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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
सुनवाईक�तारीख/ Date of hearing: 27.02.2025 27.03.2025 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER MANISH AGARWAL, AM
This is the appeal filed by the Revenue against the order of the Ld. CIT(Appeals)-8, New Delhi passed u/s 250 of the Income Tax Act, 1961 in appeal no.257/2014-15 dated 27.02.2015 for the AY 2011-12.
Brief facts of the case are that assessee is a private limited company and is engaged in the business of construction etc. The return of income for the year under appeal was filed on 30th September, 2011 declaring total income of Rs.7,99,96,300/-. The assessment was completed u/s 143(3) of the Act vide order dated 31.03.2014 at a total income of Rs.84,51,75,840/- by making various additions/disallowances. Against such order the appeal was preferred by the assessee before the Ld. CIT(A) who vide order dated 27.02.2015 allowed substantial relief to the assessee.
Against this order the Revenue is in appeal before this Tribunal by taking following grounds of appeal: -
1. “The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made by the AO u/s 14A of the I.T. Act on account of dividend income earned by the assessee company to the tune of Rs.2,86,715/-.
2. The Ld. CIT(A) has erred in law an on facts in deleting the disallowance of depreciation on temporary structures amounting to Rs.10,60,114/- made by the AO considering that the assessee company has fetched revenue to the extent of 10% depreciation claimed on temporary constructions on which the assessee has claimed 100% depreciation.
3. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.6,90,000/- made by the AO on account of excess remuneration paid to Mrs. Guliani, Director and Wife of managing Director of the company being 10% of Rs.69 lakhs paid to her.
The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.15,56,674/- made by the AO considering 2% of the amount spent by the appellant shuttering material as scrap value.
5. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,00,000/- made by the AO on account of notional interest on the amount advanced to its sister concern.
6. The Ld. CIT(A) has erred in law and n facts in deleting the disallowance of Rs.69,25,02,800/- made by the AO against payment to two sub-contractors, M/s Bridge & Building Construction Co. Pvt. Ltd. and M/s Ridhi & Sidhi Infra Properties & Realtors Pvt. Ltd. as the same could not be substantiated with the notices issued/enquiries by the AO.
7. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.6,87,49,700/- made by the AO u/s 69C of the I.T. Act against payment to M/s Silicon Real Estate Pvt. Ltd. which was in the business of providing accommodation entries and the assessee company could not provide any supporting documents evidences to support its claim of expenditure for land development subcontracted to M/s Silicon Real Estate Pvt. Ltd.
The appellant craves to amend, modify, alter, add or forgo any ground(s) of appeal at any time before or during the hearing of this appeal.”
4. Ground no.1 is in relation to disallowance of Rs.28,67,115/- upheld by Ld. CIT(A) u/s 14A of the Act. The Assessing Officer by observing that assessee is having exempt income of Rs.42,800/- in the shape of dividend and has made substantial amount of investment from where it has exempt income and also claimed interest expenses. Accordingly, the Assessing Officer invoked the provisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962 and made an addition of Rs.3,20,250/-. In first appeal Ld. CIT(A) has reduced the disallowance to Rs.33,500/- and deleted the balance amount of disallowance made by Assessing Officer.
Before us the Ld. CIT DR submitted that when the assessee is having investments in securities having exempt income and assessee has not claimed any expense directly attributable to exempt income though interest of Rs.1,73,07,045/- was claimed in the profit and loss account. Therefore, it cannot be said that interest bearing funds were not used for making such investment having exempt income. He placed reliance on the assessment order and requested for the restoration of the disallowance made by the Assessing Officer at Rs.3,20,250/-.
On the other hand, Ld. AR of the assessee has supported the order of the Ld. CIT(A) and submitted that the CIT(A) after considering the facts of the case has made the deletion, therefore, such order deserves to be confirmed on this account.
We have heard the rival submissions and perused the material available on record. In the present case admittedly assessee was having exempt income in the shape of dividend at Rs.42,800/- and also claimed interest on borrowed funds. It is a case where mixed funds were available for making investments and Assessing Officer has failed to make out a case where interest bearing funds are directly applied in making such investments. Under the circumstances, in our considered view the disallowance made u/s 14A should be restricted to the exempt income earned by the assessee. Therefore, we uphold the addition of Rs.42,800/-. As a result this ground of appeal of Revenue is partly allowed.
8. Second ground of appeal of the Revenue is with regard to the depreciation of Rs.10,60,114/- claimed @ 100% on temporary structures. After considering the facts, we find that the assessee has claimed depreciation @100% on the temporary structures created at various work sites which were demolished after the completion of the project. The Assessing Officer has disallowed 10% of such depreciation claimed without appreciating the fact that the scraps, if any, generated had also used in the other work sites.
Therefore, no such ad hoc disallowance could be made. It is further seen that depreciation is a statutory allowance and it is not a case where Assessing Officer alleged that the assets created were not used or there were no temporary structures created by the assessee. Further the Ld. CIT DR has failed to controvert the finding of the Ld. CIT(A) in this regard. Thus, we find no occasion to interfere in the order of the Ld. CIT(A) on this score. Accordingly this ground of appeal of the Revenue is dismissed.
9. Ground no.3 of the Revenue is in relation to the disallowance of Rs.6,90,000/- made out of the remuneration paid to one of the Director Smt. Vinita Guliani @ 10% of the total remuneration paid.
While making the disallowance the Assessing Officer observed that the assessee has failed to substantiate the services rendered by her with credible documentary proof he thus invoked the provisions of section 40A(2)(b) of the Act and made disallowance of only 10% of total payment made to her. Ld. CIT(A) has followed the order of preceding assessment year while deleting the disallowance. During the course of hearing, the Ld. CIT DR has not controverted the findings of the Ld. CIT(A). Thus, under these circumstances, we are not inclined to interfere in the order of Ld. CIT(A) more particularly when the Assessing Officer himself has accepted the fact of services rendered though no documentary evidences were filed by the assessee. Further the fact remained that otherwise the Assessing Officer has accepted the services of Smt. Vinita Guliani and, therefore, the disallowance made is rightly deleted by the Ld. CIT(A) which order is hereby upheld.
Ground no.4 is in relation to deduction of disallowance of Rs.15,56,674/- being 2% of total purchases of shuttering and scaffolding totaling to Rs.7,78,33,687/-. While making the disallowance the Assessing Officer has placed reliance on the observations made in the assessment order for AY 2010-11 where the disallowance of similar nature was made. From the perusal of the order of Ld. CIT(A), we find that the Ld. CIT(A) has also followed the order of preceding year where the disallowance was deleted. It is further noticed that again such order of CIT(A) in preceding assessment year, the Revenue has filed the appeal before the Tribunal which was decided and dismissed in limne for below tax effect. From the perusal of the facts and the details filed by the assessee on this issue, we find that the expenditure includes purchases of some items such as wooden frames, plywood, sawn timber, imported pine sawn timber, shuttering pine wood, etc. and the nature of which was such that they have to be consumed within a short period of time. It is also a matter of fact that assessee is having multiple sites where such consumables are required on regular basis. It is also seen that a total revenue generated was of 65.07 crroes on contractual work as against which the expense on consumables were claimed as 7.78 crores which is around 12% of the total revenue. Looking to these facts, we are in conformity with the order of the Ld. CIT(A) that consumable items are inevitable part for execution of the contract work and, therefore, we uphold the order of the Ld. CIT(A) confirming the deletion of the disallowance so made. Thus, this ground of Revenue is dismissed.
Fifth ground of appeal is in relation to addition of Rs.3 lakhs made by the Assessing Officer by observing that assessee has made earnest money deposited with its subsidiary and no interest is received, therefore, Assessing Officer applied 10% interest rate and made addition of Rs.3 lakhs as notional interest. Ld. CIT(A) has deleted the addition by placing reliance on the decision of Tribunal in the case of assessee for AY 2003-04, 2004-05 and 2005-06. The Ld. CIT DR during the course of hearing placed reliance on the order of Assessing Officer on this issue and failed to controvert the findings given by Ld. CIT(A). By respectfully following the decision of the coordinate bench of Tribunal in assessee’s own case for preceding assessment years, we are of the view that CIT(A) has rightly deleted the addition made and such order is hereby upheld on this score. The ground no.5 of the Revenue appeal is dismissed.
12. Ground no.6 and 7 of the Revenue are in relation to the deletion of disallowance of sub contract charges paid to M/s Bridge 8 & Building Construction Company Pvt. Ltd. Rs.16,86,87,593/- and Rs.52,38,15,207/- to M/s Riddhi & Siddhi Infra Properties & Realtors Pvt. Ltd. Further disallowance of Rs.6,87,49,700/- were made out of job, labour and other cite expenses paid to M/s Silicon Real Estate Pvt. Ltd. which was deleted by Ld. CIT(A). As the issues in both the grounds are common, therefore, these grounds are taken together for consideration.
The Ld. AO while making disallowance observed that during the year under appeal assessee has executed the works for PACL Ltd. In the case of PACL Ltd. a search action was carried out u/s 132 of the Act on 20/06/2016 and during the course of search it was found by the Revenue that M/s PACL Ltd. has claimed various fictitious expenses in the shape of sub-contractor charges under the head “land developer expenses”. The assessee is one of such sub- contractor and, therefore, the AO asked the assessee to file the precise details of the sites developed by it for M/s PACL Ltd. along with specific location, nature and details of development work and details of expenses incurred in this regard. The AO further asked to file the copy of agreements with M/s PACL Ltd., documentary evidences to establish the development work actually carried out for M/s PACL Ltd. and the details of machinery, management, labour etc. employed for execution of such work. In reply the assessee submit the it had further sub-contracted the work awarded to it by M/s PACL Ltd. to M/s Bridge and Building Construction Company Pvt. Ltd. and M/s Riddhi & Siddhi Infra Properties & Realtors P. Ltd. The assessee also filed the copies of the invoices raised by these two parties to the assessee. The Assessing Officer in order to make verification has issued summons u/s 133(6) of the Act. However, no response was received from these parties. The AO further observed that in the case of M/s Bridge and Building Construction Company to whom payments of Rs.16,86,87,593/- was made, as per the report of the AO of such firm, it had plant and machinery of Rs.5,58,145/- only. The AO further observed that in the case of Riddhi & Siddhi Infra Property and Realtors Pvt. Ltd. one Shri Praveen Agrawal in his statements recorded u/s 132(4) on 13.09.2012 has admitted that no actual work has been done by the Companies managed and controlled by him which inter alia include M/s Riddhi & Siddhi Infra Properties and Realtors Pvt. Ltd. Further, the AO observed that in the case of M/s Silicon Real Estate Pvt. Ltd. an information was received from DDIT, Central Circle-44, Kolkata that such firm has provided turnover entries to facilitate the beneficiaries to book bogus expenditure under the head “sub- contract, job commission and brokerage etc.”. During the year under appeal the assessee company had claimed job work charges of Rs.6,87,49,700/- paid to the M/s Silicon Real Estate P. Ltd. Accordingly, the AO has show-cause the assessee why not these expenditures claimed to have been paid to these companies were disallowed as bogus expenditure and after considering the submissions of the assessee, Assessing Officer has made the disallowances u/s 69C of the Act all these expenditures as un- explained. In first appeal, the Ld. CIT(A) though has accepted that these companies are indulge in the accommodation entry the business, however, has deleted the additions so made by the AO.
On perusal of the order of the Ld. CIT(A) on these two issues, we find that Assessing Officer has been able to demonstrate that the expenditure claimed by the assessee with respect to the sub- contractor charges paid to M/s Bridge and Building Construction Company Pvt. Ltd., Riddhi & Siddhi Infra Properties & Realtors P.
Ltd. were bogus and also the job charges paid to M/s Silicon Real Estate Pvt. Ltd. are also bogus. The AO has also brought on record of the statements of the key persons of these firms where they have admitted of providing accommodation entry of bogus bills to various entities for claiming expenses. The Ld. CIT(A) by observing that the AO has failed to provide an opportunity of cross-examination of such parties and further observed that when the assessee has filed all the necessary details such as bills, etc. and payments were made through banking channel has deleted the disallowance. However, the fact remained that the assessee has failed to controvert the observations made by AO with plausible evidences so as to prove the genuineness of the expenses claimed. Under the circumstances, in our considered view these two issues need further examination on the part of the AO. Accordingly we remand these issues back to the file of the AO with the direction that assessee be provided an opportunity of cross examination of the persons whose statements are relied upon by the AO and also the assessee is directed to file all the necessary details and evidences to establish the genuineness of the work done and expenses claimed. In view of above discussion and directions the ground of appeal no. 6 & 7 of the Revenue are partly allowed for statistical purposes.
As a result, appeal of the Revenue is partly allowed.
Order pronounced in the open court on 27/03/2025