DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-19, NEW DELHI, NEW DELHI vs. ANNAI INFRA DEVELOPERS LTD., TAMIL NADU
Facts
Annai Infra Developers Ltd. (assessee), engaged in infrastructure development and sub-contracting, faced additions to its income by the AO for under-declared profit (estimated at 4% vs. declared profit) and wrong availment of Input Tax Credits (ITC). These additions followed a search action under Section 132 and subsequent assessment proceedings under Section 153A, where the AO relied on a statement of the Managing Director and GST intelligence reports indicating fictitious sub-contractors and fake invoices.
Held
The CIT(A) deleted both additions, a decision upheld by the Tribunal. For the profit addition, the Tribunal found no incriminating material on record from the search and held the AO's estimation was unwarranted as the assessee's audited books already reflected profits. Regarding ITC, the Tribunal concurred with the CIT(A) that ITC is a balance sheet item, not a component of the profit and loss account, thus its alleged wrong availment does not impact the taxable income.
Key Issues
1. Whether an addition for estimated profit can be sustained in reassessment proceedings under Section 153A without incriminating material found during a search. 2. Whether alleged wrong availment of Input Tax Credit (ITC), a balance sheet item, impacts the taxable income of the assessee.
Sections Cited
Section 139, Section 143(1), Section 132, Section 127, Section 153A, Section 143(2), Section 142(1), Section 131(1A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
Before: SHRI SAKTIJIT DEY & SHRI S.RIFAUR RAHMAN
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’: NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.2460/DEL/2023 (Assessment Year: 2019-20) ITA No.2461/DEL/2023 (Assessment Year: 2020-21) DCIT, Central Circle 19, vs. Annai Infra Developers Ltd., No.07, 4th Floor, SDS Enclave, Delhi. 2/5, Perundurai Road, Erode Collector, S.O. Tamil Nadu – 638 011. (PAN : AAHCA5802A) CO No.160/Del/2023 (in ITA No.2460/DEL/2023) (Assessment Year: 2019-20) CO No.161/Del/2023 (in ITA No.2461/DEL/2023) (Assessment Year: 2020-21) Annai Infra Developers Ltd., vs. DCIT, Central Circle 19, No.07, 4th Floor, SDS Enclave, Delhi. 2/5, Perundurai Road, Erode Collector, S.O. Tamil Nadu – 638 011. (PAN : AAHCA5802A) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Harshit Srivastava, CA REVENUE BY : Ms. Nimisha Singh, CIT DR Date of Hearing : 23.07.2024 Date of Order : 13.09.2024
2 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 ORDER PER S.RIFAUR RAHMAN,AM: These appeals are filed by the Revenue against the order of ld. Commissioner of Income-tax Appeals-30, New Delhi (hereinafter referred to ‘Ld. CIT (A)’) both dated 12.06.2023 for AYs 2019-20 & 2020-21 and assessee has also filed cross objections for abovesaid appeals of Revenue. 2. Since the issues are common and appeals are inter-connected, the same are being disposed off by this common order. We are taking ITA No.2460/Del/2023 for Assessment year 2019-20 as lead case. 3. Brief facts of the case are, assessee filed its original return of income under section 139 of the Income-tax Act, 1961 (for short ‘the Act’) on 30.09.2019 declaring total income of Rs.84,77,53,140/- under normal provisions and MAT income of Rs.82,08,99,202/-. The return was processed u/s 143(1) of the Act on 20.05.2020. A search action u/s 132 of the Act was conducted in the case of the assessee on 01.11.2019 being one of the entities covered in DNC group of cases. Consequent to search action, the assessment jurisdiction over the assessee was transferred by the Pr. Commissioner of Income-tax – I, Coimbatore vide order u/s 127 of the Act. 4. Notice u/s 153A of the Act was issued on 09.03.2021 and served on the assessee and subsequently, notices u/s 143(2) & 142(1) were issued and served
3 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 on the assessee along with questionnaire. In response, assessee submitted relevant details and clarifications as called for. 5. Assessee is in the business of infrastructure development and mainly undertakes Government contracts till FY 2017-18. In FY 2018-19, the assessee has received substantial amount of contracts from big corporate companies and the same were sub-contracted to several other entities without undertaking any work by itself. In an enquiry with Managing Director of the company, it was confirmed that assessee has not done any project received from various infrastructure companies and it has only sub-contracted all the contracts on a profit margin of 3 to 5%. 6. The assessee was asked to explain whether these profits were recorded in the books of account by issue of notice. In response, assessee, submitted explanation in this regard. After considering the submissions of the assessee, AO found not tenable. AO analysed the financial statements of the assessee with financial transactions involving receipts and payments of back to back contracts and he was of the opinion that the resultant profit is much more than the profit declared by the assessee. He found that the profit declared by the assessee is less than average of 4% and he brought to tax difference of 0.54% as under-declared profit and accordingly made additions to the total income of the assessee.
4 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 7. Further, he analysed that wrong ITC availed by the assessee during Assessment Years 2019-20 & 2020-21 and found that assessee has claimed wrong ITC and accordingly, he disallowed the same to the extent of Rs.2,04,22,341/-. 8. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions before him. Assessee also raised grounds that AO had not given sufficient opportunity of being heard to the assessee and also on merits. The relevant submissions of the assessee is reproduced in the first appellate order, after considering the assessment order and submissions of the assessee, ld. CIT (A) has deleted the addition of estimation of profit by observing as under :- “10.2 I have carefully examined the observations of the Assessing Officer and the written submission of the appellant. It is observed that the Assessing Officer has made addition purely in view of the statement of Snn S. Ashok Kumar u/s. 131(1A), Shri s. Ashok Kumar has stated that the appellant company used to give back to back contracts after keeping its own margin ranging from 3% to 5%. He has also submitted in his statement dated 11.09.2021 (question No. 14) that the exact percentage of commission 1s as per books of accounts held by the appellant company. The Assessing Officer has taken an average of 3% to 5% to estimate the business income of the appellant @4% without pointing out any mistake in the books of the appellant. Further, no material evidence was found during the search operation to support the finding of the Assessing Officer that the profit
5 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 margins shown by the appellant in its books of account from back to back contract receipts are suppressed. Accordingly, I find that the addition made by Ld. AO is legally not tenable. Reliance is placed on the decision of Hon'ble High Court of Delhi in the case of CIT Vs. Harjeev Aggarwal 290 CTR263. 10.3 In view of these facts and findings, the addition made by the Assessing Officer amounting to Rs.1,86,01,402/- is deleted.”
As regard to wrong availment of ITC credits, after considering the submissions of the assessee, ld. CIT (A) deleted the addition by observing as under:- “11. Ground nos. 10, 11 and 12: In this ground the appellant has challenged the addition made by the AO amounting to Rs.2,04,22,341/- on account of wrong availment of Input Tax Credits (ITC). I have carefully perused the submissions of the appellant and the observations of the Ld. AO. The AO has mentioned in the assessment order that during the investigation conducted by the GST Department in the case of appellant and its subcontractors, it was found by the G8T Department that the nub contractors of the appellant company were fictitious and were engaged in raising of fake invoices. The AO has observed that the appellant was found to be involved in availing of wrong ITC amounting to Rs.19.13 crores as per the Incident Report of GST department. During the assessment proceedings, the appellant submitted to the Assessing Officer a letter from the GST Department stating that the appellant company had taken a wrong availment of ITC maximum to the extent of Rs.3,21,71,300/- against amount of 19.13 crores mentioned in the
6 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 show cause notice (SCN). The AO has accordingly apportioned the amount of wrongful credit of ITC in two AYs 2019-20 and 2020-21 in the ratio of the turn-over declared by the appellant in the respective AYs. Appellant in the written submission has stated that it followed exclusive method of accounting for the GST payment; therefore, the wrongful claim of input tax credit does not have any bearing in the P/L Account of the appellant. The appellant further stated that the assessee paid the GST on the sale consideration received from the principal contractors by way of debit to the electronic cash ledger and by way of input tax ledger and it had availed the input tax credit on the tax paid by the sub- contractor in respect of the bills raised by the assessee company. The input tax credits are not passed through the P/L Account and they are kept as current assets in the balance-sheet of the appellant. The GST liabilities are similarly accounted for as current liabilities. Therefore, GST payments and Input Tax credits do not have any impact in the profit declared by the appellant. In case the appellant is held to be liable for additional payment of GST same is required to be paid out of the reserve and surplus or from the available ITC and it cannot be charged to P/L Account. In case the appellant charges GST liability in the P/L Account whenever the same is crystallized, it is disallowable in the year of claim, Further, any penalty which may be imposed on wrong availment of ITC is also not allowed to be charged to the P/L Account. Accordingly, I am of the opinion that the wrong availment of ITC which has not been passed during the P/L Account shall not be added in the taxable income of the appellant. Hence, the addition made by the AO is held to be non- sustainable.”
7 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 10. Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
“1. On the facts and circumstances of the case, the Ld.CIT(A) has erred in not considering the seized material shared with the assessee during the assessment proceedings? 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not considering the incriminating evidence - chat between Sh. Manoj Vasudev Pardasany and Sh. Vinay Nangalia (found and seized during the search) wherein it is clear that various payments made to entities including M/s Annai was in lieu of bogus sub-contracts? 3. Whether on the facts and circumstances of the case, the Ld.CIT(A) has erred in overlooking the evidences gathered during search action in the case of M/s Allways Town Planners Private Limited, M/s 5 Star Infracon India Private Limited and M/s Plan well Industries Corporation Private Limited by which it was established that such entities are merely paper entities? 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in overlooking evidences which proved that Sh. Yogesh Gupta was providing accommodation entries for its clients vide bogus invoicing using M/s Allways Town Planners Private Limited, M/s 5 Star Infracon India Private Limited and M/s Planwell Industries Corporation Private Limited?
8 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 5. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in overlooking the information shared by the Hyderabad Zonal Unit of the Directorate General of GST Intelligence, which also found that the sub contractors of M/s Annai were fictitious and no supply of goods/services had actually taken place? 6. On the facts and circumstances of the case, the Ld.CIT(A) has erred in not considering the statement of Sh. S. Ashok Kumar in light various incriminating evidences confronted to him? (a) Whether on law and facts of the case the order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
At the same time, assessee also filed cross-objection raising following grounds of appeal :- “1. Ground No.1 raised by the ld. assessing officer has no merit because the ld. CIT(Appeals) has duly considered all relevant seized materials referred in impugned assessment order. 2. Ground No. 2 raised by the ld. assessing officer has no merit because the alleged chat has never been a part of the assessment order and assessment proceedings. It is also to be submitted that such alleged chat has never been shared with the appellant during and post
9 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 search proceeding and has never been cross verified with the appellant at any stage of the search and assessment proceeding. 3. Ground No. 3 raised by the ld. assessing officer has no merit and it is against the true spirit of law because the appellant has booked the due profit margin in its books of accounts on the Back-to- back transactions done by the appellant. It has been considered and verified by the Ld. CIT (Appeals) that there was no incriminating material on record which can suggest that the appellant has escaped any profit on such transaction undertaken by the appellant with the referred entities. 4. Ground No. 4 raised by the ld. assessing officer is not tenable either on facts or on merits because the appellant was not in contact of Sh. Yogesh Gupta in any manner. It is also on record that no such allegation was made in the impugned assessment order. 5. Ground No. 5 raised by the Ld. AO has no merit that the Ld. CIT (Appeal) has duly considered the effect of GST information on the profit of the appellant for the relevant assessment year based on the detailed submission of the appellant as per para 11 of the order of Ld. CIT (Appeal). 6. Ground No. 6 raised by the Ld. AO has no merit that the Ld. CIT (Appeal) not considered the statement of Sh. S. Ashok Kumar because the Ld. CIT (Appeal) has duly considered all the aspects of the statement of Sh S. Ashok Kumar as per 10.1 and 10.2 of the order of CIT (Appeal) dated 13.06.2023. 7. Ground No. 7 raised by Ld. AO is a general ground and requires no further clarification. 8. The impugned assessment order dared 30.09.2021 does not bear any unique Document Identification Number (DIN) as per the
10 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 circular 19/2019 dated 14.08.2019 issued by CBDT on the body of impugned assessment order and therefore the assessment order dated 30.09.2021 is non-est in the eyes of law.”
At the time of hearing, ld. DR for the Revenue brought to our notice relevant grounds of appeal. She brought to our notice page 23 of the first appellate order and submitted that assessee has not carried on any business activities and on receipt of huge contracts, it has given back to back contracts. As per the terms of contract, assessee received margin of 3 to 5% of each contract and AO has estimated the profit @ 4% which is average of the net profit earned by the assessee. She submitted that ld. CIT (A) found that the above findings of the Assessing Officer are not relevant since no incriminating materials found during search. She submitted that ld. CIT (A) has not considered the conversation with Yogesh Gupta, however, the assessee has submitted additional evidences before the ld. CIT (A) which he should not have considered. She submitted that he completely over-looked the main conversations recorded during the search, which can be considered as incriminating material. With regard to ITC claim, he submitted that Department has received information from GST Intelligence, the same was not considered by the ld. CIT (A) apart from relevant statements recorded from the Directors. He heavily relied on the findings of AO.
11 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 13. On the other hand, ld. AR for the assessee submitted that the Department has not brought on record any incriminating material based on which AO or searched party has found during the search. He submitted that chat conversation which is heavily relied on by the AO and ld. DR which has nothing to do with the type of business carried on by the assessee. He submitted that AO has estimated GP on the basis of statement of the Managing Director and Managing Director has given an approximate figure which is nothing to do with the actuals, the proper profits were already disclosed in the books of account and profit & loss account. 14. With regard to GST Intelligence report, he submitted that this is nothing to do with the Income-tax proceedings but related to input tax credit. He submitted that based on the above report, AO has added the relevant ITC during the assessment year, however ld. CIT (A) has analysed the same and found not proper, accordingly he deleted the same. Further, he submitted that ITC is a balance sheet item and not a revenue item and it is only a receivable item in the balance sheet which has no relevance to profitability. 15. In the rejoinder, ld. DR for the Revenue submitted that the ITC claimed by the assessee by creating fictitious entities and entries and it is not entitled for input tax credit. 16. Considered the rival submissions and material placed on record. We observed that no doubt the assessment was initiated after search proceedings
12 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 and accordingly, assessment was reopened under section 153A of the Act. AO completed the assessment based on the statements recorded from the Managing Director and after analysing the information contained in financial statements, he proceeded to make the additions. It is settled position of law that in case of reassessment proceedings initiated under section 153A of the Act, the assessment can be completed based on incriminating material found during the search. In the previous year of searched assessment, when there is no proceeding pending for the relevant assessment year on the date of search, the assessment under section 153A can be made only on the basis of incriminating material. In this case, we find that there is no incriminating material brought on record by the tax authorities. Even otherwise, the additions proposed by the AO are only on the basis of estimation with the observation that assessee is having business of giving back to back contracts and with the intention to earn the profit between 3 to 5%. The Assessing Officer presumed that assessee must have earned profit at 4% by the assessee is uncalled for when all the transactions are already forming part of the financial statements and it has declared relevant profits as per books of account and books submitted before the Assessing Officer were also duly audited. Therefore, we do not see any reason to disturb the findings of the ld.CIT(A) in deleting the additions. 17. With regard to the issue of availment of input tax credit, we observed that ld.CIT(A) has elaborately discussed the issue and found that input tax credit is
13 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023 not an element of profit and loss account and it is only a balance sheet item, therefore, liabilities of GST cannot be found part of the profitability of the assessee. Therefore, we are inclined to agree with the findings of the ld. CIT (A) in this regard. Accordingly the Revenue’s appeal being ITA No.2460/Del/2023 in AY 2019-20 is dismissed 18. Since, the facts in other AY i.e. 2020-21 are exactly similar, our above findings in AY 2019-20 are applicable mutatis mutandis in AY 2020-21. Accordingly, the appeal being ITA No.2461/Del/2023 for AY 2020-21 filed by the Revenue is also dismissed. 19. Since we have already decided the issue in favour of the assessee we are not inclined to adjudicate cross objections filed by the assessee. 20. In the result, both the appeals filed by the Revenue are dismissed and both the cross objections filed by the assessee are also dismissed. Order pronounced in the open court on this 13th day of September, 2024.
Sd/- sd/- (SAKTIJIT DEY) (S.RIFAUR RAHMAN) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 13.09.2024 TS
14 ITA Nos.2460 & 2461/DEL/2023 CO Nos.160 & 161/Del/2023
