore, the cash received from the sub contractors amounting to Rs. 2.70 crores along with cash back from the land deals to the extent of Rs. 20.80 crores may also be treated as part of the total income offered by us to the extent of Rs. 75 crores in the course of my statement recorded on oath dated 25/08/2011.

Q. 25 1 am showing you pages 36 and 129 of Annexure AA2 and AA1 respectively of the material seized during the course of lifting of restraints at the premises located at H-35/I, DLF, Phase I, Gurgaon. On the said pages, mention of certain brokerage to the extent of 2.5% of land values is appearing. Explain whether the same is refected in your books of a/c's or not?

Ans. It is clarified that Page No. 129 and 36 of Annexure AA 1 and AA 2 respectively have calculations of cash received by us on account of brokerage from sale of Alwar lands from the sellers which

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has not been accounted for in our books of account The said brokerage was received by us from the vendors of the said land outside the books of account amounting to Rs.3.00 crores and Rs. 1.50 crores during the financial years 2010-11 and 2011-12 respectively. The said vendors agreed to pay the brokerage to be computed at the rate of 2.5 % of the value of sales consideration, to be paid 2/3rd during the financial year 2010-11 and the balance 1/3*during the financial year 2011-12. The same was accordingly received to the extent of Rs. 3crores and Rs. 1.5 crores during the financial year 2010-11 and 2011-12 respectively. The samemay kindly be treated as part of the total income offered by us to the extent of Rs. 75 crores inthe course of my statement recorded on oath dated 25/08/2011

Q. 26 You have stared that certain bogus/inflated expense has been charged by you to the profit and loss account of OSN Group companies through the aid of various sub contractors. Please state whether any other expenses over and above the payment to sub contractors of similar nature also exist or not?

Ans. We are not able to verify the same at this moment However, to cover up the same, we hereby offer amounts of Rs. 18 Lakhs and Rs. 50 Lakhs for the financial years 2010-11 and 2011- 12 to cover any other disallowances on account of other excessive or unreasonable expenditure or other unaccounted income etc. The same may also be treated as part of the total income offered by us to the extent of Rs. 75 crores in the course of my statement recorded on oath dated25/08/2011..."

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6.2 Similar finding has been recorded by the Assessing Officer in the case of JDMS in the office note appended to the assessment order for the assessment year 2012-13. The relevant part of the office note is reproduced as under: “1. During the course of search operation at the premises located at FI-35/1, DLF Phase-1, Gurgaon certain incriminating papers marked as Annexure AA 3 having pages 1 to 79 were found and seized pertaining to the assessee company. It was categorically admitted by Mr. Sanjay Saini, director of M/s OIPPL that the said papers pertained to the business operations of the assessee company. It was also revealed by him that he was introduced to the Educomp Group by the director of the assessee company, Mr. Arun Kumar who was engaged in executing of various constructions contracts for and on behalf of the said group in past. Since, the said group required additional resources to execute their construction activity, Mr. Arun Kumar introduced him to the Educomp Group. Mr. Sanjay Saini also confirmed that the said papers were inadvertently left by Mr. Arun Kumar during one of his visits to his office at the above stated premises. Mr. Sanjay Saini also confirmed that the impugned papers contained details of bogus expenditure booked by the assessee company and accordingly after consultation with the director of the assessee company, he offered amounts of Rs. 10 crores and Rs. 5 crores for the F.Y. 2010-11 and 2011-12 respectively as undisclosed income of the assessee company.

1.1 The statement of Sh. Arun Kumar, director of M/s. Jubilant Developers & Management Services Pvt. Limited (JDMS) was recorded on oath on 13.09.2011. In his statement recorded on oath on 13.09.2011 he admitted that the papers seized vide Ann. AA-3 were containing details of transaction taken by his company with various subcontractors for FY 2010-11 & 2011-12. In his statement he admitted of having received back the cash from M/s. StartrekBuildcon Pvt. Limited during FY 2010-11 & 2011-12 against various cheques issued for Rs. 9.45 cr. & 4.90 Crore for FY 2010-11 & 2011-12 respectively. He explained that these amount were in the nature of excess expenditure charged, therefore, it has over booked the revenue expenditure in its books of account by obtaining excess/inflating of bills and thus suppressed its profit in the books of account of the assessee company. In the statement he additionally disclosed amount of Rs. 55 lakh & Rs. 10 lakh for FY 2010- 11 & 2011-12 respectively to cover any other discrepancy

22 ITA Nos.6894/Del/2015; 545/Del/2016 &193/Del/2017

arising out of books of account. The relevant part of the statement of Sh. Arun Kumar is reproduced as under:-

“….. Q. 19: - What were the total value of works allotted to StartrekBui/dconPvt Ltd and how much cash was received against payments made to them by your company M/s JDMS during the financial year2010-11 and 2011-12?

Answer: - During the financial year 2010-11 and 2011- 12contracts worth Rs. 10 crores and Rs. 5 crores respectively were allotted to M/s StartrekBuildconPvt Ltd which could not be fully executed by them. The said sub contractor paid back certain funds given to them in return in cash. However, the payment to the said sub contractor stands reflected as expenditure in our books of account. Therefore, on account of such excessive expenditure, we offer to tax an amount of Rs. 9.45 crores and Rs. 4.90 for the financial years 2010-11 and 2011-12 respectively. Additionally we offer an amount of Rs. 55 lacs and Rs. 10 lacs for the financial years 2010-11 and 2011- 12 to cover any other disallowance on account of excessive expenditure, investment, income or issues of any other nature in the hands of Jubilant Developers and Management Services Pvt Ltd. Thus, in aggregate, we hereby offer an amount of Rs. 10 crores and Rs. 5 crores for the financial years 2010-11 and 2011-12 respectively, as income with an understanding that neither any penalty nor any punitive proceedings of any nature will either be initiated or imposed against our companies or individuals of our group in future.

Q. No. 20: - During the course of recording of your statement in the office of the undersigned on05/09/2011, you had offered an aggregate amount of Rs. 15 crores to tax in the hands of Jubilant Developers and Management Services Pvt Ltd. Explain the basis of the same.

Answer: -. As stated above, it is fact that our company, M/s Jubilant Developers and Management Services Pvt Ltd was executing various construction contracts as allotted by Educomp Infrastructure and Projects Ltd since May/June 2009. In fact we introduced Sh. Sanjay Saini and his group companies, M/s OSN Infrastructure and Projects Pvt. Ltd for meeting the additional requirements of execution of the construction contracts of the above said Educomp Group in the month of June 2010. Various constructions contracts were allotted to them by the Educomp Group on our recommendation and the same are being executed by Sh. Sanjay Saini and his companies till date. I often used to visit the business premises

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of Sh. Sanjay Saini and his consultant, Sh. Ashish Mittal in order to discuss various aspects of the common construction business. During the course of survey/search of Sh. Sanjay Saini and his group companies, he discussed the matter with me and after due consultation with him, I advised him to include an amount of Rs. 15 crores as income of Jubilant Developers and Management Services Pvt Ltd also. It was on this basis that I reiterated and confirmed the offer of Rs. 15 crores in the hands of M/s Jubilant Developers and Management Services Pvt Ltd. in my statement on 05/09/2011. I hereby reconfirm that out of the total amount of Rs. 15 crores, Rs. 10.00 crores will be offered to tax for the financial year 2010-11 and Rs. 5.00 crores for the financial year 2011-12 with an understanding that neither any penalty nor any punitive proceedings of any nature will either beinitiated or imposed against our companies or individuals of our group."

1.2 Thus, the assessee company offered undisclosed income to the extent of Rs. 10 crores for the relevant period under consideration. The relevant amount of suchincome was directly offered in the computation of assessable income and tax liability due thereon was discharged by the assessee company.

“… 2. During the course of search proceedings, statement u/s. 132(4) of the Act of ShriArun Kumar, Director of your company was recorded, where he admitted a surrender of Rs. 10 crores and Rs. 5 crores as additional business income of your company for the F.Y. 2010-11 and 2011-12, respectively on account of "Cash Received Back out of Land Development Contracts, Land Deals, Other Disallowances and Miscellaneous Heads". The relevant extract of statement is as under:

Q. 19: - What were the total value of works allotted to StartrekBuildconPvt Ltd and how much cash was received against payments made to them by your company M/s JDMS during the financial year 2010-11 and 2011-12?

Answer- During the financial year 2010-11 and 2011-12, contracts worth Rs. 10 crores andRs. 5 crores respectively were allotted to M/s StartrekBuildconPvt Ltd which could not be fully executed by them. The said sub contractor paid back certain

24 ITA Nos.6894/Del/2015; 545/Del/2016 &193/Del/2017

funds given to them in return in cash. However, the payment to the said sub contractor stands reflected as expenditure in our books of account. Therefore, on account of such excessive expenditure, we offer to tax an amount of Rs. 9.45 crores and Rs. 4.90 for the financial years 2010-11 and 2011-12 respectively. Additionally we offer an amount of Rs. 55 lacs and Rs. 10 lacs for the financial years 2010-11 and 2011-12 to cover any other disallowance on account of excessive expenditure, investment, income or issues of any other nature in the hands of Jubilant Developers and Management Services Pvt Ltd. Thus, in aggregate, we hereby offer on amount of Rs. 10 crores and Rs. 5 crores for the financial years 2010-11 and 2011-12 respectively, as income with an understanding that neither any penalty nor any punitive proceedings of any nature will either be initiated or imposed against our companies or individuals of our group in future.

Q. No. 20: - During the course of recording of your statement in the office of the undersigned on 05/09/2011, you had offered an aggregate amount of Rs.15 crores to tax in the hands of Jubilant Developers and Management Services Pvt Ltd. Explain the basis of the same.

Answer: - As stated above, it is fact that our company, M/s Jubilant Developers and Management Services Pvt Ltd was executing various construction contracts as allotted by Educomp Infrastructure and Projects Ltd since May/June 2009, In fact we introduced Sh. Sanjay Saini and his group companies, M/s OSN Infrastructure and Projects Pvt. Ltd for meeting the additional requirements of execution of the construction contracts of the above said Educomp Group in the month of June 2010. Various constructions contracts were allotted to them by the Educomp Group on our recommendation and the same are being executed by Sh. Sanjay Saini and his companies till date. I often used to visit the business premises of Sh. Sanjay Saini and his consultant, Sh. Ashish Mittal in order to discuss various aspects of the common construction business. During the course of survey/search of Sh. Sanjay Saini and his group companies, he discussed the matter with me and after due consultation with him, I advised him to include an amount of Rs. 15 crores as income of Jubilant Developers and Management Services Pvt Ltd. also. It was on this basis that I reiterated and confirmed the offer of Rs. 15 crores in the hands of M/s Jubilant Developers and Management Services Pvt Ltd. in my statement on 05/09/2011. I hereby reconfirm that cut of the total amount of Rs. 15 crores, Rs. 10.00 crores will be offered to tax for the financial year 2010-11 and Rs. 5.00 crores for the financial year 2011-12

25 ITA Nos.6894/Del/2015; 545/Del/2016 &193/Del/2017

with an understanding that neither any penalty nor any punitive proceedings of any nature will either be initiated or imposed against our companies or individuals of our group.

In view of the above, you are required to furnish the details of income aggregating to Rs. 15 crores surrendered and admitted by Shri Arun Kumar during the search and how these income are reflected in your books of accounts."

2.1 In response to same, the A.R. of the assessee vide letter dated 07.02.2014 replied the following:

“……. In reply to your questionnaire vide letter No. F.No.. DCIT/CC- 7/2013-14/1324 dated 27/01/2014, under instructions of the assessee, it is clarified at the onset that no search or survey proceedings were conducted against the assessee company. However, certain documents were found and seized from rhjj business premises of third party on the basis of which additional income was offered by the Director, Mr. Arun Kumar in his statement recorded in response to notice issued under section 131 of the Act.

It is to reiterate that additional income to the extent of Rs. 5 crores was offered for the captioned assessment year on the basis of various papers found, especially pages 1 to 79 of Annexure AA3 found and seized from the premises as mentioned supra.

It may also be appreciated that the assessee company has duly complied with its offer of additional income and has incorporated the same in its return of income duly filed with the department. A copy of the computation of assessable income filed for the relevant period is enclosed to substantiate that the relevant additional income to the extent of Rs. 5 crores stands duly included in addition to the regular income for the said period. Necessary tax liability due thereon has already been discharged which is apparent from the said return filed.

It is also clarified that the said additional income has been offered in addition to the income derived on the basis of the books of account. Therefore, no adverse inference may kindly be drawn against the same.

No fresh contracts were entered during the relevant period. A confirmed copy of the ledger account of M/s EISML as per our books of account is enclosed. No fresh contracts were allotted to any sub contractor during the relevant period."

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The assessee has already furnished detailed reply regarding the manner of inclusion of additional income offered of Rs. 5 crores for the relevant period under consideration. Keeping in view the above said facts, no adverse cognizance is taken in this regard.”

6.3 On perusal of the above finding in the case of OSN and JDMS, it is evident that OSN and JDMS in their books of account had shown receipt from the assessee and expenditure towards construction of the building for the assessee and claimed that they further paid to subcontractors for such construction expenditure by cheque. However, as a result of documents found and investigation during search and survey proceeding on the premises of Educomp group and those contractors, they admitted that no such construction work was actually done or value of such construction done was actually very less and the payment made to the subcontractors by way of cheque was returned back in cash to them. 6.4 In the case of the assessee, the Assessing Officer has observed that employees of the assessee Sh. Shalabh Raizada (Senior Executive) and Brig (retired) Vikram Singh (Vice President of the assessee company) has signed documents in the capacity of authorised signatory of those contractors, namely, OSN and JDMS. He also noted that the fact of actual value of the construction being less as compared to the value shown by contractors in their books of accounts as paid to the subcontractor and this fact was within the knowledge of the assessee. Based on these facts, the Assessing Officer concluded that the assessee was in collusion with the contractors for

27 ITA Nos.6894/Del/2015; 545/Del/2016 &193/Del/2017

artificially raised or inflating capital cost of the building in order to claim enhanced depreciation. 6.5 The assessee on the other hand submitted that there is no evidence on record that assessee authorised its personal to manage or supervise the affairs of the contractor and no benefit in the form of salary or otherwise derived by the personnel of the assessee from said contactors. In our opinion, the personnel of the assessee shall not act for the contractors in their own sweet will without any remuneration by the contractors and they can act without remuneration only on the implied direction of the assessee for managing the entire game of claiming excess depreciation for reducing the tax liability of the assessee. When documentary evidence of managing affairs of the contractor by the personnel of the assessee are found during search action and the Assessing Officer duly notified the assessee regarding those evidences to suggest that the assessee has acted in collusion with the contractors for enhancing cost of construction of the building, the onus was on the assessee to produce those personnel before the Assessing Officer to bring the truth as on whose direction they signed document as authorised signatory of the contactors. The assessee has failed to discharge its onus and cannot shift the burden on the Revenue that no document authorising those persons to manage the affairs of the contractor was found during the course of the search. The assessee contended that the cost of the assets accounted for in the books of account of the assessee is not more than the receipt offered by the contractors in their books of accounts. This argument is also of no help to the assessee, as the contactors have already accepted the fact of

28 ITA Nos.6894/Del/2015; 545/Del/2016 &193/Del/2017

obtaining bogus bills from the subcontractors and routing of the money back in the form of cash, without doing actual work or doing work less than billed for. 6.6 In view of the above factual observations, it is beyond doubt that the relevant capital asset in the form of the building of the assessee corresponding to the expenditure not incurred actually by those two contractors mentioned above, did not come into existence and thus the assessee cannot be entitled for depreciation in respect of the capital asset which has never come into existence. The bills raised by the contractors on the assessee are inflated one and not of actual amount of the work done for the assessee. Consequently, the cost debited by the assessee in respect of the building, which has been capitalized is inflated and not the actual cost. The reliance placed by the Ld. counsel of the assessee in the case of M/s SSIPL Luxury Fashion Private Limited (supra) and Discovery Estate Private Limited (supra) is of no assistance as facts and circumstances of those case are different from the case of the assessee. In the case of SSIPL Luxury Fashion Private Limited (supra) a particular receipt was already taxed in the hands of the holding company and thus the assessee contested that it should not be taxed in the hands of the assessee, whereas the learned DR contested that receipt should be taxed in the hands of the correct person. The Tribunal held that same income cannot be taxed twice unless so provided in the Act. In the case of discovery Estate Private Limited (supra) , the observation of the Hon’ble High Court are regarding that no addition should be made on the basis of the suspicion or surmises or by taking note of notorious practice prevailing in that

29 ITA Nos.6894/Del/2015; 545/Del/2016 &193/Del/2017

trade circles. The relevant paragraph of the decision of the Hon’ble Delhi High Court in the case of Discovery Estate Private Limited (supra) is reproduced as under: “17. It only remains for us to refer to the observations of the assessing officer to the effect that no one makes a loss in real estate business and that the market perceptions indicate that the prices of the immoveable properties are always on the upward trend. These observations have, inter alia, formed the basis of the additions made by the assessing officer. It was even suggested before us on behalf of the revenue that it is a "notorious practice" prevailing in real estate circles that in all property transactions there is non-disclosure of the Tull consideration. As pointed out earlier, this cannot per se constitute the basis of the addition, though we must hasten to add that it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the "notorious practice" prevailing in trade circles. It was observed as under: "Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf."

6.7 Thus, facts and circumstances of the cases relied upon by the assessee being distinguishable, the ratio of those decisions cannot be applied in the case of the assessee. In the facts of the case the preponderance of the probability suggests that raising of bogus bills by the subcontractors to the contactors and then routing back of the money in the form of the cash definitely must have been done on the direction of the assessee as assessee is the ultimate beneficiary by way of excess deduction of depreciation on the capital asset in the form of building.

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6.8 In view of the facts and circumstances discussed above, in principle we hold that the assessee is not entitled for the depreciation on the inflated portion of the cost of capital asset shown by the assessee as incurred through two contractors, namely, OSN and JDMS. 6.9 As far as the quantum of depreciation is concerned, we find that while computing the cumulative inflated expenses in the the case of JDMS, the learned CIT(A) has missed the undisclosed income of Rs.10 crore declared by the JDMS for financial year 2010-11 and the net capital work-in-progress has been shown that Rs.111,16,58,703/- instead of Rs.101,16,58,703/-. Similarly, in the case of OSN also the undisclosed income declared by the said party in respect of building constructed for the assessee has not taken into account for reducing the capital cost of the building. The AO was required to examine relevant bills of the two contractors, where the value of construction work has been inflated. As the quantum of depreciation to be disallowed on the account of inflation of capital asset of building has not been computed correctly by the lower authorities, we feel it appropriate to restore this issue of computation of disallowance of depreciation in the case of the assessee to the file of the Assessing Officer for deciding in view of our observation made above. It is needless to mention that assessee shall be afforded adequate opportunity of being heard. 6.9 The ground of the appeal of the Revenue is accordingly allowed party for statistical purposes.

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ITA Nos.545/Del/2016 & 193/Del/2017 Assessment years: 2013-14 & 2014-15

32 ITA Nos.6894/Del/2015; 545/Del/2016 &193/Del/2017

depreciation disallowed by the AO was deleted. The disallowance of depreciation in this year has been made by the AO by adopting the WDB as on 31.03.2012 as per his findings in the assessment order for AY 2012-13 which stands modified by my above order dated 07.10.2015, and therefore there is no case for disallowance on account of depreciation on the alleged excess capitalized assets. The addition of Rs. 1,89,47,963/- is therefore deleted.”

Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29th November, 2019. RK/-(D.T.D.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi