M/S. GL LITMUS EVENTS PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

Per Diem Paid : Rs.2,62,86,000/- No. of Foreign Expatriates : 198 foreigners No. of Day : 180 days Per diem per day per foreigner: Rs.2,62,86,000/(198*180) Rs.738 per day per foreigner. 87. The appellant paid Rs. 738/- per day to the single foreigner for daily allowance which was not shown to be unreasonable or excessive. However, the ld. AO has drawn a comparison with M/s Pico Deepali Overlays Consortium to allege that the expenditure in nature of per diem payment has not been incurred by such consortium. The Ld. AO has compared the appellant with M/s Pico Deepali Overlays Consortium without providing the relevant details of this party to the appellant. Admittedly, no opportunity was given to the appellant to examine/ cross-examine the relevant officials of M/s M/ Pico

Deepali Overlays Consortium to challenge the comparison drawn with M/s Pico Deepali Overlays Consortium. Ld AO should have at least compared the requirement of Foreign Technical experts of that company with the appellant. It is also a cardinal principle that any material used against the assessee, should be confronted to the assessee with reasonable opportunity of explaining it. This has not been done. Therefore, in view of overwhelming evidences produced by the assessee of presence of foreign expatriates, with their passport detail and expenses details coupled with the liability of assessee to bear it, it cannot be said that these expenses were not incurred wholly and exclusively for the purposes of the business of the assessee. In view of this, we direct the learned assessing officer to delete the disallowance of Rs. 21459000/– made because of part- diem payment made to the foreign expatriates. Accordingly, ground number 5 of the appeal of the assessee is allowed. 88. Ground number 6 of the appeal relates to the disallowance of the bogus purchases of INR 3 171400/–. The brief fact shows that the search u/s 132 was conducted in the case of appellant on 19.10.2010 and some bills amounting to Rs. 9,93,917/- of Nitin Enterprises and Rs. 5,87,058 of Garg Road Lines were seized. Assessee submitted that these bills were duly recorded in the books of account of the appellant and all the payments were made through account payee cheques. The invoices and the payment itself speak about the nature of expenditure incurred by the appellant, which is completely for the business purpose. However, the Ld. AO did not consider the above and alleged that out of the total bills seized during the search u/s 132 in the case of appellant, the bill amount in the original invoice no. 3112 and 3110 did not match with their photocopies and issued notice dated 29.09.2012 to the appellant to explain the same. The appellant, in response to above, asked the Ld. AO to provide copies of the seized documents or allow the appellant to conduct an inspection of seized documents. Thereafter, the Ld. AO, to verify the genuineness of transaction,

conducted survey u/s 133A in the case of Nitin Enterprises and Garg Road Lines. During the course of survey, statement of Sh. Nitin Bansal, Partner in Nitin Enterprises and Sh. Praveen Garg, Partner of Garg Road Lines were recorded and the purchases were treated as bogus. On the basis of statement recorded, the Ld. AO held that the bills raised by the Nitin Enterprises and Garg Road Lines cannot be accepted and issued the notice dated 13.12.2012 and 24.01.2014 to show cause why the expense should not be disallowed. The appellant vide reply dated 12.02.2014, 19.02.2014, 20.02.2014 and 26.02.2014 requested the Ld. AO to provide the alleged incriminating material relied upon by him and also allow an opportunity to cross examine the third party on the basis of whose statement the query is raised. Further, the appellant also submitted the ledger account of Nitin enterprise and Garg Road Lines, which provides the invoice wise details of all the purchases made and also the details of payment made by account payee cheque. As regards papers sized as “Page 55 to 58 of Annexure A-2 of Party BR – 2” the appellant in its written submission dated January 11, 2013 had submitted that there is no material on record of GLLE to enable it to comment on these documents. On the face of it, they appear to be invoices addressed on GLLE. They have not been received at GLLE‟s office and neither entered in GLLE‟s books of account. Accordingly, GLLE is not in a position to comment on the same. However, the Ld. AO passed draft assessment order by making addition of Rs. 79,93,917/- on account of bills issued by Nitin Enterprise and Rs. 5,87,058/- on account of bills issued by Garg Road Lines. The appellant raised an objection before the DRP against the DRAFT ASSESSMENT ORDER and furnished the submission in relation to Nitin Enterprise and Garg Road Lines respectively. In the submissions, the appellant submitted that the AO did not provide any incriminating material found during the search. The AO also did not provide the copies of statement of third party recorded by him and also did not provide an opportunity to cross-examine the third

party. The appellant placed reliance on several case laws to justify the same. The appellant also submitted the copies of ledger account, copies of bills and the bank statement. Further, the appellant in the submission also produced the fact that the notice was issued for the amount of Rs. 9,93,917/- in relation to bills issued by the Nitin Enterprises and the addition made was excess by Rs.70,00,000/- .The appellant also submitted that the addition was made for the amount of Rs. 79,93,917/- for the purchases made from Nitin Enterprise which far exceeds the total actual purchases amounting to Rs. 25,84,342/-.The appellant also submitted that if for the sake of argument it is presumed that the alleged statement made by M/s Nitin Enterprises is correct, still the proprietor of M/s Nitin Enterprises has at best stated that it issued bogus invoices to M/s Meroform India Pvt. Ltd. This statement cannot be interpreted to hold that bogus invoices were issued to the appellant. Further, the appellant in the submission furnished that the only basis for making the said addition is that purportedly the partner and manager of M/s Garg Road Lines had stated that they have not supplied any material to the Assessee. It is claimed that the said allegation is baseless, as all payments to M/s Garg Road Lines have been made against account payee cheques. The ld DRP considered the above submission of the appellant and directs the Ld. AO to verify the said transaction to ascertain the quantum of disallowance and allow consequential relief to the appellant, if any. Thereafter the appellant produced the original bills for verification before the Ld. AO. However, the Ld. AO did not rely upon the bills alleging that the appellant was involved in the practice of receiving bogus bills and made addition of Rs. 25,84,342/- and Rs. 5,87,058/- being the value of bogus purchases from Nitin Enterprises and Garg Road Lines respectively u/s 69C/37 of the Act.

placed on such statement. Hence, the addition made based on statement of the partner of Nitin Enterprises in the case of Meroform India Pvt Ltd was deleted. In that case The addition of purchases from Nitin Enterprises were made by considering the statement of Nitin Bansal recorded during the survey u/s 133A where it was stated that Nitin Enterprises has issued bogus bills to the assessee and supplies were not made in respect of such bills. In this, regards assessee submitted that M/s. Nitin Enterprises, has filed a suit for recovery of balance due to them because of purchases made by the appellant company with the Delhi High Court vide petition CS (OS) No. 2055 of 2011. The assessee was not provided an opportunity to cross-examine the third party based on whose statement the additions were made. All the documents such copy of bills, copy of ledger, payment details, legal notice for recovery of outstanding dues, suit filed before High Court and settlement deed between the assessee and High Court and the settlement order of High Court were submitted to the Tribunal. Relying on the aforesaid, the Delhi Tribunal held that :-

“25. After hearing the rival contentions and on perusal of the material referred to before us, we find that the main ground for making the addition by the Assessing Officer is that; during the course of survey made in the case of M/s. Nitin Enterprises was found to be engaged in providing bogus bills and one of its partner has given a statement that the assessee was also given the bogus bill and has received cheque from the assessee for the said bills in lieu of cash for the same amount returned back to the assessee. On the other hand, the assessee before the Assessing Officer has given various documents like; (i) copy of legal notice issued by M/s. Nitin Enterprises to the assessee for recovery of the dues relating to same

purchases made by the assessee; (ii) suit of recovery filed by M/s. Nitin Enterprises before the hon'ble Delhi High Court; (iii) copy of statement of account and reconciliation filed by M/s. Nitin Enterprises during the suit for recovery before the hon'ble High Court confirming the transaction of purchase and balance amount recoverable from the assessee; (iv) copy of ledger account and reconciliation of balance in the books of account of both the parties; and (v) settlement deed between the assessee and M/s. Nitin Enterprises whereby parties have settled the dues which got ratified by the settlement order of the hon'ble Delhi High Court. All these evidences have neither been rebutted nor has any adverse view been given by the Assessing Officer. Apart from that, there is a categorical finding that the statement of Shri Nitin Bansal recorded by the survey parties was behind the back of the assessee and the copy of the statement was neither provided nor was any opportunity given for cross examination. The assessee has made the payment to the party through banking channels and simply relying upon the statement of one of the partner that cash has been returned in lieu of cheque cannot be accepted without such a person being subjected to cross-examination. Even otherwise also such a statement itself loses its credibility and evidentiary value, when the firm itself has taken a legal action for recovery of same dues from the assessee on the purchases made for which it has issued the bills. Not only that, there has been amicable settlement of dues and payment has been made by the assessee to the said party. In the light of these evidences filed before the hon'ble High Court in the suit proceedings, the statement of the partner gets mitigated and no credence can be given to such a settlement. The detailed finding of the learned Commissioner of Income-

tax (Appeals) on this issue as incorporated above is not only based on the correct appreciation of facts but also in law, therefore, the said finding is affirmed and the addition made by the Assessing Officer on account of bogus purchase is deleted. In the result the issue of bogus purchases in all the assessment years from the said party stands decided in favour of the assessee and the grounds raised by the Revenue are dismissed.”

during the course of survey u/s 133A of the Act, in the case of Garg Road Lines. The Ld. AO stated that- “Sh. Praveen Garg stated that they have not supplied any diesel to the assessee. The manager in the firm stated that he has never heard the name of appellant. No invoices corresponding to any transaction with the appellant were recovered during the course of survey and no corresponding entries were found in the books of a/c of Garg Roadlines..” 95. On this account, the purchases made from Garg Road Lines were treated as bogus. The appellant on the above issue raised an objection before the DRP, however the same was rejected by the DRP. The Ld. AO did not considered the submission of the appellant and made addition of Rs. 5,87,058/- In regards to the above, it is submitted that during the course of survey u/s 133A in the case of Garg Road Lines, it was not found that the firm is involved in issuing bogus bills. The addition was made based on statement of partner/manager of the concern that he never heard the name of appellant, no entry found in the books of Garg Road Lines and diesels were not supplied to appellant. The bills issued by M/s Garg Road Lines were already seized during the search u/s 132 in the case of appellant and before the Ld. AO. Further, bill issued by Amritsar Transport which is in relation to transport of diesel tanker from address of Garg Road Lines to the appellant which was also seized during the search u/s 132 in the case of appellant. Thus, appellant made all the payments to Garg Road Lines through account payee cheque and the same has been debited from the account of the appellant before the date of search as evident from bank statements of the assessee. This very clearly shows that the transaction entered into by the appellant was on record. However, the Ld. AO without considering the above facts simply relied on the statement of Partner/ manager of the concern that they have not supplied diesel to the appellant and never heard the name of appellant. Even if for the sake of argument , it is presumed that the

alleged statement was made by Garg Road Lines, the statement could not be relied upon as it is completely against the transactions and evidences on record. The entry in the bank account of the appellant clearly states that the payment was debited and the same would have been credited in the bank account of the Garg Road Lines. Hence, denial of transaction by Garg Road Lines clearly shows that they have not shown the said transaction in their books. Further, the bill of Amritsar Transport also evident the delivery of diesel from the address of Garg Road Lines to the appellant, hence, statement by the partner of the Garg Road Lines that they have not supplied diesel could not be relied upon. Further, during the survey u/s 133A in the case of Garg Road Lines, the Ld. AO stated that No invoices corresponding to any transaction with the appellant were recovered during the course of survey and no corresponding entries were found in the books of a/c of Garg Roadlines.. It is clear from this that in spite of payment made to the Garg Road Lines as evident from the bank statement, no entry was found in the books of Garg Road Lines. This shows that Garg Road Lines had not shown the income from supply of the diesel in its books. No entry found in the books of the Garg Road Lines cannot be the basis for addition as the amount transferred from the bank account of the appellant to the Garg Road Lines was on record when Ld. AO conducted survey only based on material seized from assessee . He did not verify out whether the Garg Road Lines have shown the effect of the credit entries in its bank account, which related to the amount received from appellant. However, we are not concerned about the books of accounts and its veracity of Garg Roadlines. Further, it is also settled law that the initial onus is of the appellant to prove the transaction as genuine, which was duly discharged, by the appellant by producing the original bills and copy of ledger account and bank statement before the Ld. AO. After the appellant duly discharged its onus to prove the transaction as genuine, the onus shifts to the Ld. AO to disprove the appellant with due evidence and reasons.

However, in the instant case the Ld. AO did not provide any reason or any evidences and on complete surmise held that the bills produced by the appellant are bogus. Further, the learned assessing officer has not commented anything on the amount of purchases made by the assessee from the party existing at the same address with the Garg Road lines. The learned assessing officer also did not grant any opportunity of cross-examination of the partner of M/s Garg Road lines to the assessee. The facts in the present case are similar to the facts in case of M/s Nitin Enterprises . Therefore we direct the learned assessing officer to delete the disallowance of INR 5 87058/– because of purchases made from Garg Road lines treated by him as a bogus purchases. Accordingly, ground number 6 of the appeal of the assessee is allowed. 96. Ground number 7 of the appeal relates to the disallowance of INR 1 0315369 because of professional fees paid by the assessee. During the course of assessment, the Ld. AO vide para seven of notice dated 24.01.2014 asked the appellant to furnish the details of Administrative and other Expenses. In response to above, the appellant furnished reply on 12.02.2014 and furnished complete details of administrative expenses along with the copies of ledger. Further, the copies of bills in relation to these expenses were also presented. However, the Ld. AO did not consider the submission of the appellant and disallowed the professional fees in draft order stating that the appellant must have necessary in–house expertise to execute projects of such nature and magnitude and the external legal and professional services, if required at all, shall be only for limited and highly specialized services on a very small scale. The appellant being aggrieved by the DRAFT ASSESSMENT ORDER, raised an objection before the DRP. After considering the submission of the appellant, the DRP asked the Ld. AO to verify ascertain the quantum of disallowance and allow consequential relief to the appellant, if any. On direction from the DRP, the appellant present all the original bills before the Ld. AO. Subsequently, the Ld. AO

passed the assessment order and held that such bills produced by the appellant cannot be relied upon as the assessee company was involved in the practice of receiving bogus bills” and disallowed the sum of Rs. 1,03,15,369/- on account of professional fees u/s 37 of the Act. 97. The learned authorised representative submitted that assessee has paid the total legal and professional fees of INR 6 3282998/– out of which the learned assessing officer has allowed the expenditure of professional fees of Rs. 2852376/– as same has been paid to the auditors and authorised representative of the appellant before various government agencies. He submitted that the learned assessing officer has not given any reason but has merely disallowed the above sum on the conjectures and surmises surmise. He submitted that assessee has produced the original bills before the learned assessing officer, which contained the complete details of such expenditure. Even otherwise, he submitted that the disallowance of the professional fees paid to the various parties cannot be disallowed stating that company was involved in the practice of receiving bogus bills without verification of those bills and without pointing out any defect in those bills. He submitted that assessee has received the services from those professionals, which are not in dispute, and has not been challenged by the learned assessing officer. He further submitted that in the draft assessment order the learned assessing officer has disallowed the above sum holding that that the appellant must have necessary in- house expertise to executive projects of such nature and magnitude and the external legal and professional services shall be only for limited and highly specialized services on a very small scale. He submitted that the reasons for disallowance in the draft assessment order and the reasons for upholding the disallowance in the final assessment order are diametrically opposite. He further stated that the in the original invoice submitted by the professionals the complete details of the services provided by them are mentioned. He

also noted that the learned assessing officer without verification has disallowed the above sum and has not observed that such expenses are excessive or are paid to related parties. In view of this, he submitted that all these expenses have been incurred by the assessee for the purposes of the business and therefore they should be allowed. 98. The learned departmental representative vehemently supported the order of the learned assessing officer and stated that assessee is in the practice of receiving the bogus bills the learned assessing officer has correctly disallowed the above expenditure. 99. We have carefully considered the rival contention and perused the orders of the lower authorities. On appreciation of facts, it is found that appellant has incurred total legal and professional fees of Rs. 6,32,82,998/- which consists of the following.

i. Management fees : Rs 4,59,96,007/- ii. Professional fees : Rs.1,31,67,745/- iii. Reimbursement of Expenses : Rs.16,93,746/- iv. Auditors remuneration : Rs.24,25,500/- Total Rs.6,32,82,998/- 100. The ld AO out of Management fees of Rs.4,59,96,007/- and reimbursement of expenses Rs. 16,93,746/- are an international transaction and are dealt in the transfer pricing hence deleted. He allowed the amount of Rs. 28,52,376/- in draft assessment order being paid to the auditors and authorised representatives of the appellant before various Govt. agencies. The Ld. AO disallowed the sum of Rs. 1,03,15,369/- on account of bogus billing. The same was disallowed while disallowing whole of the expense and hence this has led to double disallowance. Further the professional fees of Rs. 28,52,376/- was allowed by the Ld. AO in draft assessment order holding that the same has been paid to the auditors and authorised representatives of the appellant before various Govt. agencies. The said expense has already been dealt by the Ld. AO separately in

para 16 of Draft order. The Ld. AO while disallowing the entire expenses in para 24 of the draft order ignored these expenses allowed by him on account of professional fees and disallowed the same while disallowing entire expenses on surmise and conjecture. This very clearly shows that the Ld. AO made assessment wholly based on surmise and suspicion. He did not consider while disallowing the entire expenses that the expense amounting to Rs. 28,52,376/- in relation to professional fees was already allowed by him and should be reduced from the amount of entire expenses. The balance of the Professional Fees of Rs. 1,27,40,869/- (i.e. after reducing the amount of Rs. 459,96,007/- plus 28,52,376/- plus 16,93,746/-) consist of Rs. 24,25,500/- as a part of auditor‟s remuneration and balance Rs. 1,03,15,369/- which was disallowed by the Ld. AO twice i.e. (i) Disallowed the professional fees separately and (ii) Disallowed whole of expenditure. Therefore, the disallowance of Rs. 1,03,15,369/- being double disallowance having been already included in the total expenditure disallowed shall have to be reduced in totaling the computation of income made by the Ld. AO. Even otherwise, The Ld. AO disallowed the expense in relation to professional fees by rejecting the original bills furnished before him alleging that the appellant was involved in receiving the bogus bills. The disallowance made by the Ld. AO on this ground was on complete surmise and suspicion. The appellant received professional services from various consultants and professional for preparation of agreement between G L Litmus Event Pvt Ltd and G L Event Services, handling income tax matters after search and seizure, legal advice, staff recruitment, service tax and sales tax registration and return matters, opinion on service tax, TDS, customs and VAT related matters, company registration and compliance matters and presentation before the court regarding legal matters. These services are in relation to legal and taxation matters of the appellant company. All the bills presented before the Ld. AO and copies of the ledger have proper description of services

rendered, which explains the professional services received by the appellant. The appellant provided the copies of ledger accounts in the books, bills, and bank statement to prove the genuineness of the transaction. However, the Ld. AO dismissed such bills furnished by the appellant on surmise, suspicion, and added the entire sum by disallowing the same without any enquiry or investigation. Further, the services were procured by the appellant form the renowned experts who are not related to the appellant and no any such information has been received by the Ld. AO that the vendors from whom professional services are received are engaged in raising any bogus bills. All the copies of agreement are at page 93-130 of the paper book VI and the copies of consortium agreement in paper book I, which were also before the Ld. AO are the evidence to those bills, which were raised by the professional for preparation of these agreements. The appellant during the year had legal advice in relation to the customs demand and sales tax demand raised by the department, which was also an evidence for those bills raised in these respects. Further, during the period, the search was conducted in the office of the appellant and therefore the appellant had taken legal advice from the professionals in relation to income tax matter held after the search proceedings and the bills are in relation to these matters. Hence, the professional expenses claimed by the appellant were supported with all the evidences and were before the Ld. AO. In the invoices and copy of Ledger account of Professional fees is enclosed at page 110-119 of the paper book VII wherein the purposes for which the professional services were received had been specified in the narration. From the above facts and submissions, which are not contradicted, appellant had duly discharged its onus to prove the genuineness of the transaction. All the details and documents in order to justify the said transaction were submitted before the Ld. AO. However, the Ld. AO ignoring all the details and documents on record and without providing any reason held that the bills are bogus as the appellant was involved in

receiving bogus bills, which was uncorroborated. Even otherwise, the Ld. AO made the addition of professional fees three times. Firstly, the professional fees of Rs. 1,03,15,369/- was disallowed while dealing with it separately under para 19(g) of the assessment order. Secondly, the professional fees of Rs. 1,03,15,369/- were again disallowed while disallowing entire expense in para 28 of the assessment order. Further, same amount of professional fees is also included in the addition made because of Bills seized, sundry creditors, and expense liability. Further, the expenses of Rs. 28,52,376/- allowed by the Ld. AO in para 16 of Draft order was also ignored by him while computing total income. In view of above facts, the disallowance of INR 1 0315369/– out of the professional fees cannot be withheld. Accordingly, we direct the learned AO to delete the above disallowance. Hence, ground number 7 of the appeal of the assessee is allowed. 101. Ground number 8 of appeal is against the excess of expenditure on travelling and conveyance of INR 53923603/– disallowed by the learned assessing officer. The appellant during the year incurred total travelling and conveyance expenditure of Rs. 6,94,29,185/-. During the course of assessment proceedings, the Ld. AO observed that the seized bills corresponding to the head travel and hotel accommodation amounts to Rs. 40,45,629/- and Rs. 56,94,721/- respectively and the said expenditure were related to air tickets and hotel stay of foreigners. He then compared the said expenditure with the other Overlays Contractor i.e. Pico Deepali Overlays Consortium whose expenditure was very low as compared to appellant. He, therefore, asked the appellant to show cause why the expenses in relation to Travel and hotel accommodation should not be disallowed. In response to above, the appellant reply in Para 3 of the submission dated 05.02.2014. In reply, the appellant requested to provide for the opportunity to cross examine the said person. The request for such cross-examination was also made vide several submissions furnished earlier. The appellant also furnished the

ledger of Travelling and Conveyance vide submission dated 12.02.2014. The Ld. AO however did not consider the request of the appellant and passed draft assessment order wherein the amount of expenditure incurred by M/s PDOC of Rs.32,62,098/- was allowed and the balance of Rs. 6,61,067,087/- was disallowed by the Ld. AO. Thereafter, the appellant raised an objection before the Ld. AO against the draft assessment order . The DRP considered the submission of the appellant and directed the Ld. AO to conduct verification and grant consequential relief to the appellant, if any. The appellant also produced original bills before the Ld. AO. However the Ld. AO did not rely upon the bills alleging that the appellant was involved in practice of receiving bogus bills and made addition of Rs. 5,39,23,603/- u/s 37 of the Act after reducing the amount related to transfer pricing. 102. Learned authorised representative referred to the nature of expenditure incurred such as conveyance, accommodation in hotels, flights, and travels. He further referred to the nature of each of the expenditure and stated that this expenditure has been incurred by the assessee for the purposes of the business. He submitted that the complete details of such expenses including the supporting vouchers et cetera were produced before the learned assessing officer. However, the learned assessing officer disallowed the above expenditure stating that the contractor has incurred the lesser expenditure, therefore certain expenditure incurred by the assessee is excessive in nature, and hence he disallowed the above sum. He submitted that no defects or infirmity is found in the details submitted by the assessee and therefore such disallowance cannot be made. 103. The learned departmental representative supported the order of the learned assessing officer and reiterated the findings. 104. We have carefully considered the rival contentions and perused the orders of the lower authorities. On careful analysis of the total expenditure e incurred by the appellant under this head , it is

apparent that assessee has incurred the expenditure on convenience, accommodation hotels, flights and to send travels as under as under

Particulars Total Amount Expenditure Balance under of Expenditure Considered on this head Transfer Pricing

Conveyance 8,44,340/- - 8,44,340/-

Accommodation 3,54,66,253/- - 3,54,66,253/- Hotels

Flights 1,28,97,471/- - 1,28,97,471/-

Tour & Travels 2,02,21,121/- 1,22,43,484/- 79,77,637/-

Total 6,94,29,185/- 1,22,43,484/- 5,71,85,701/-

their designation and passports number. These foreign expert staffs were engaged in construction and other activities of Common Wealth Programmes. Since, they were hired by the appellant, all the expense in relation to flight, hotel accommodation and tours and travels of the foreign staffs were incurred by the appellant. Agreement also provides that these expenditures be required to be incurred by the appellant. All these expense are said to be incurred for business purpose. Looking at the nature of various expenses, Conveyance expenses are nominal and the same are being incurred for the business purpose. These are the expenses incurred by the employees working in the appellant company and are reimbursed by the appellant company to the employees and therefore are incurred for the purpose of business. Therefore, the disallowance cannot be made in this regards. With respect to hotel charges, appellant hired various foreign experts for the construction and maintenance of site where the common wealth programme was held and dismantling the same after the programme. Since the foreign staffs were hired by the appellant and as per the agreement, it was the due responsibility of appellant to provide them a place to stay. Therefore, the appellant took various residential building/ apartments on rent for the residence of foreign staff. The original bills were duly presented before the Ld. AO. The amount for the accommodation was also paid through account payee cheques. The flight expenses are the expenditure incurred by the appellant for booking flight of the foreign expatriates through its travel agent M/s Sharda Travels. These expenses are duly supported with bills received from M/s Sharda Travels and payment was made through account payee cheque. These bills are the valid proof in respect of foreigners hired by the appellant. The bills of M/s Sharda Travels amounting to Rs.20,35,302/- were also seized during search which were accepted by the Ld. AO and the party was not found to be bogus. The Tour and Travel Expense include the expenditure incurred for the renewal of Visa/Passport of the foreign staffs, pick up, and drop facility at

airport, their tour to Agra, and other places etc. All these expenses are incurred in cash. Now, dealing with the submission, it is submitted that the Ld. AO during the assessment proceedings asked the appellant to explain the transaction amounting to Rs. 97,40,350/- based on bills seized. The Ld. AO made comparison between the expenditure incurred by the appellant under the head Travel and Transport & Hotel Accommodation” with other overlay suppliers and held that the expenditure incurred by other overlays were much less than that of appellant. In this regards the appellant asked the Ld. AO to provide the details of the Overlays Suppliers and the detail of the purported similar transaction for cross examination. However Ld. AO did not provide opportunity to cross examine the third party and comparing the said expenditure with the expenditure incurred by PDOC made addition of Rs. 5,39,23,603/- .Further, the appellant also submitted that the show cause notice was issued only for the amount of Rs. 97,40,350/- but the addition was made for Rs. 5,39,23,603/- which is again in violation of principle of natural justice. All the expenditure incurred by the appellant was duly supported with the agreements, list of foreigners along with the copies of passports and passports no., original bills, payment details and the copies of ledgers along with the narrations. This shows that the appellant had maintained proper documentation and record of all the transaction and produced before the A.O. to prove the genuineness of the transaction. The Ld. AO did not find any reason to reject the claim of the appellant and therefore without applying his mind disallowed the said expenses simply alleging that the appellant is engaged in receiving the bogus bills. The action of the Ld. AO was purely on surmises and conjectures. Even otherwise expenditure incurred by M/s Pico Deepali Overlays Consortium is less than the appellant still such alleged factum cannot form the basis for disallowing expenditure incurred by the appellant under Section 37 of the Act. No adverse inference can be drawn simply because some other party has

allegedly incurred expenditure less than the appellant has. The appellant, by no stretch of reasoning, can be required to follow on identical business models to that of M/s Pico Depali Overlays Consortium, and the failure to do so cannot be a consideration for disregarding the appellant‟s expenditure. Even otherwise, none of the expenditures has been incurred on the related parties or for non business purposes. On identical reasoning, we already deleted disallowance of expenditure on per diem expenditure. Accordingly we direct the learned assessing officer to delete the disallowance of INR 5 3923603/– because of travelling and convince expenditure incurred by the assessee. Accordingly, ground number 8 of the appeal of the assessee is allowed. 106. Ground number 9 of the appeal of the assessee is with respect to the disallowance of Rs. 49008835/– made to related party payments, which the learned assessing officer has treated as bogus expenditure. During the course of assessment proceeding, the Ld. AO asked the appellant to furnish the details of transaction with its sister concern i.e. M/s Meroform India Pvt Ltd and M/s Litmus Designs Pvt Ltd. The appellant furnished the details of transaction with M/s Meroform India Pvt Ltd along with copy of ledger account and copies of bills vide submission dated 20.02.2014. The appellant the details of transaction with M/s Litmus Designs Pvt Ltd along with copy of ledger account and copies of bills vide submission dated 26.02.2014. However, the Ld. AO ignoring the above details and documents submitted by the appellant held in DRAFT ASSESSMENT ORDER that “Complete books of a/c and supporting documents in respect of M/s Meroform India Pvt Ltd and M/s Litmus Designs has not been supplied.” He further held that notice u/s 131(1) was issued to the directors of the appellant company as well as directors of sister concern but no one appeared till the date of hearing. Therefore, the Ld. AO disallowed the transaction done with the related parties. Thereafter the appellant raised an objection before the DRP against the Draft Assessment Order Passed by the

Ld. AO. The appellant furnished all the copies of ledger and bill, which were duly furnished before the AO and furnished the copies of the replies of the directors to whom notices u/s 131, was served. However, the DRP did not consider the reply of the appellant and placed reliance on the Ld. AO‟s finding. The Ld. DRP declined to interfere with the finding of the Ld. AO. Thereafter, the appellant produced original bills before the Ld. AO. However, the Ld. AO did not rely on the bills and held that the appellant was involved in practice of receiving bogus bills. He, therefore, made addition of Rs. 4,90,08,835/- on account for bogus related party transaction u/s 40(2)(b)/37 of the Act. 107. The learned authorised representative referred to the various expenditure incurred by the assessee and payment made to the related parties. He submitted that 1 of the party was assessed by the same was assessing officer is that of the appellant and such income was already offered by that party in its return of income and has paid tax due thereon. According to him the recipient of the income has duly suffered tax in the hands of the recipient at the same rate and therefore disallowance under section 40A (2) cannot be made. He further stated that no comparable cases is brought on record by the learned assessing officer and therefore the disallowance cannot be made he referred to the several judicial precedent on the issue. He further stated that there is no evasion of tax at the appellant company as well as the recipient company are paying taxes on the same date. He further stated that the learned assessing officer rejected merely on the suspicion and therefore the disallowance cannot be made. 108. The learned departmental representative vehemently supported the order of the learned assessing officer and stated that when the payments have been made to the related party it is the onus of the assessee to show that these are not excessive and unreasonable. He therefore submitted that the disallowance made by the learned assessing officer is in order.

Nature of Transaction Amount of Expenditure 6,15,93,044/- Rental 50,00,000/- Purchases of Goods 50,00,000/- Other Services Availed 1,23,20,033/- Reimbursement of Expense 8,39,13,077/- Total

rate of taxes . To disallow a sum, which has been paid to a sister concern for the goods & services procured and reimbursement of expenses without proving that the expenses incurred are, excessive is incorrect. Admittedly, the AO has not doubted the genuineness of the payments involved. He has invoked the provisions of section 40A(2) holding that the bill produced cannot be relied upon as the assessee company was involved in the practice of receiving bogus bills. The AO has however, not brought on record any basis or comparable cases to prove that the payments made by appellant company to its sister concern is in excess of the fair market value of the services rendered but has proceeded purely on assumptions. Such an action on the part of the AO is unsustainable in the eyes of law. Honourable Delhi High court in CIT Vs. Modi Revlon (Pvt.) Ltd. (2012) 78 DTR 342 (Delhi) has held that in order to determine whether the payment is not sustainable, the AO has to first return a finding that the payment made is excessive, under Section 40-A (2) of the Income Tax Act. If it is found to be so, then the AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is claimed and what is such value determined (as fair market value). Apart from the fact that no such exercise was undertaken by the AO, the Court sees that the assessment order went off into a tangent, in following a method that was clearly inapplicable. We do not see any reason to multiply other judicial pronouncements on this issue. In the instant case, since both the appellant company as well as Meroform India Pvt Ltd are assessed to income tax by same assessing officer and the total amount received from the appellant was duly offered to tax by M/s Meroform India Pvt Ltd, it cannot be said that the amount was paid by the appellant at an unreasonable rate to evade income tax. Finance Act, 1968, Circular No. 6-P dated 6.7.1968 makes clear that the provisions under Section 40A (2) are meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a

manner that will cause hardship in bonafide cases. Where there is no evasion of tax by the assessee, no disallowance can be made u/s 40A(2). Honourable Gujarat High court in CIT Vs. Gujarat Gas Financial Services Ltd. (2015) 233 taxman 532 (Guj) has that

“13. As has been found by us in the preceding para of this judgment that the respondent company as well as the parent company, both are assessed to income tax at the maximum marginal rate and, therefore it cannot be said that the service charge is paid to the respondent company at a unreasonable rate to evade income tax. Even the learned Counsel Mr. Bhatt for the revenue does not dispute this fact.

finds it that one of them is trying to evade payment of tax.

Considering the overall facts of the case and the ratio laid down by the Hon‟ble Apex Court, we are of the opinion that the appeals are meritless and the same deserve to be dismissed and accordingly dismissed” 112. In the present case the ld AO has failed to bring on record any evidence or cite any comparable cases to prove that the payment made by the appellant company to its sister concerns for the aforesaid services was excessive or not at arm‟s length. The AO has merely resorted to and suspicions in making the impugned disallowance u/s 40A(2). All the original bills, ledger accounts, and bank statement were already on record before the A.O. The transaction was also assessed in the case of Meroform India Pvt Ltd where the receipts from appellant were duly accepted and offered to total income by the Meroform India Pvt Ltd. Therefore, the action of the AO in resorting merely to suspicion instead of proceeding with material on record and tangible evidence is bad in law and deserves to be quashed. In light of the judicial pronouncements cited supra, it is apparent that in the instant case, the appellant has duly explained the nature of services rendered by Meroform India Private Limited against which the impugned payments of services charges were made by the appellant company. Further, the appellant and Meroform India Pvt Ltd, being assessed with the same A.O., the revenue authorities duly accepted the services rendered and the amount received by the Meroform India Pvt Ltd. The appellant has clearly established the nexus between the services charges and the purpose of the business and the same should have been allowed by the A.O unless the A.O proves by bringing on record comparable cases that the same is not at arm‟s length or in excess of the fair

market value of such services. The A.O has failed to bring on record any such comparable case to prove that the amount paid by the appellant company is unreasonable having regard to the fair market value of the services or facilities for which the payment is made or the legitimate needs of the business of the assessee or the benefits derived by the appellant. Further, the appellant has paid Rs. 1,23,20,033/- for the reimbursement of the salaries of the staff paid by M/s Meroform India Pvt Ltd on behalf of the appellant. The reimbursement were made at cost to cost basis without any mark up, therefore, reimbursement of actual expenditure to the sister concern cannot be disallowed u/s 40A(2).Therefore, the disallowance made by the A.O u/s 40A(2) is deleted. 113. The appellant paid the amount of Rs. 26,55,954/- to M/s Litmus designs Pvt Ltd for purchases of consumables. During the course of search u/s 132 in the case of appellant, the bills of purchase valuing Rs. 15,57,987/- was seized which was accepted u/s 292C of the Act by the AO. The appellant furnished original bills, copies of ledger account and the bank statement before the Ld. AO to prove the genuineness of the transaction. However, the Ld. AO made addition of Rs. 15,57,987/- alleging that bills could not be relied upon as the appellant was engaged in the practice of receiving bogus bills. In regards to above, he reason provided by the Ld. AO is not acceptable for making addition u/s 40A(2)(b). The Ld. AO is required to provide the comparable cases that the same is not at arm‟s length or in excess of the fair market value of such services, which was not done. Further, the addition made by the Ld. AO of Rs. 15,57,987/- against the bill seized instead of paid amount of Rs. 26,55,954/- shows the non-application of mind by the AO. The Ld. AO did not verify the amount of actual payment of Rs. 26,55,954/-, the details of which were already on record before the Ld. AO. He was only concerned with the bill seized value of Rs. 15,57,987/-. This very clearly shows that the A.O. did not proceed in accordance with law. Accordingly, for the reasons provided in deleting the disallowance

in case of Meroform P Ltd, we also direct the ld AO to delete the above disallowance. Accordingly ground no 9 of the appeal is allowed. 114. Ground no 10 of appeal is against the addition of Rs 1,22,696/- . During the search u/s 132 of the Act in the case of appellant, the cashbook of the appellant company was seized by the Income Tax Authorities. In the seized cash book, the Ld. AO observed that on certain dates the cash balance in the books is negative as under :

a) 9th April 2010 : Rs.15,000/- b) 18th May 2010 : Rs.2,767/- c) 8th Oct 2010 : Rs.1,04,929/-

“The reply of the assessee cannot be accepted as there is no room for justification and reason of errors in the books of accounts of a Multinational Company like M/s G.L. Litmus. In addition, if such excuse and reason of any assessee on any issue may be accepted than in Page | 131

case of every anomaly or the afterthought presentation of the documents or the information by any person before any statutory authority shall be pardonable and no fact will remain wrong on the face of it. Also there is no section in the I.T. Act, 1961 which allows to provide relief to the assessee on the basis of presume mistake or error which is only revealed after questioning the authenticity of the same by the revenue. Hence, Rs.1,22,696/- is being added to the total income of the assessee for the year under consideration u/s 69C being unexplained expenditure.”

a) 9th April 2010 : Rs.15,000/-

The error was that the actual date of transaction was 10th April 2010 but it was wrongly recorded in books as 9th April 2010. The company had no cash in hand at the beginning of the year. The amount of Rs.50,000/- was withdrawn on 10th April 2010 out

of which the sum of Rs. 15,000/- was paid. However, it was only due to the wrong entry of date that the cash balance became negative.

b) 18th May 2010: Rs.2,767/-

Some of the entries in the cashbook were recorded by the accountant which were not known to him. The same was identified while finalising the books and found that such entries had no relation with the appellant company. Thus those entries were duly removed from the final cash book.

c) 8th Oct 2010 : Rs.1,04,929/-

provides for the entries dated 08.10.2010 of the seized cash book. The accountant recorded the entries of Rs.10,00,000/- and Rs.19,78,000/- as per diem allowances which clearly shows that the entries were made by the accountant on bulk at rough estimation.

Later while finalising the books, the entries were duly recorded as daily allowances paid individually stating the name of foreigners along with the period and no. of days for which the payment was made in the narration (Refer page 396 -399 of P/b VII). While doing so, the difference that might have arisen due to these was duly rectified. This was also nothing but the clerical error.

Hence, the reasons for negative cash balance were only due to the aforesaid inadvertent clerical error made while accounting for the same which got rectified at the time of finalization.

From the above, it is clear that the appellant did not make any fresh entries in the cash book. The entries in the cash book were only rectified at the time of finalization of accounts as per the clerical errors identified by the auditors and on their instructions.

Further, para 9(c) of the Form 3CD enclosed at page 111 – 132 of paperbookII and Exhibit 1 enclosed at page 123 of P/b II clearly states that the cash book was examined by the auditors during the course of audit.

As per the audited financials, the cash balance recorded in the books of accounts was of Rs.1,44,075/- which is in accordance with the cash book submitted at page 301 to 474 paperbookVII. The appellant also submitted the same cash book during the course of assessment proceedings.

Further, it is also submitted that search was conducted at the mid of the year on 19.10.2010. The cash book was seized on the date of search and the negative cash balance due to clerical error showing

negative cash balance of Rs.1,22,696/- was also the part of seized cash book. Hence, the negative cash balance found in the seized cash book could not be the basis for addition as the accounts of the appellant company were incomplete on the date of search and the audit was pending which was to be done only after the end of the financial year.

Hence, the addition made by the Ld. AO on these grounds could not be accepted as appellant company had duly corrected all the clerical errors as per the identification and instruction by the auditors during the course of audit.

Therefore, it is humbly prayed before your honours to delete the addition of Rs.1,22,696/- on account of negative cash balance made u/s 69C of the Act.

S. Party Items of Purchase Amount(Rs.) No.

1 Daksh Automation Fire Detection Alarms 57,25,400/-

2 JCB India Ltd JCB Machine 20,35,463/- purchase

3 DD Motor Gypsy Purchase 17,00,946/-

4 AJS Scale Intl Traffic Cones 13,87,969/-

5 Golden Furnishers & Furniture purchase 12,30,087/- Decorators

6 Haby Engineering Furniture 10,71,491/-

7 Nizammudin Furnitures Furniture 3,90,094/-

8 Associated Business Printers 3,32,325/- Computers

9 Gemini Hydraulics Dynamometer 2,80,445/-

10 SAB Computech Computers 1,96,875/-

11 Kamal Construction Mobile Phones 1,42,450/-

12 Speed 4 Prefab Chemical Toilet 71,45,415/- Blocks

Sl Party Items of Amount Treatment in books of Purchase (Rs.) accounts

1 Daksh Fire 57,25,400/ These fire alarms were Automation Detection - deployed at various Alarms project sites of Common Wealth Games. These alarms are generally not re-usable and have a very low re-sale value. Therefore as per the method of accounting followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure.

2 JCB India Ltd JCB 20,35,463/ Capitalized and shown Machine - under the head “fixed purchase assets”

3 DD Motor Gypsy 17,00,946/ Revenue expense under Purchase - the head “consumable

vehicles”. These Gypsy were purchased exclusively for the purpose of Common Wealth Games. From day one they were intended to be sold once the games were over. Therefore, as per the method of accounting followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure.

4 AJS Scale Intl Traffic 13,87,969/ Revenue expense under Cones - the head operating expense. These cones are generally no re-usable and have a very low resale value. Therefore as per the method of accounting followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure.

5 Golden Furniture 12,30,087/ Revenue expense under Furnishers & purchase - the head operating

Decorators expense. These cones are generally no re-usable and have a very low resale value. Therefore as per the method of accounting followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure.

6 Haby Furniture 10,71,491/ Revenue expense under Engineering - the head operating expense. These cones are generally no re-usable and have a very low resale value. Therefore as per the method of accounting followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure.

7 Nizammudin Furniture 3,90,094/- Revenue expense under Furnitures the head operating expense. These cones are generally no re-usable and have a very low resale value. Therefore as per the method of accounting

followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure.

8 Associated Printers 3,32,325/- Capitalized and shown Business under the head “fixed Computers assets”

9 Gemini Dynamomet 2,80,445/- Revenue expense under Hydraulics er the head operating expense. These cones are generally no re-usable and have a very low resale value. Therefore as per the method of accounting followed by the Company, the purchase cost was claimed as expenditure and scrap value was reduced from the amount of expenditure.

10 SAB Computers 1,96,875/- The nature of asset was Computech not “Computers” instead the same was in the nature of “Delink CAT 6” being a computer part. Accordingly the same has been shown under the head “Overheads - Repairs And

Maintenance”

11 Kamal Mobile 1,42,450/- Capitalized and shown Construction Phones under the head “fixed assets”

12 Speed 4 Chemical 71,45,415/ Chemical toilet blocks Prefab Toilet - were not assets owned by Blocks GLLE, instead the same were rented by GLE from the party.

companies and cannot be reused. Therefore, these type of expenses forms part of direct expenses. He stated that the appellant being event management company had acquired furniture & fixtures like sofa sets, chairs and table frames in large numbers. Many of these furniture and fixtures were damaged during the period of games. Further the appellant also did not have any godown or place to store all these furniture and fixture. This furniture and fixtures were only acquired for the purpose of CWG. After the end of CWG, there was no use of such large no of furniture to the appellant. Therefore, the appellant sold these items of purchase as lump sum scrap. He further stated that Since, it was not possible for the appellant to divide the scrap sale value into the furniture & fixtures, electrical equipments and other scrap items, the appellant treated all this items as part of consumable claimed as direct expenses. He stated that in the event not management companies, all the items, and equipments purchased for use in the event can form part of fixed assets. For example, if 1000 sofa/chair is purchased in event and only 800 are used in the event and 200 are left to be utilized, then how this will be taken as fixed asset in the books and how the depreciation will be claimed. Therefore, this will form part of stock and not the part of capital asset. He stated that the above has been duly explained via example of construction companies. In construction, companies, all the material, and equipments forms part of consumables and stock in trade. Only those machineries which are purchased and used in construction activities and are reusable in further other construction projects forms part of fixed assets. Likewise, in the event management companies also material and equipments are recorded as consumable. If any number of items left unused then it forms part of stock in trade and not fixed assets. He submitted that asset which is used internally and on which the depreciation is claimed has to be capitalized. The aforesaid consumable neither was used by the appellant company internally for the operation of the company nor was depreciation claimed. They

were used temporarily in the common wealth games and were sold as scrap on lump sum after the games. He further stated that after the end of Common Wealth Games, 2010, while dismantling the site, all the electrical equipments and furniture and fixtures that were duly fixed at the site remained as scrap to the appellant. These consumables were not further reusable by the appellant. However, if any of these items were to be reused then appellant would be required to pay huge amount for the repairs and maintenance of these consumables. Further, the appellant would also require paying high rent on godown to store these items. Therefore, the appellant instead of reusing these scrap consumables sold it and the scrap sale was duly accounted in the books of the company. The appellant sold all the consumables used in the Common Wealth Games, 2010 as a scrap at the total value of Rs. 3,27,49,252/- and accounted the same in the books. He also explained that, the above scrap sale also consists of the sale of Gypsy at value of Rs.14,22,223/-. (Copy of sale ledger enclosed at Page 322 of P/b VIII. The cost price of the Gypsy was Rs.17,00,946/-. This was taken as consumables by the appellant because the gypsy was purchased only for the purpose of Common Wealth Games and was sold after the games were over. Had it been taken as the assets then also the impact on the net profit would be same. Ultimately, the appellant company had no vehicles at the end of the year. He also gave explanation to those items

S. Party Items of Amount Treatment in Books of No. Purchase (Rs.) Accounts

1 Daksh Fire Detection 57,25,400/- This expense are Automation Alarms related to fire alarms, heat detector, hooter, smoke detector etc. These devices were

deployed at various project sites of CWG. These types of devices are not re-usable. After dismantling the site of CWG, these devices were only scrap to the company which had no resale value and are not reusable. The appellant sold this as a part of scrap. Therefore, these are recorded as capital expenditure.

2 DD Motor Gypsy 17,00,946/- The Gypsy was sold Purchase and the sale details enclosed at Page 322 of P/b VIII. Since, these was purchased for very short period and was used only for Common wealth Games and thereafter it was sold, it was treated as consumables and not asset. The ultimate impact is same in books and had no

effect in the profit of the appellant company.

3 AJS Scale Traffic Cones 13,87,969/- These are recorded Intl under the head consumables. The appellant sold all these traffic barriers as scrap and therefore these were recorded as revenue expenditure.

4 Golden Furniture 12,30,087/- These furnitures were Furnishers purchase of no use to the & appellant and sold as Decorators lump sum scrap. Hence, the purchase value taken as consumables

5 Haby Furniture 10,71,491/- These furnitures were Engineering of no use to the appellant and sold as lump sum scrap. Hence, the purchase value taken as consumables

6 Nizammudin Furniture 3,90,094/- These furnitures were Furnitures of no use to the appellant and sold as lump sum scrap. Hence, the purchase value taken as consumables

7 Gemini Dynamometer 2,80,445/- These expense are Hydraulics capitalised in books under the head electrical equipment. Later when these all equipments were of no use to the appellant and sold as lump sum scrap, these assets were transferred to profit and loss account as consumables.

the respective rates. Merely because of the reason that assessee has sold these items as a scrap does not make them revenue expenditure. Whenever there is a sale of a capital item as a scrap on its discard, the same is required to be credited to the block of the assets and therefore at that particular time the assessee would ground would be granted the necessary deduction of the capital loss if any in accordance with the provisions of the law. Only because of the reason that assessee has sold scrap of these items after the completion of the events does not make them revenue expenditure in nature. Accordingly, ground number 11 of the appeal of the assessee is partly allowed. 128. Ground number 12 of the appeal is with respect to the disallowance of INR 1 22626/– on payment of services of security guard. The brief facts of the issue shows that Ld. AO in para 15 of the show cause notice dated 13.12.2012 alleged that the appellant made payments to M/s New Standard Security Services on account of security deposit and asked the assessee to explain the same. In response to the said notice, the appellant submitted that the payment was made to the said party for the security guard service provided by the said party and not the security deposit. However, the Ld. AO did not consider the reply of the assessee and repeatedly held that the payment was in the nature of security deposit and was refundable and therefore the same cannot be in the nature of revenue expenditure. Therefore the Ld. AO made addition of Rs.1,22,626/- to the total income of the appellant u/s 37 of the Act. On objection , The DRP directed the Ld. AO to verify the genuineness of the aforesaid expenditure and allow the relief to the appellant. However, the ignoring the direction of the DRP, the Ld. AO disallowed the expenditure of Rs.1,22,626/- considering it as security deposit in the assessment order. 129. The learned authorised representative reiterated the submission made before the learned assessing officer and stated that when the security service charges paid by the assessee to various security

guards have been added by the learned assessing officer holding that this is a security deposit which is totally incorrect. 130. The learned departmental representative vehemently supported the order of the learned assessing officer. 131. We have carefully considered the rival contention and perused the orders of the lower authorities. The fact shows that appellant has received security service amounting to Rs. 1,22,626/- from M/s New Standard Security Services. Assessee also submitted Copy of invoice along with the register of security guard which is placed at page 476-479 of paper bookVII. In the invoice, it was clearly mentioned that the security service was being provided for CWG, 2010 and 461 staffs were on duty for 12 hours at the rate of Rs. 266 per 12 hours of which the total amounts to Rs. 1,22,626/-. Further, the invoice of New Standard Security Services was also a part of bills seized during the course of search and the payment was made through account payee Cheque. The Ld. AO has incorrectly considered that expenditure was a security deposit is completely based on surmise and suspicion. The invoice of security service provides complete details of what kind of service was taken and for what purpose it was taken. Further, the Ld. AO also did not provide any evidence for treating this expenditure as security deposit, however, all the details and documents available with the appellant truly justify that the payment was made for security services provided at CWG, 2010 which are genuinely for the purpose of business. In view of this we direct the learned assessing officer to delete the disallowance of INR 1 22626/– on account of security deposit which is in fact the payment for security charges. Accordingly ground number 12 of the appeal is allowed. 132. Ground number 13 of the appeal is with respect to the addition of INR 1547141/– towards the value of the closing stock. The Ld. AO during the course of assessment proceeding, asked the appellant to furnish supporting evidence in relation to closing stock of Rs.15,47,141/- standing in the books of accounts. In response, the

appellant submitted the details of closing stock containing the name of item, unit, quantity, rate, and value. The Ld. AO considered the reply of the appellant and passed DAO. However, the Ld. AO held that – “the appellant could not produce the original invoices and confirmations and could not establish the genuineness of transaction and authenticity and relation of such expenses therein with the business of the assessee.” Therefore, the Ld. AO added the closing stock of Rs. 15,47,141/- to the total income of the appellant. On objection before the DRP and furnished submission in the Ld. AO was directed to verify the said transaction. Subsequently, the Ld. AO passed assessment order, held that the submission of the appellant was not sufficient to establish the genuineness of the closing stock, and therefore disallowed Rs. 15, 47, 141/- u/s 68 of the Act. 133. The ld AR submitted that closing stock is not an item for consideration u/s 68 of the Act. He further submitted that in the case of appellant, closing stock relates to those purchases of material lying in stock of the company for which the payment is made or to be made. Hence, the Ld. AO has erred in invoking the provision of section 68 of the Act on account of closing stock of Rs. 15,47,141/-. He submitted that the appellant during the year had closing stock of Rs. 15,47,141/- details of which is enclosed at page 480 of the P/b VII. The appellant has shown the closing stock as an item of Balance Sheet as well as P/L Account. It is evident from the profit and loss statement of the appellant enclosed at page 72 of the paper bookII that the closing stock of Rs. 15,47,141/- has duly been credited to Profit and Loss account which has increased the net profit of the appellant. The closing stock has already been added by the appellant to the total income in the profit and loss statement. Hence, the addition made by the Ld. AO to the total income will lead to the double addition. He further stated that appellant had duly sold all the closing stock in the Financial Year 2011-12 and thereafter no closing stock was lying with the appellant. This also

shows that the closing stock lying with the appellant was genuine because if there would not have been closing stock then the question of sale would not arise. He therefore submitted that In light of the aforesaid submission it is requested to delete the addition made on account of stock of Rs. 15,47,141/-. 134. The learned departmental representative vehemently supported the order of the learned assessing officer. 135. We have carefully considered the rival contention and find that the assessee has shown the closing stock of INR 1 547141/– which has been added by the learned assessing officer u/s 68 of the income tax act. The assessee has also shown that the above stock is already credited to the profit and loss account and therefore it is already gone to swell the profits of the assessee for the year. The assessee has also submitted the details of the closing stock stating the items, quantity, rate, and amount of the closing stock and despite the above information available with the assessing officer he made the addition u/s 68 of the income tax act. We do not find any reason to sustain the above addition for the reason that , 1st of all it is a double addition and 2nd it cannot be added when the assessee has given a complete details of the quantity and the items along with the rates and the amount of the closing stock carried forward to the next year, the stock has also been sold by the assessee in next year and receipt of such sale has already been disclosed in the subsequent year. In view of this ground number 13 of the appeal of the assessee is allowed. 136. Ground number 14 of the appeal is with respect to the addition of Rs. 115875146/– towards the advances recoverable. The learned assessing officer during the course of assessment proceedings of the appellant to furnish the supporting evidence in relation to the current assets and loans and advances of INR 1044924844/– outstanding in the books of accounts. The assessee submitted the complete details of the all the current assets and loans and advances along with the copies of the Ledger in the books of

accounts of the assessee. However the learned assessing officer made the addition is appellant could not produce the original invoices and confirmation and could not establish the genuineness of the transaction and authenticity in relation of such expenses therein with the business of the assessee and therefore he made an addition of INR 1 049224844/-. Assessee raised objection before the learned dispute resolution panel wherein the AO was directed to verify the said transaction and grant relief to the appellant in accordance with the genuineness of the transaction. Consequent to that the learned assessing officer made an addition of Rs. 115875146 with relation to duties and taxes paid to the government. 137. The learned authorised representative submitted a complete chart of the item of dispute, which is custom duty recoverable, assignment credit of service tax, commercial tax refund, advances to employees and sundry debtors of INR 400,000. He therefore submitted that the advances recoverable are nothing but the refund due from the government of India which has been added by the learned assessing officer to the total income of the assessee. He submitted that when the refund is shown as a loans and advances the credit effect of the above sum has already gone to the profit and loss account and therefore it amounts to double addition and in any way the above addition cannot be made. 138. The learned departmental representative relied upon the order of the learned assessing officer. 139. We have carefully considered the rival contentions and found that the learned assessing officer has made an addition of Rs. 115875146/–. The above sum included custom duty refundable of INR 7 0341631/– which was paid by the assessee to the government of India. Further sum of assignment credit refund of INR 2 4448598/– was with respect to the Senate credit on service tax. Further sum of INR 2 0675000/– was commercial taxes paid by the assessee under protest to U P since tax authorities. Rs. 9917/– was in advance to an employee for the expenses incurred by her for

the business of the assessee company. Since the advances were not utilized it was outstanding as in advance. Further sum of INR 4,000,000/- is outstanding receivable on sale of motorcar which was sold as scrap. As the motor car has been held to be capital expenditure by us in earlier ground of appeal therefore the above amount has already gone to the credit of the block of the asset of the motor car. In view of this we find that the learned assessing officer has wrongly made an addition to the total income of the assessee of the above sum. In view of this ground, number 14 of the appeal of the assessee is allowed and AO is directed to delete disallowance of Rs. 115875146/– towards the advance recoverable. 140. Ground number 15 of the appeal is with respect to the addition of INR 4 6578484/– being the sundry creditors and INR 6 9813499/– being the value of the balance sheet item of the other liabilities to the total income of the assessee. During the course of assessment proceedings, the learned assessing officer asked the assessee to provide the details of all the current liabilities and provisions relating to outstanding in the balance sheet. In response to that the appellant submitted the complete details of the sundry creditors and other liabilities along with the name and address of the person/vendor and amount. The learned assessing officer rejected the contention of the assessee and stated that appellant could not produce the original invoices and confirmation and could not establish the genuineness of the transaction and authenticity in relation of such expenses and liabilities wherein the business of the assessee, he made the addition of INR 898684373/– to the total income of the appellant. Subsequently the objections were filed before the learned dispute resolution panel and DRP directed the learned assessing officer to verify the said transaction and grant relief to the appellant if required. The learned DRP also directed the AO to reduce the amount of creditors by the amount covered in transfer pricing addition made by the learned transfer pricing officer. Subsequent to that the learned assessing officer again made the

addition stating that the assessee has failed to provide any confirmation in relation to the liabilities and rejected the contention of the appellant and made the addition of sundry creditors and current liabilities reducing the same by the additions already made with respect to the related party transaction and transfer pricing adjustment. 141. The learned authorised representative submitted a note with respect to the disallowance/addition made by the assessee with respect to the sundry creditors of INR 4 6578484/– and other expenses liabilities of INR 6 9813499/– as under:- i. Sundry Creditors: Rs.4,65,78,484/-:

The appellant during the A.Y 2011-12 purchased various consumables, imported various equipments from abroad, received various services such as job work services, professional service, travelling, site preparation, fixed assets on hire etc for organising the CWG, 2010. The creditors outstanding in the books of the appellant are part of these purchases and services procured.

In order to prove the genuineness of the transaction, the appellant had submitted list of all the creditors along with their address and amount involved before the Ld. AO (copy enclosed at page 492-494 of the paperbookVII). Further, the copies of ledger accounts and the entire bill in relation to those creditors were also furnished before the Ld. AO. The ledger account of the creditors also shows that all the payments were made through account payee cheque and the bank statement was before the Ld. AO. The ledger account, copies of bills and address of the creditors were enough to prove that the transactions were

genuine. Hence, the appellant has duly discharged the onus to prove the genuineness of the transactions.

It is settled law that once the assessee discharges its onus to prove the genuineness of transaction, the onus shifts to the Ld. AO to disprove the assessee. Therefore, it was the responsibility of the Ld. AO to disprove the appellant after the submission of all the relevant documents in relation to its claim. However, the Ld. AO without providing any reason or findings in relation to such creditors made addition of the sundry creditors only because the appellant could not produce the confirmation, which cannot be the only basis to reject the details and documents submitted by the appellant.

Further the details of creditors is enclosed at page 325-327 of the P/b VIII showing total billed amount, payment made, discount received, TDS deducted and amount outstanding as on 31.03.2011. The copies of the ledger accounts and the original bills already furnished before the Ld. AO. Hence, this clearly shows that the said creditors are genuine.

Further, when all the expenses are already disallowed by the Ld. AO in para 28 of the assessment order then the question of disallowing the sundry creditors does not arise. Therefore, the addition made because of sundry creditors has lead to disallowance of expenses twice i.e. one by way of disallowing expenses and second by adding sundry creditors. This clearly shows that the addition was made by the Ld. AO on surmises and conjectures.

In light of the aforesaid submission, it is humbly prayed before your good self to delete the addition made on account of Sundry Creditors of Rs.4,65,78,484/-.

ii. Other Expense Liabilities: Rs.6,98,13,499/-

i. Other Expense Liabilities Comprises of the following:

Conveyance Payable: Rs.1,625/- Salary Payable: Rs. 2,48,000/- Telephone Expense Payable: Rs. 1,285/- Audit fees Payable: Rs. 15,40,500/- Custom Charges & Duties Payable: Rs. 21,09,651/- Freight & Cartage Payable: Rs. 6,59,12,438/- Total Rs.6,98,13,499/-

ii. From the above list of other current liabilities, it is apparent that the expense payable comprises of the items for which expense was claimed in the P/L Account. Expense payable is neither an item of income and nor there exist any cash outflow in relation to these payable. These expenses were outstanding in books only when the expenses accrued and were booked during the year.

iii. The Ld. AO made addition of Rs.6,98,13,499/- on account of other expense liabilities u/s 37/69C alleging that the confirmation letter in relation to these had not been filed by the appellant.

iv. In this regard, it is submitted that no any bills or confirmation was available for conveyance payable, salaries payable and telephone expense payable. These are the expense payable to the office employees in relation to work done by them in the company. Further, Salaries for the month of March 2011 stands payable as on 31.03.2011 on which TDS has also been deducted.

v. Further, Audit fees Payable relates to the audit fees charged by the auditors for the purpose of statutory audit, tax audit and transfer pricing report. The said expenses were accepted as genuine by the Ld. AO in DAO (refer para 16 of page 47-48 of paper book IV). Hence, the addition of the amount payable to auditor‟s shows that the Ld. AO had not applied his mind and on surmise and suspicion added the same.

vi. Further the Custom Charges & Duties Payable and Freight & Cartage Payable relates to those expenses, which are paid by the Schenker India Pvt Ltd on behalf of appellant on import and export of equipments leased from France for the Common Wealth Games, 2010. Import and Export had taken place in accordance with the provision of Customs Act and some copies of custom documents has been enclosed at page 261-267 of the P/b VI which proves the genuineness of the import and export of the equipments. Therefore the expenses in relation to Customs and Freight payable are genuine and duly supported with proper bills and supporting details, which were duly furnished before the Ld. AO.

vii. Further, the original bills in relation to the previously mentioned liabilities and copies of the ledger account were already furnished before the Ld. AO, which ascertains the genuineness of the transaction. Hence, the onus to prove the expense liability as genuine was duly discharged by the appellant. In addition, thereafter, as per law the onus was on the Ld. AO to disprove the claim of appellant. However, the Ld. AO instead of providing the valid reason for rejection of appellant claim only held that the confirmation was not submitted by the appellant and therefore the claim could not be accepted. This clearly shows that the Ld. AO had no valid reasons to reject the claim of the appellant.

viii. The original bills produced before the Ld. AO and the ledger account and the bank statement were sufficient to establish whether the transactions are genuine or not. The Ld. AO however did not verify any bill or ledger or payment entries, which were made through account payee cheque.

ix. Further, when all the expenses are already disallowed by the Ld. AO in para 28 of the assessment order then the question of disallowing the sundry creditors does not arise. Therefore, the addition made because of sundry creditors has leaded to disallowance of expenses twice i.e. one by way of disallowing expenses and second by adding expense liability. This clearly shows that the addition was made by the Ld. AO on surmises and conjectures.

the addition in the hands of the assessee cannot be sustained. Accordingly, we direct the learned AO to delete the disallowance of INR 46578484/– with respect to sundry creditors and INR 69813499/– towards the other expenses outstanding as liabilities. Accordingly ground number 15 of the appeal of the assessee is allowed 144. Ground number 16 relates to the disallowance of statutory liabilities of INR 155310286/–. During the course of assessment proceedings the learned assessing officer asked the assessee to provide the details of the all the current liabilities and provisions along with supporting evidences. In response to this, the appellant submitted the details of sundry creditors and other liabilities along with the name and address of the persons/vendor et cetera. The learned assessing officer disallowed the above sum stating that appellant could not produce the original invoices and confirmation and could not establish the genuineness of the transaction and authenticity and relationship of such expenses and liabilities with the business of the assessee and therefore he made an addition of INR 8 98684373/– to the total income of the assessee. Further, on objection before the learned dispute resolution panel the learned DRP directed the learned AO to verify the said transaction and grant relief to the appellant if required. However on verification the learned assessing officer made an addition of INR 1 55310286/– which is VAT and CST payable of INR 1 794448/–, service tax payable of INR 9 7626284/– and tedious payable of INR 5 5889554/–. 145. The learned authorised representative submitted that above are the statutory liabilities which comprises of taxes which are to be payable to the tax Department. He submitted that VAT and CST stands payable as per the appellant on the sale of the scrap during the year. He further stated that the service tax is also payable because of payment from the said contractors. He further stated that the tax deduction at source is payable on TDS deducted from various

payments made by the assessee. He further referred that certain amount of tax deduction at source is on salaries and payment made to contractors et cetera he further stated that the above amount of statutory liabilities are neither the part of income nor the part of expenses. Therefore the provisions of section 37/69C of the income tax applied by the learned assessing officer is not correct. 146. The learned departmental representative vehemently supported the order of the learned assessing officer and stated that even if the result the statutory liabilities comprising of the tax payable to the tax department the same is only allowable with respect to the payment of such sum before the due date of filing of the return of the assessee. 147. We have carefully considered the rival contention and perused the orders of the lower authorities. We do not find any reason to sustain the disallowance u/s 37/69C of the income tax act with respect to the tax deduction at source payable of INR 5 5889554/–. The above amount is the amount of tax deducted by the assessee on various payments of the salaries, interest, payment to contractors and rent to various service providers. This amount has not been claimed by the assessee as deduction from the total income. Therefore the learned assessing officer is directed to delete the disallowance of INR 5 5889554/– to the total income of the assessee. 148. With respect to the service tax payable of INR 97626284/– and VAT and CST payable of INR 1794448/–, the learned assessing officer has incorrectly made the above addition under section 37/69C of the income tax act. These are the statutory liabilities covered under section 43B of the income tax act. The above provisions of section 43B of the income tax act apply to every assessee irrespective of the method of accounting employed by them. If those sums have been paid by the assessee before the due date of the filing of the return of income for the impugned assessment year, both these sums are required to be granted as deduction to the assessee. Even otherwise, the above addition cannot be sustained u/s 37/69C of

the income tax act. Therefore, the above ground of appeal is sent back to the file of the learned assessing officer with a direction to grant deduction of tax deduction at payable of Rs. 55889554/– and to verify the provisions of section 43B with respect to VAT and CST as well as service tax payable, if assessee has claimed the deduction thereof. Accordingly, ground number 16 of the appeal of the assessee is allowed with above directions. 149. Ground number 17 of the appeal is with respect to the addition of unsecured loan of INR 1 0510000/– made by the learned assessing officer. During the course of assessment proceedings, the learned assessing officer asked the appellant to provide the details of advances received during the year along with the name, address and permanent account number and assessment particulars of the concerned parties. The assessee submitted above reply as per the letter dated 2/1/2013. On receipt of the reply of the assessee, the learned AO further made certain enquiries about the genuineness of the transaction from the assessee. The assessee also replied to the above query on 20/2/2014 submitting the bank statement of the company as well as the further detail of the depositors. However, the learned assessing officer in the draft assessment order made the addition of the above sum. The assessee challenged the same before the learned dispute resolution panel, which directed the learned assessing officer to verify the above transaction and grant relief to the appellant if required. However subsequently the learned assessing officer made an addition of INR 10510000 u/s 68 of the income tax act of unsecured loan of the assessee. 150. The ld AR submitted that appellant has taken on loan during the year of INR 2 700000/– from Mr. Beenu Nanu, who is a director of the company, and INR 7 100000/– from Merofrom from India private limited, and INR 700,000 from Sebastian brunette, who is also the director of the company. He submitted that assessee has submitted the confirmation, name, address, permanent account number, purposes for which the loan was taken and bank statement of the

appellant company. He submitted that the director of the company and the private limited company from whom the loans are taken are also assessed with the same assessing officer. The assessee submitted the copies of the bank account of the lenders and income tax return filed by them. Further, in response to summons u/s 131 of the income tax act all of them confirmed the above loan transactions. Thus, he submitted that assessee has discharged initial onus cast upon him as per provisions of section 68 of the income tax act. He submitted that assessee could not have produced more details than this. He therefore submitted that addition u/s 68 of the income tax act made by the learned assessing officer deserves to be deleted. 151. Learned departmental representative supported the order of the learned AO and dispute resolution panel. 152. We have carefully considered the rival contentions and perused the orders of the lower authorities. The appellant company had no outstanding unsecured loans in the books of accounts during the year. The loan was taken from the following parties which were duly repaid during the year:

Binu Nanu (Director) : Rs.27,00,000/- (Assessed by same AO) Cash Loan from directors : Rs.10,000/- (Assessed by same AO) Merofrom India Pvt Ltd : Rs.71,00,000/- (Assessed by same AO) Sebastian Brunet (Director) : Rs.7,00,000- 153. In the instant case, the appellant received the sum of Rs.10,000/- during the A.Y.2010-11. Applying the ratio of the above decision to the facts of the case, it is clear that the Ld. AO could not have added the amount of Rs.10,000/- under the provisions of section 68 of the Income Tax Act, 1961 in the present year since the said amount was received in earlier years. The balance of Rs.1,05,00,000/-received

during the year could have been a subject matter of examination by the Ld. AO for the purpose of section 68 of the Act in the current year. For this appellant had submitted the name, address PAN and purpose for which the loan was taken. The bank statement of the appellant company was also submitted to show that transaction has been taken place through account payee cheques only. Since the Loan was taken from the directors and the shareholders who as well were assessee‟s before the same AO and were regularly co-operating with the Income Tax Authorities during the course of Assessment, the identity, of the parties cannot be questioned. Further ld AO Para 24(y) of the assessment order held that “All these loans are duly verifiable from the bank account of the assessee company”. The above comment of the Ld. AO shows that the transaction on account of unsecured loan was duly verified. However, the reason for addition was only that the appellant failed to file any confirmation letter. Mr. Binu Nanu and Mr. Sebastian Brunet had submitted a reply to the notice of summon u/s 131 of the Act. i. Mr. Binu Nanu submitted that :- “It is respectfully submitted that during the F.Y. relevant to A.Y. 2011-2012, I gave an interest free short term loan of Rs.27,00,000/- on 22.05.2010 to M/s G L Litmus Events Private Limited. The said loan was duly repaid by M/s G L Litmus Events Private Limited to me on 12.06.2010. This transaction related to short term loan and its repayment is duly recorded in my bank account statement, a copy whereof is enclosed herewith as Annexure-2.” He submitted Copy of PAN Card, ITR Acknowledgement and Bank Statement also. ii. In reply to notice u/s 131, Mrs. Sebastian Brunet stated the following: “I gave an interest free short term loan of INR 7,00,000/- on May 25,2010 vide cheque No.107440 drawn on HSBC Bank to M/s G L Litmus Events Private Limited. The said loan was duly

repaid by M/s G L Litmus events Private Limited to me on May 25, 2010 vide Cheque No.657687 drawn on HSBC Bank”. The above statement u/s 131(1) is a confirmation of loan only. Repayment of the same was the confirmation letter as required by the Ld. AO . iii. In the case of Meroform India Pvt Ltd, appellant submitted the copy of Ledger Account of “G L Litmus Events Pvt Ltd” in the books of Meroform India Pvt Ltd. The Ledger account of Meroform India Pvt Ltd in the books of appellant was also submitted. This very clearly shows that the loan of Rs.71,00,000/- was taken from Meroform India Pvt Ltd. These duly act as confirmation of the Loan. Further, copy of ITR Acknowledgement , PAN card and bank statement of Meroform India Pvt Ltd was submitted.

shows that The ld. A.O. at para 26, pages 58-72 (at pages 58-59 and at page 72)of his Assessment Order, relied upon certain pages marked as pages 1-4 of Annexure 3 which was found and seized from the residential premises of Shr Binu Nanu at F-18, Sector 40, Noida. It was also stated by the A.O. that the same pages were also maintained in the Hard Disk marked as Annexure A-4 (Party –BR-3) again at the residence premises of Sh. Binu Nanu. Based on these documents, the Ld. A.O. alleged that the said pages contained comparison of the prices at which various items (listed in those particular seized pages) were procured from the vendors for the purpose of overlays contracts with the prices at which the same were supplied to the OC, CWG. The ld. A.O. then further proceeded to check accuracy of the said details as found in the said seized pages was confirmed by tallying the same with the actual bills seized from the premises of the appellant on a test check basis. He thus listed a few items whose cost prices (as noted in the seized papers) corresponded with the seized papers:

S.No. Particulars of Items Supplier‟s Name

margin of Rs. 30,32,55,951 (At G.P.of 68%) and added u/s 69A of the Act, the said margin to the total income of the Appellant Company as the unexplained money not recorded in the books of accounts for the said A.Y.2011-12. : Sr No Particulars Amount In Rs 1 Total Supply value to OC, CWG of Rs.45,06,67,706/- the items mentioned in the seized pages 2 Total Purchase cost of the items Rs. 14,78,75,689/- mentioned in the seized Pages (at the rates mentioned in the said seized papers) 3 Margin added u/s 69A of the Act Rs. 30,32,55,951/-

“The next issue is in respect of additions of Rs. 30,32,55,951/- and Rs. 34,10,40,959/- on account of exorbitant profit margin. The actual cost of the goods and services found mentioned in the seized documents vis-à-vis rate quoted to OC/DDA do reveal the rate of margin of profit. The assessee was not doing business wherein normal profit is earned. Actually, it is collusive loot of our Exchequer.

These seized materials are simple illustration of the profiteering of the assessee.

The average rate of profit disclosed in the seized material mentioned at page 10 to 32 of the draft assessment order may be applied on the entire contract value of Rs.156.73 crores with the OC and Rs.54.00 crores with DDA.

The assessee‟s income has to be worked out both on accrual and investment-expenditure basis and the higher of the two

has to be considered to avoid double taxation as the income earned from the business has been appropriated / manifested either for depositing in bank accounts / acquiring assets and or for incurring expenditure.

Therefore, the telescopic benefit of income earned in this AY has to be given in respect of investment / expenditure / outgoings made subsequent to that.

However, in the interest of justice, we hereby direct the AO to carry out the verification work for ascertaining the true facts.

However, the above additions have to be made on protective basis also. In case, the assessee‟s income on the basis of outgoings / expenditure / investments is more than that on accrual basis by applying the profit margin appearing in the above mentioned seized documents; is found more, then the assessment has to be completed on the basis of outgoings / expenditure / investments on accrual basis. It is hereby clarified that the set off of outgoings / expenditure / investments has to be subsequent to the receipt of income as it cannot precedes to that. Accordingly, grounds of objection A-5 and A-6 are disposed of.”

1000 items of different characteristics, which were procured in one cluster. The learned assessing officer has relied upon randomly seized pages found at the residence of the director which contained only 66 items, out of which the learned AO compared the prices of only 8 items and based on those items he has made the addition of such a huge magnitude stating that assessee has higher gross profit. He further submitted that all the gross receipts received from the Commonwealth games organizing committee have duly been recorded in the profit and loss account as income according to the method of accounting employed by the assessee. Thus when the total sale consideration which according to the assessing officer 68% higher than the actual cost which is already recorded in the credit side of the profit and loss account, there is no requirement of making any addition in the addition to the total income of the assessee as the gross receipts alleged by the learned assessing officer has already been shown in the profit and loss. He therefore stated that that addition is not sustainable on this ground only. He further stated that the learned AO as compared the prices of the material however he has ignored completely the transportation costs, staff cost, other variable costs, overheads and several other costs which are required to be incurred to put the material in that particular place to make it usable for the Commonwealth games . He further stated that in several items the rates quoted to the organizing committee are less than the rates at which the material is available from the outside parties and therefore it is not prove that there is such a huge margin. He further referred to the agreement executed on 2/6/2010 between the consortium and organizing committee, which stated that the assessee has to maintain and operate the above infrastructure from 10th September up to 15/10/2010 and to remove it by 30/11/2010. He further referred to the scope of the work wherein the most of the supply and installation on rent of various type of temporary structures were to be erected he therefore submitted that that the above contract was

not given to the assessee for the purchase of material but to organize an event in which the assessee and consortium members have experience therefore looking to the contract and its nature it is unfair to compare the prices of the individual items and then to make an addition in the hands of the assessee. He further referred to the schedule of other operating expenditure which is of INR 1 416922016/–, he therefore stated that the above cost is required to be added to the material price shown on those when the prices which has been ignored by the learned assessing officer. He therefore submitted that the above addition is not sustainable on the facts and circumstances of the case. 160. The learned departmental representative vehemently supported the order of the learned assessing officer and the learned dispute resolution panel and submitted that there is a huge margin between the prices quoted by the vendor and the prices at which the material has been supplied by the assessee to the organizing committee and therefore the learned assessing officer has made the addition u/s 69A of the income tax act. 161. We have carefully considered the rival contention and perused the orders of the lower authorities. Apparently, in this case certain documents were seized during the course of search, which shows that the price of the material at which the assessee has supplied to the organizing committee and the prices at which it is available from the vendor have vast difference. Seized material contained the list of 66 items. From the bills, the AO compared such prices of 8 items. He found that there is a difference between the price quoted by the vendor and the prices at which the material was to be supplied by the assessee to the organizing committee. He further found that the margin is approximately 68 percentages. Therefore based on the seized documents the learned assessing officer made an addition of INR 3 03255951/– under section 69A of the income tax act which was upheld by the learned dispute resolution panel. Coming to the 1st argument of the learned authorised representative , it is apparent

that the claim of the learned AO is that assessee has sold goods at high prices whereas it has procured goods from the vendor‟s at a very less price and thus there is a huge margin between the price at which the material is sold and the price at which the material is purchased by the assessee, which resulted into the gross profit ratio of 65 percentage. Be that it may be, on simple analysis of the above statement it is apparent that assessee has shown the sale price which is 68% higher than the cost of material booked by the assessee. Thus, the sale price shown by the assessee is higher than the purchase price shown by the assessee in the books of accounts. It is not the case of the AO that assessee has shown receipts even rupee less than what has been paid by the organizing committee. The learned assessing officer could not dispute and find out that the purchase price is booked by the assessee are not correct. The AO also did not dispute that there is other overheads, which has been incurred by the assessee. Therefore, whatever profit has been earned by the assessee would automatically come into the profit and loss account of the assessee on the credit side as there is no understatement of sale price. Now the learned assessing officer should have looked into the debit side of the profit and loss account and ascertained that though the price of the material purchased by the assessee is only 32% of the sale price whereas the profit was gone. If he cannot find that the other items of the purchases by the assessee and the other expenses incurred by the assessee are not inflated by producing the cogent reasons and evidences, the above analysis made by the learned assessing officer is fruitless.. We are not here to decide the assessee has cheated the organizing committee or not, we are here to decide that assessee has maintained the books of accounts, which are duly supported with the relevant evidences and the profit disclosed by the assessee after investigation by the learned assessing officer can be disturbed or not. In the whole assessment order, the learned assessing officer has not carried out any investigation to show that the expenditure

booked by the assessee is bogus and therefore the assessee has earned higher profit but it has disclosed lesser profit. Such suppression of profit should have been investigated by the learned assessing officer instead of that he merely relied upon the report of other committees, and other organizations are investigative agencies et cetera. Merely on these bases, such addition cannot be made. Even otherwise, the learned assessing officer did not even care to look at the number of items that has been used by the assessee for the purpose of performance of the contract, which is stated to be more than 1000. Out of this, he could find the price comparison of only 66 items. Out of the 66 items, he compared only 8 items. Thus out of the 1000 items he found the difference in only 8 items which is less than even 1% of the total inventory purchased by the assessee. Further the learned AR has also shown the instances where the rates of vendor were higher than the rates at which assessee supplied the material to the organizing committee. These instances were not at all controverted by the learned authorised departmental representative, AO and the learned dispute resolution panel. Such instances quoted by the learned authorised representative are as under :- „Without prejudice to the above, analyzing the action of the A.O. a bit further, it is seen that the ld. A.O. providing the alleged list of 66 different items in relation to which it is alleged that the margins were very high, has however himself admitted that out of these 66 items, allegedly the actual purchase price (being only the direct procurement cost) of only 8 items tallied with the target purchase price stated in the table.

Here it is relevant to point out that in the seized pages, the first item being “7.01 Wooden Structure” was recorded at an alleged cost price of Rs. 3500 per unit. Now when compared to the Bills as raised by the Appellant, it is seen that the bill

raised is of rs.2100/- only. The analysis of the bill will reveal that the unit price is very different (lower) and also that the bill clearly lays out that the amount was for only the direct material cost and not for the entire cost relating to the wooden platform.

The next item in the seized list is “Chair Sofa” 3 seater and 2 seater. The alleged cost price recorded therein is at Rs.7550 and 5950/-. Now comparing again eith the Purchase Order of the Appellant Company it is seen that the prices recorded threein are of rs.14,250/-and 15,300/- for 3 setaer and Rs.10,200 for 2 seater. Thus here the price recorded is higher.

Thus from the above it stands to be clearly the case of the Appellant that the seized material cannot in any way be relied upon and used in computing the G.P rate which the Appellant Company might have earned.

Thus it is submitted before your Honours that the factual finding of the A.O. that “In the said pages, a comparison has been drawn of the process at which various items were procured from vendors for the purpose of overlays contracts, and the prices at which they have been supplied to the OC, CWG” is totally incorrect.” 162. Thus it is not the case of the revenue that there are no such instances at which the rates quoted by the vendor are higher than the rates at which the material supplied by the assessee to the organizing committee. Further it is apparent that assessee has the contract in the form of turnkey agreement to executive and complete the work of these clusters from 15/10/2010 and remove it by 30/11/2010. The terms and conditions of the contract were not for supply of any material but design services. The contract also

included all the cost on the account of the assessee.. Such cost include all labour, material, plant and equipment necessary to carry out the above and any other work that may be required to ensure successful functioning of the entire overlays contract. Thus the nature of contract was a turnkey basis contract the rates given in the schedule of rates shall include all cost expenses charges and inputs. Therefore making the addition merely based on comparison of the prices at material is purchased the addition cannot be made in the hands of the assessee. Undoubtedly the assessee incurred the huge cost of INR 1416922016 towards the freight pecking forwarding, manpower, consumable job work charges site preparation expenses and hire charges et cetera. Thus merely looking at the price of the material the addition cannot be made in the hands of the assessee. Even otherwise the learned assessing officer has invoked the provisions of section 69A of the act which can only be invoked in those cases where the money in question is not recorded in the books of accounts of the taxpayer. In the present case the assessee has moved the total sale consideration, the total purchase cost on by the assessee and therefore there is nothing which is excluded. Hence, the provisions of section 69A of the act cannot be applied. In view of this we direct the learned assessing officer to delete the addition of INR 3 03255951/– being the difference between the purported target cost and the consideration to be received from the organizing committee by the assessee under section 69A of the act. Accordingly, ground number 18 of the appeal of the assessee is allowed. 163. Ground number 19 of the appeal is with respect to the addition of INR 34,10,40,959/– made by the learned assessing officer being the alleged difference between the price quoted by the appellant to organizing committee in comparison to the price allegedly quoted by other vendors. The brief facts of the addition shows that as per the para number 27 of the order of the learned assessing officer he noted that there is an allegation that for several items different rates

charged by the organizing committee from different contractors resulting in undue and selective favoritism, a comparative study of the rates quoted by the 4 vendor is executing the contract was made. Based on this, the learned assessing officer listed the comparative prices of 4 contractors and held the minimum of each to be the benchmark. He therefore calculated on selective basis on certain items where the appellant company charged above the minimum as determined by him and therefore he found that there is a difference of INR 341040959/– to be the extra profit that it has earned on the supply of the material to the organizing committee with this contract. The learned assessing officer referred to the findings of Shunglu committee regarding the fact that the organizing committee had paid differential rates to different contractors for the same items and the allegation that the paying of the higher rates for same items resulted in huge loss to the exchequer which stood vindicated by the computation of INR 3 41040959/– and he made the addition u/s 69C of the above sum being unexplained expenditure. The assessee challenged the same before the learned dispute resolution panel by filing an objection. 164. The learned dispute resolution panel dealt with the above objection at para number 15 of its direction as under:- “The next issue is in respect of additions of Rs.30,32,55,951/- and Rs.34,10,40,959/- on account of exorbitant profit margin. The actual cost of the goods and services found mentioned in the seized documents vis-à-vis rate quoted to OC/DDA do reveal the rate of margin of profit. The assessee was not doing business wherein normal profit is earned. Actually, it is collusive loot of our Exchequer. These seized materials are simple illustration of the profiteering of the assessee.

The average rate of profit disclosed in the seized material mentioned at page 10 to 32 of the draft assessment order may be applied on the entire contract value of Rs.156.73 crores with the OC and Rs.54.00 crores with DDA. The assessee‟s income has to be worked out both on accrual and investment-expenditure basis and the higher of the two has to be considered to avoid double taxation as the income earned from the business has been appropriated / manifested either for depositing in bank accounts / acquiring assets and or for incurring expenditure. Therefore, the telescopic benefit of income earned in this AY has to be given in respect of investment / expenditure / outgoings made subsequent to that. However, in the interest of justice, we hereby direct the AO to carry out the verification work for ascertaining the true facts. However, the above additions have to be made on protective basis also. In case, the assessee‟s income on the basis of outgoings / expenditure / investments is more than that on accrual basis by applying the profit margin appearing in the above mentioned seized documents; is found more, then the assessment has to be completed on the basis of outgoings / expenditure / investments on accrual basis. It is hereby clarified that the set off of outgoings / expenditure / investments has to be subsequent to the receipt of income as it cannot precedes to that. Accordingly, grounds of objection A-5 and A-6 are disposed of.”

The learned assessing officer thus made the above addition.

booked it. When the assessee has fully booked revenue, there is no reason to make a further addition in the hands of the assessee unless the assessing officer finds that the prices charged by the vendors to the appellant ( which is a cost to the appellant ) are on the higher side. Here the issue is altogether a reverse. The Appellant‟s Contract with OC was not for sale of goods but for performance of services. The Assessee has duly shared particulars of services provided by it under the contracts relating to Commonwealth Games. The Appellant has duly provided particulars of the services provided under the contract, including the supply cost in relation to all the items involved in the execution of OC Contract. In such a case picking up random items of cost without any justification and verification and comparing, the same with again random prices is without any basis and not based on facts and proper appreciation of the entire structure of the Contract and its accounting procedure. Whenever a project like Commonwealth games involving thousands of items is executed what is important is the overall consideration received and the overall cost. The profitability of a project involving thousands of different items cannot be determined based on cherry picking of the alleged margins earned in relation to few items based on some adhoc comparisons. The Ld. AO has only carried out selective comparison but has cherry picked only those items where the price quoted by the Assessee was more in comparison to the price allegedly quoted by the other vendors. However, the Ld. AO has ignored the items where the price quoted by the Assessee was less in comparison to the price quoted by the other vendors. This cherry picking is the basis for Ld. AO‟s allegation that the Assessee has earned exorbitant margins and that the Assessee has caused huge loss to the exchequer. Therefore, these factual findings of the Ld. AO regarding exorbitant margins earned by Assessee and that the Assessee has caused loss to exchequer cannot be the basis for making the above addition u/s 69C of the Act. On a bare perusal of Section 69C of the

Act, it would show that the condition precedent to the application of provisions of Section 69C of the Act is that the assessee should have incurred „any expenditure‟. In the instant case, the Assessee has executed projects related to Commonwealth Games. The allegation of the Ld. AO is that the Assessee has charged more consideration for these projects in comparison to other vendors. Even if it is presumed that, the allegation of the Ld. AO is correct, still charging of higher consideration is undoubtedly an item of income for the Assessee, which has been duly recorded in the books of accounts of the Assessee as per the Method of Accounting and not an expenditure incurred by the Assessee. Therefore, the condition precedent to the application of provisions of Section 69C of the Act is not fulfilled in the instant case. In view of the above action of the ld AO in making the addition of Rs 30,1040,959/- invoking the provisions of Section 69C of the Act is not sustainable. Thus, we direct the ld AO to delete the same. Ground no 19 of the appeal is allowed. 168. Ground no 20 of the appeal is against the disallowance of total expenditure incurred by the assessee of Rs. 129,27,50,026/- . In this issue the ld AO has disallowed the total expenditure incurred by the assessee despite making individual disallowances of all the expenses. As such therefore, it is double disallowance made by the ld AO. During the Course of assessment proceedings, the Ld. AO vide para 7 of the notice dated 24.01.2014 asked the appellant to provide the details of whole of the expenditure incurred by the appellant along with the copies of bills, vouchers and also the relation of such expenses directly or indirectly with the business activity of the appellant company for the relevant A.Y. The Ld. AO asked the appellant to show cause why the expenditure should not be disallowed. In response to the above, the appellant furnished reply on 12.02.2014 submitted details including name and address of the person/vendor, mode of payment, nature of work/service/material supplied, bill no. and its date etc in relation to whole of the expenditure. The appellant also produced the bills in

relation to all the expenditure. However, the Ld. AO did not consider the submission of the appellant and passed Draft Assessment Order on 27.03.2014 making addition of whole of the expenditure of Rs. 165,12,50,026/-. Reason for making above disallowance by the ld AO is that the appellant had not submitted original invoices and other supporting evidences as requisitioned earlier on various dates as discussed above, but photocopy which has been submitted by them during the course of hearings. The ld AO held that this shows that the assessment proceedings which started on 17.09.2012 and continued through the year 2013 and year 2014 the assessee did not have any original invoices. Thos further shows that the copies of the bills and invoices of claimed expenditure under various heads by the assessee for the A.Y. 2011-12 are sham expenses as already proved in the earlier para of this order. It was submitted that seized documents shows those originals with Income Tax Department. Thereafter, after few months original invoices of value, less then Rs.1 Lakh were returned to the company while all the invoices of value , Rs.1 Lakh and above (in original) were retained by the Income Tax Authorities . Further, the Ld. AO also alleged that assessee was given repeated opportunities but assessee failed. Thus it resulted in addition/ disallowance in draft assessment order. Assessee filed objections before ld DRP. the ld DRP held the following:

“Here, in the present case, definitely 100% expenses cannot be held bogus. Definitely, no business can be done without incurring any expenditure. Therefore, we do not find merit in disallowance of entire expense. Definitely, in view of the above- mentioned facts, at least the sum of Rs. 35.85 crores paid to the OC and DDA have been recouped through the bogus billing in the books of accounts. Besides, other specific disallowances based on facts have to be made separately on protective basis to the extent of bogus expenditure of Rs. 35.85 crores and

disallowance based on facts over and above of Rs. 35.85 crores on substantive basis to avoid double taxation.”

iv. He submitted a chart showing double disallowances is submitted separately in the course of this hearing. This very clearly shows the addition was made substantially many times. v. Original bills, copies of ledger of all the expenses along with narration, payment details, bank, statement and ledger of party‟s account from which materials and services were procured and also explained the purpose of the expenditure before the Ld. AO. The narration in the ledger account and the bills are sufficient to explain the purpose for which the expenditures are incurred. The appellant had maintained cash basis of accounting for Income Tax purposes. In order to comply with the provision of section 209 of the Companies Act, 1956, the appellant also prepared and maintained its books of accounts on accrual basis. It was also established that the appellant had maintained proper books of accounts and all the transaction in respect of income, expenditure, assets, and liabilities are duly recorded in the books. The Ld. AO also accepted that the appellant had maintained proper books of accounts as all the additions and disallowances were made according to the amount reflected in the books. However, the Ld. AO instead of examining the material on record and books of accounts before him proceeded purely on his whims, fancies, surmises, and conjectures and disallowed all the expenditure.

vi. bills amounting to Rs.27,55,05,611/- were seized by the Income Tax Authorities during the search u/s 132 conducted in the case of appellant which were duly accepted u/s 292C of the Act. The List of expenses in relation to these bills which were recorded in books are Sl. No. Particulars Amount

1 Air, Sea and other Freight 5,90,66,914.00 2 Consumables 1,87,08,297.00 3 Fixed Assets & Repairs 22,32,338.00 4 Generator running 1,57,73,803.00 5 Job work 14,74,905.00 6 Mobile Handset 1,42,450.00 7 Office maintenance 1,81,299.00 8 Professional Fees 16,94,245.00 9 Rental 10,13,57,012.00 10 Rental & Site Exp 2,32,14,182.00 11 Salaries 9,48,014.00 12 Sanitation 83,85,103.00 13 Security service 5,57,076.00 14 Site Preparation 3,33,19,464.00 15 Stationery 3,31,988.00 16 Telephone 3,88,498.00 17 Travel 77,30,023.00 Total 27,55,05,611.00 vii. Total expenditure also includes the expenditure such as salaries and bonus, bank charges, rates and taxes, interest expenditure, insurance and other several expenditures, which are to be verified separately. It was the responsibility of the assessing officer to verify the expenditure individually head wise. However, instead of doing so the Ld. AO assessed on overall basis and disallowed whole of the expenditure. viii. Ld. AO did not record any proper reason for disallowing the expenditure. The Ld. AO also did not hold that the expenditure remained unexplained by the appellant. It shall be evident from the above that the Ld. AO had disallowed all the expenditure, which was claim by the appellant in the P/L A/c. However, he was still dissatisfied and thought of again making disallowance in totality over and above individual disallowance made. The absurdity of the action of the Ld. AO was evident. In this matter, the entire addition made capriciously without any application of mind need to be deleted.

cash basis of accounting for Income Tax purposes. In order to comply with the provision of section 209 of the Companies Act, 1956, the appellant also prepared and maintained its books of accounts on accrual basis. It was also established that the appellant had maintained proper books of accounts and all the transaction in respect of income, expenditure, assets and liabilities are duly recorded in the books. The Ld. AO also accepted that the appellant had maintained proper books of accounts as all the additions and disallowances were made according to the amount reflected in the books. Further, the total expenditure also includes the expenditure such as salaries and bonus, bank charges, rates and taxes, interest expenditure, insurance and other several expenditures, which are to be verified separately. It was the responsibility of the assessing officer to verify the expenditure individually head wise. However, instead of doing so the Ld. AO assessed on overall basis and disallowed whole of the expenditure. Further the finding of ld DRP is that definitely 100% expenses cannot be held bogus. Definitely, no business can be done without incurring any expenditure. However, they have directed to make the disallowance of Rs 35.85 Crores, but on what basis there is no finding. The only reason given is that at least the sum of Rs. 35.85 crores paid to the OC and DDA have been recouped through the bogus billing in the books of accounts. The ld DRP also did not care to find out the actual bogus expenditure, if any incurred by the assessee. In view of this we do not find any merit in the disallowance made by the ld AO and sustained by the ld DRP. Accordingly Ground no 20 of the appeal is allowed. 173. Ground no 21 is general in nature and no specific arguments were advanced therefore it is dismissed. 174. Ground no 22 is against the initiation of penalty proceedings, which is premature at this stage. Though arguments are advanced by the ld AR extensively but there is no appeal against the initiation of the penalty proceedings as separate mechanism are provided. The

assessee has proper opportunities are available for defending it, therefore it is premature at this stage and hence, dismissed. 175. Ground no 23 is against the initiation of penalty proceedings u/s 271 G of the act for non maintenance of the documents prescribed under the law for International Transactions. It is also similar to ground no 22 of the appeal. Though arguments are advanced by the ld AR extensively but there is no appeal against the initiation of the penalty proceedings as separate mechanism are provided. The assessee has proper opportunities available for defending it, therefore it is premature at this stage and hence, dismissed. 176. Before parting, we would like to submit that in the whole appeal involving almost 20 grounds, the various additions have been made in the hands of the assessee based on allegation in public domain and subsequent committee reports and CBI searches. Income tax Department also conducted searches. However on reading of the entire assessment order and findings of the ld DRP, we do not find that income tax department has made any meaningful investigation / assessment based on which various additions are made. The whole addition disallowances are based on finding of various other agencies without understanding that their role, duties are altogether of different nature and how that can be fitted in to the scheme of the income tax Act. The ld AO has made several disallowances applying various sections, which are not at all relevant on certain grounds. Instead of that the ld AO should have made detailed inquiry of each of the expenditure incurred by the assessee . He d should have brought on record necessary irrefutable evidences to show that what are those expenditure booked by the assessee are bogus. He should have also looked and investigated in to the trail of the money flowing from assessee through cheque and coming back to the assessee in cash and then reaching the hands of beneficiaries of illegal gratifications. Then in the end he should have supported his order by the reports of various other government

agencies. In this case, the ld AO jolly well rides on the back of the reports of the other government agencies and making additions/ disallowances, which are not sustainable, unfounded and unreasonable. 177. Accordingly, appeal of the assessee is partly allowed. Order pronounced in the open court on 01/07/2019. -Sd/- -Sd/- (K.N.CHARY) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 01/07/2019 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi