ASST CIT 15(2)(2), MUMBAI vs. PRASHANT PROJECTS LTD, MUMBAI

आयकर अपीऱीय अधिकरण “C” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No.4621/Mum/2015 (नििाारण वर्ा / Assessment Year: 2010-11) बिाम/ ACIT 15(2)(2) Prashant Projects Ltd., R.No. 403, 4 t h floor, R.No. 406-408, Aayakar Bhavan, Plot No. 57, v. M.K. Road, Hermes Atrium, Mumbai 400020 Sector-11, CBD Belapur, Navi Mumbai 400614 स्थायी ऱेखा सं./ PAN : AABCI0639P (अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)

आयकर अपीऱ सं./I.T.A. No.4604/Mum/2015 (नििाारण वर्ा / Assessment Year: 2010-11) बिाम/ Prashant Projects Ltd., DCIT 10(3) Aayakar Bhavan, Mumbai R.No. 406-408, Plot No. 57, Hermes Atrium, v. Sector-11, CBD Belapur, Navi Mumbai 400614 स्थायी ऱेखा सं./ PAN : AABCI0639P (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) ..

Assessee by: Shri. Ajay. R. Singh Revenue by : Shri. Rajat Mittal सुनवाई की तारीख /Date of Hearing : 22-01-2018 घोषणा की तारीख /Date of Pronouncement : 13-04-2018 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member These two cross appeals, filed by the Assessee and Revenue, being ITA No. 4604/Mum/2015 & ITA no. 4621/Mum/2015 respectively for

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assessment year 2010-11 are directed against the appellate order dated 19.05.2015 passed by learned Commissioner of Income-tax (Appeals)-24, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2010-11, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 02.03.2013 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) in ITA no. 4621/Mum/2015 for AY 2010-11, read as under:- “1. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 192219/- being pro-rata interest on Capital Work in progress and ignoring the fact that the available funds blocked for Capital Goods would otherwise have been used for business activities". 2. "On the facts and circumstances of the case, the Ld CIT(A) has erred in reducing the disallowance of cessation of liability u/s 41(1) of the Income Tax Act, 1961 from Rs.13685788/- to Rs. 3020075/- and admitted additional evidence in contraventions of Rule 46A of the I.T Rules, 1962”. 3. "On the facts and circumstances of the case, the Ld CIT(A) erred in directing the Assessing Officer to reduce the disallowance of bogus purchase from Rs. 2451435/- to Rs. 367715/- being 15% profit on bogus purchase despite the fact that the parties were found to be Hawala operator/Bogus billers". 4. "On the facts and circumstances of the case, the Ld CIT(A) erred in relying on the decision of the Hon'ble Gujarat High Court in the case of Simit P Sheth (356 ITR 451) even though the fact of this case are different from that relied upon and hence the decision is not applicable in this case." 5. "On the facts and circumstances of the case, the Ld CIT(A) has erred in deleting the additions made on disallowance of payment of tender fees of Rs. 212055/- and admitted additional evidence in contraventions of Rule 46A of I.T. Rules 1962". 6. "On the facts and circumstances of the case, the Ld CIT(A) has erred in deleting the additions made for understating the Sales amounting to Rs. 1999999/- and admitted additional evidence in contraventions of Rule 46A of I.T. Rules, 1962". 7. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. 8. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored.”

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“I. CESSATION OF LIABILITY U/S 41 (1) OF THE ACT OF RS. 30,20,075/-: 1. The ld CIT (A) erred in upholding the disallowance of Rs. 30,20,075/- being creditors (Viz. Corrosion Matters Rs. 5.29,440/-, Godrej & Boyce Rs. 1,66,787/-, Salini NDT Services Rs. 6,18,000/-, Yash Enterprises Rs. 16,14,129/- and IOCL Rs. 91,719/-on the ground that these liabilities are no longer required to be settled and amounts to remission of liability u/s.41(1) of the Act without appreciating the creditor wise explanation submitted wherein it was stated that the amounts are either sub-judice due to the creditor or in dispute with the creditors. II. DISALLOWANCE OF RS. 9,70,000/- PAID AS CONSULTANCY CHARGES TO MRS. RAMA SRINIVASAN: 2. The ld CIT (A) erred in upholding the disallowance of Rs. 9,70,000/- being consultancy charges paid to Mrs Rama Srinivasan without appreciating the fact that she was supervising the administrative and personnel functions of the company , therefore the claim ought to have been allowed and there is no question excessive payment. III. Disallowance of works contract tax amounting to Rs.93,93,047/- as prior expenses. 3. The Ld CIT(A) erred in rejecting the above grounds of appeal on the ground that Assessee representative had agreed not to press the same, which is factually incorrect. It was explained to the Ld CIT(A) that the amount represented the works contract tax recovered by the assessee's clients from the bills as well as VAT credits in the assessee's books. The Work Contract Tax recoveries were determined and made when the accounts with clients were periodically settled / reconciled at the time of contract closure. The Assessee is interested in getting the said grounds adjudicated on merits. 4. The Appellant craves leave to add, amend, alter or delete any or all the above grounds of appeal.” 4. These are cross appeals filed by the assessee and revenue and both are aggrieved by the decision of Ld. CIT-A, and have raised separate grounds of appeals in their respective appeals filed with the tribunal. We are taking both the appeals together. The assessee is engaged in the business of contractor and undertaking turnkey projects of erection & fabrication of oil storages tanks for oil companies.

Disallowance on account of interest bearing funds utilised for capital working progress. 5. The assessee had capitalized Rs. 1,06,04,170/- as advance against capital goods . Interest paid on borrowed funds used for capital work in

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progress was claimed as revenue expenditure by the assessee. The AO made additions on the grounds that the assessee has used borrowed funds for advance against capital goods and hence interest paid on capital asset was held to be not allowable as deduction u/s. 36(1)(iii) of the Act. Thus, based upon the above conclusion reached by the AO , the AO made disallowance of Rs. 1,92,219/- vide assessment order dated 02-03-2013 passed u/s 143(3), by holding as under: “ 4.3.2 In view of the above discussion, I hold that the assessee has wrongly claimed interest U/s 36 (i) (iii) to the extent of Rs. 1,92,219/-(34,32,730/18,93,73,133*1,06,04,170/-) on the basis of the average assets vis a vis advance against capital Goods has been disallowed and added back to the total income of the assessee. .........

Interest expense 34,32,730 CWIP 1,06,04,170 Average of total assets 18,93,73,133 Addition: Rs, 1,92,219/-“

Disallowance of prior period expenses. 6. The assessee has shown Rs. 93,93,047/- as prior period expenses in the Profit and Loss account which were in relation to Work Contract Tax (WCT) and VAT. The assessee submitted that these amounts were part of income of earlier years and in the current year assessee has come to know that these are no longer recoverable and hence were written off during the current year. The AO observed that these expenses do not pertain to the year under consideration and hence these were treated as prior period expenses and hence disallowed by the AO to the tune of Rs. 93,93,047/- vide assessment order dated 02.03.2013 passed u/s. 143(3) of the 1961 Act by the AO.

Disallowance under 40A(2)(b) 7. The AO observed from the annual accounts of the assessee that Mrs. Rama Srinivasan is one of the Director who has signed the annual accounts

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also. The AO observed that in tax audit report under clause 18 , it is stated that no payments have been made to persons specified u/s. 40A(2)(b) , while Rs. 9,70,000/- was paid to Ms. Rama Srinivasan as consultancy charges. The assessee failed to furnish details and justification of these expenses . The assessee also did not furnish any documentary evidences in support of the services utilized for the business activities of the assessee company which led to the disallowance of Rs. 9,70,000/- u/s. 40A(2)(b) , vide assessment order dated 02.03.2013 passed u/s 143(3) of the 1961 Act by the AO.

Disallowance on account of cessation of liability of Rs. 1,36,85,788/- 8. The AO observed from the details of current liabilities along with the ageing analysis submitted by the assessee that following liabilities are outstanding and were not genuine liabilities. The details are as under:

AS on 01/04/2009 Name of the Amount Payment Closing made Creditors Balance as on credited to A/c 31/03/2010 529,440 - 529,440 Corrosion Matters - Godrej & Boyces 166,787 5,131 5,131 166,787 17,049,947 - - 17,049,947 Kimberley Trading 8,519.760 Other Creditors KENYA 18,644 - 18,644 N A narishaman Ramesh Builders 65,000 - - 65,000 618,000 ~ 618,000 Salini NDT services - Sriram Institute 1,483 - 1,483 Yash enterprises 1,614,129 - - 1,614,129 91,719 - 91,719 IOCL Suspense 261.233 - , 261,239

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2,04,16,388 2,89,36,148

Thus the AO concluded that these liabilities for creditors for which payments are not required to be made are not genuine. It was also observed by the AO that the creditors liabilities namely Kimberley Trading for Rs. 1,70,49,946/- has been written back in the assessment year 2011-12, which in the opinion of the AO also clearly indicates that these are such creditors for which liability do not exist. Thus , the current liability of Rs. 1,36,85,788/- (Rs. 2,89,36,148/- - Rs. 1,18,86,202/- ) was treated as liability having ceased to be payable and added to the income of the assessee by the AO , vide assessment order dated 02.03.2013 passed by the AO u/s. 143(3).

Disallowance on account of bogus purchases of Rs.24,51,435/-

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The AO issued notice u/s. 142(1) dated 31.12.2012 to assessee which is reproduced here under: "The Investigation wing of the Income tax Department, Mumbai has forwarded details and statements of hawala operators who have confirmed to have given bogus bills to the company. The relevant portion of the said information is enclosed herewith. You are required to show cause as to why the purchases made by you from these alleged bogus hawala dealers amounting to Rs.24,51,435/- should not be treated as bogus purchases and added to your total income. Your explanation should reach to this office on or before 8th January, 2013, else it will be presumed that you have no explanation to offer and the purchases made from the alleged parties will be treated as bogus purchases and added to your total income"

The assessee did not submit any reply in response to show cause notice issued by the AO. The AO observed that the Sales Tax Authorities of Mumbai has carried out investigation in those cases where there were defaults of VAT set off credits. The parties have issued bogus bills as per the requirement of customers wherein no goods were physically supplied and

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only bills are issued as per demand and requirements of the customers . These parties were surveyed by Sales Tax Authorities and statement of authorized person was recorded . These parties have admitted before Sales Tax Authorities that they had not supplied any material to their customers and have only issued bills as per demand and requirements of the customers. This information was passed on by the Sales Tax Department to the Investigation wing of the Income Tax Department, Mumbai who have forwarded this to the AO who exercised jurisdiction over this assessee and the assessee is stated to be beneficiary of the alleged bogus purchase bills to the tune of Rs. 24,51,435/- for the year under consideration. The assessee did not submitted nor produces any stock register and also did not produce any delivery challans, purchase orders, vajan kata receipts or transporter‟s bills either for verification or for record purposes. Thus in view of the failure of the assessee in producing any evidence to prove actual delivery of the material purchased and in view of the detailed investigation carried out by the Sales Tax Department, Mumbai, as well statement of these parties admitting to have submitted bogus bills towards purchases to the tune of Rs. 24,51,435/- made by the assessee , purchases from these six parties were treated by the AO as bogus purchases obtained by the assessee with an intention to reduce profits of the assessee by inflation of purchases , which led to addition to the income of the assessee to the tune of Rs.24,51,435/- by the AO u/s. 143(3) of the Act.

Tender fee of Rs. 2,12,055/- 10. The AO observed from the perusal of ledger account that the assessee has claimed Tender Fee of Rs. 2,12,055/-. The AO observed that out of Tender Fee of Rs.2,12,055/- , Rs. 1,85,055/- is deposit with the clients which cannot be treated as tender fees and cannot be allowed as business expenditure , which was added to the income of the assessee to the tune of Rs. 2,12,055/- vide assessment order dated 02.03.2013 passed u/s. 143(3) by the AO.

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Under statement of Sales

IOCL Mathura RA-04 to RA-09 7,35,42,557 23,06,007 HPCL Tikri RA-1 &2 28.02.2010 1,69,92,808 7,00,104 lOCLPune RA- 1 12.03.2010 41,97,424 90,534 32,36,994 IOCL Akola RA- 1 22.03.2010 1,33,364 IOCL Trichy RA - 7 & 9 23.07.2010 32,23,806 - 101193589 3230009

The AO reconciled the same with AIR information as detailed here under: Particulars Difference Sale as per Sales As per Remarks P&L 26AS 7,52,39,640 7,58,48,564 -6,08,924 IOCL Mathura Sales excess shown HPCL Trchi 33,16,722 33,16.722 0 Nil 54,34,419 -2,23,898 IOCL Akola & Service tax Pune 56,58,317 not given by IOCL and recd. Next year Bill no.2 TDS reflected in next year. IOCL Tikri 91,73,083 1,76,93,012 -85,19,929 Bill no.2 TDS reflected in next year. 9,31,63,864 10,25,16,615 -93,52,751

From the above , the AO observed that the sales shown as per P&L in the case of the IOCL Akola & Pune is Rs. 56,58,371/- and sales as per the statement submitted by the assessee is Rs. 42,87,958/- for Pune and Rs.

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33,70,358/- for Akola , which comes to Rs. 76,58,316/- which led AO to conclude that there is under statement of sales to the tune of Rs. 19,99,999/- which was added to the income of the assessee , vide assessment order dated 02.03.2013 passed under 143(3) by the AO. 12. Aggrieved by the assessment order dated 02.03.2013 passed by the AO u/s. 143(3) , the assessee carried the matter in appeal before learned CIT-A and challenged the additions made by the AO. The assessee contended with respect to the each addition before learned CIT(A) , as under:-

Disallowance of Rs. 1,92,219/-being pro-rata interest on capital work in progress :- The assessee submitted before learned CIT(A) that the assessee has not incurred any expenditure towards interest expenses during the year under consideration and only bank charges as well bank guarantee charges were debited under the head „Financial charges‟ and hence no disallowance is called for . The learned CIT-A accepted the contentions of the assessee that no interest have been debited to the P&L account and consequently no pro-rata disallowance of the interest is called for towards capitalization and hence addition of Rs. 1,92,219/- was deleted by learned CIT-A, vide appellate order dated 19-05-2015 passed by learned CIT(A). 13. Aggrieved by the appellate order dated 19-05-2015 passed by learned CIT(A) , the Revenue has come in an appeal before tribunal being aggrieved by the deletion of the addition to the tune of Rs. 1,92,219/- by learned CIT- A . The ld. counsel for the assessee submitted that no interest was paid . The learned counsel for the assessee drew our attention to Schedule 12 of the audited accounts placed in paper book which carried the details of Financial Charges of Rs. 34,32,730/-, the details of which are as under:- (PB/Pg no. 4 and 10)

Schedule-12 Finance Charges

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Amount in Rs. As at 31* March, 2010 31" March, 2009 Bank Charges & Commission 872,748 127,970 Bank Guarantee Charges 2,338,568 3,454,011 232 Bank interest 232 0 Bill Franking Charges 10,040 0 Loss on Foreign Exchange rate fluctuation 211,374 7,221 3,432,730 3,589,434 Total

Thus it was submitted that the assessee had paid bank guarantee charges, bank charges and loss on foreign exchange rate fluctuation etc but no interest was paid , thus no disallowance of interest can be made. The Ld. DR submitted that assessee had paid bank charges , bank guarantee commission etc and these were related to capital work in progress which should be disallowed . It was prayed by learned DR that disallowance as made by AO need to be confirmed. 14. We have considered rival contentions and perused the material on record. We have observed that the AO had made proportionate disallowance of interest expenses to the tune of Rs. 1,92,219/- towards capital work in progress u/s. 36(1)(iii) of the 1961 Act on the ground that borrowed funds were utilized towards making advances for acquiring capital assets and hence interest paid towards acquisition of capital asset is not allowable u/s. 36(1)(iii) of the 1961 Act. The AO had considered interest expense of Rs. 34,32,730/- as the total interest paid by the assessee during the year which can be culled out from the assessment order , which is reproduced as under:- “4.3.2 In view of the above discussion, I hold that the assessee has wrongly claimed interest U/s 36 (i) (iii) to the extent of Rs. 1.92.219/- (34,32,730/18,93,73,133*1,06,04,170/-) on the basis of the average assets vis a vis advance against capital Goods has been disallowed and added back to the total income of the assessee. Penalty

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proceedings u/s 271(1)(c) of the l.T. Act, 1961 are separately initiated for furnishing inaccurate particulars of income and thereby concealment of income.

Interest expense 34,32,730 CWIP 1,06,04,170 Average of total assets 18,93,73,133 Addition: Rs, 1,92,219/-“ While now it is contended that there were no interest expenses paid by the assessee as is emanating from the audited financial statements which are placed in paper book by the assessee before the tribunal . The assessee had claimed that it however paid Financial Charges to the tune of Rs. 34,32,730/- which is as per schedule 12 of the audited accounts, placed in paper book/page 4 and 10 which included bank charge, bank guarantee charges etc . These audited accounts were before the AO as well before learned CIT(A) as certified by the assessee in the paper book filed by the assessee . The detail of Financial Charges as per schedule 12,are as under:- Schedule-12 Finance Charges Amount in Rs. As at 31* March, 2010 31" March, 2009 Bank Charges & Commission 872,748 127,970 3,454,011 232 Bank Guarantee Charges 2,338,568 Bank interest 232 0 Bill Franking Charges 10,040 0 211,374 7,221 Loss on Foreign Exchange rate fluctuation 3,432,730 3,589,434 Total

The AO had invoked provision of section 36(1)(iii) which deals with the interest expenses and the conditions and the circumstances on which this

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interest expenses shall be allowed are contained within in the provision of Section 36(1)(iii), which is reproduced hereunder :

“Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— ***

***

(iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession :

[Provided that any amount of the interest paid, in respect of capital borrowed for acquisitionof an asset [***] (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.]

Explanation.—Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;” The word interest has been defined u/s. 2(28A) as under:-

“2(28A) "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;]” Thus the word interest is used by the statue with reference to interest payable in respect of any money borrowed or debt incurred and shall include service fee or other charges in respect of the money borrowed or debt incurred or any credit facility , whether the same is utilised or not. Thus, the definition of the word „interest‟ is very wide within 1961 Act. The AO has not recorded any finding of facts as is emerging from the records that assessee has utilized any funds for acquisition of capital assets nor any finding of fact is there on record that bank guarantee charges/ bank charges/loss on foreign exchange fluctuations is directed towards acquisition of capital asset. The AO had work out disallowance of finance charges based on pro-rata basis on the grounds that there is a mix use of funds . The learned CIT(A) 13

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however allowed the contentions of the assessee as there was no interest expenses debited under the head „Financial Charges‟ but both the authorities failed to see „financial charges‟ in context of wide definition of interest as is contained in Section 2(28A) and its co-relation with acquisition of capital asset. Under these peculiar factual matrix of the case and circumstances, the matter need to be restored back to the file of learned CIT(A) for recording finding of fact as to incurring of these financial charges by the assessee and its connection/co-relation with acquisition of capital assets read in light of provisions of Section 36(1)(iii) and 2(28A). Needless to say that powers of learned CIT(A) are co-terminus with powers of the AO. The learned CIT(A) shall provide to the assessee proper and adequate opportunity of being heard in accordance with principles of natural justice and the evidences/ explanations submitted by the assessee in its defence shall be admitted by learned CIT(A) in the interest of substantial justice and be adjudicated on merits in accordance with law. This ground raised by Revenue is allowed for statistical purposes. We order accordingly.

Disallowance of work contract tax amounting to Rs. 93,93,047/-as prior period expenses. 15. The assessee submitted before learned CIT-A in context of the above disallowance of Rs. 93,93,047/- towards WCT and VAT as prior period expenses as under:- “ A.O. disallowed works contract tax and VAT amounting to Rs. 93,93,047/-. It was explained to the A O. that the amount represented the works contract tax recovered by the assessee's clients from its bills as well as VAT credits in the assessee's books. The Appellant's nature of business is projects for construction of storage terminals on turnkey basis. The projects are spread across multiple years and invoicing and payments received are running account payments received by the assesses. The works contract tax recoveries were determined and made when the accounts with the clients were periodically settled / reconciled at the time of contract closure. The disallowances by the Assessing Officer under the said head are as under 1. IOCL (Indian Oil Corporation Limited) Mathura - Rs 22,45,799/-. The opening balance against M/s. IOCL as on 1st April, 2009 was a sum of Rs. 96,50,825.52. This being the sum that was outstanding from

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the debtor. Upon reconciling the accounts with the said debtor a sum of Rs. 22,45,799/- was ascertained to have been paid by the debtor towards Works Contract Tax on behalf of the assessee and hence is an expense that was accounted as such. Enclosed in "Annexure C" is the ledger statement of IOCL Mathura 2. M/s. Alps Trading - Rs. 1,75.000/-. The assessing officer disallowed the sum of Rs.1,75,000/- paid to M/s. Alps Trading. The vendor M/s. Alps Trading was a vendor who supplied the assessee electrodes and consumables required for the project As per the Assessee there was no sum due to M/s. Alps trading and the payments due had been squared off. M/s. Alps Trading however petitioned the assessee in the High Court and claimed a sum of Rs. 2,34,340/- vide summary suit no 3129 of 2008 for supplies allegedly made in 2006 Consequent to the case filed by M/s. Alps trading, the assessee was obliged to enter into a settlement for a sum of Rs. 1,75, 000/- against the claim of Rs. 2,34,340/-. The said order was passed on 22nd April, 2009. This being an expenditure ascertained during the assessment year 2010-11 has been accounted thus Enclosed are relevant case papers as Annexure 'D'. 3. VAT a. Vat @ 12.5% - Rs. 27,56,557/- b. Vat@ 1.5%-Rs. 750/- c. VAT Credit - Rs. 20,37,415/- The above sums were reflected in the balance sheet of the assessee under current assets. However in view of the assessee not having any output tax for claiming the input credit, this sum is not recoverable. Hence during the AY 2010-11 the said sums have been written off. Enclosed in Annexure 'E' is a ledgers copies. 4. Works Contract Tax Receivable - Rs. 21,77,526/-. The sum of Rs. 21,77,526/-was reflected in the Balance Sheet of the Assessee under the head of Current Assets. These relate to orders executed by the Assessee for Indian Oil Corporation and Essar These were reconciled upon project completion during the final bill and as such are not recoverable. All of the above being business expenditure, the same ought to have been allowed as the assessee has provided all relevant details. Alternatively, it was submitted that, this amount, otherwise was not recoverable from its clients as such the same qualified for deduction as bad debts u/s 36(1)(vii) of the Act. As per learned CIT(A) , the assessee did not pressed this ground of appeal and the same stood dismissed by learned CIT(A) as not being pressed, which is disputed by assessee to be incorrect finding of learned CIT(A) and agitated in grounds of appeal raised by the assessee before the tribunal. The Ld. CIT(A) dismissed this ground of appeal as not been pressed by the assessee without considering the merits of the case. The assessee is agitating this 15

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addition before the tribunal and has claimed that wrong findings are recorded by learned CIT(A) in coming to conclusion that the assessee has conceded this grounds of appeal before learned CIT(A) . The assessee is now contending that this ground of appeal ought to have been adjudicated by learned CIT-A on merits as there were certain litigations which were settled during the impugned assessment year . It is also contended with respect to the WCT , recovery from the assessee was determined when the accounts were settled with the parties such as IOCL and other parties with whom the assessee had dealing on the conclusion of contract with these parties. It is stated that the amounts have been identified during the year itself and are not prior period expenses. We have observed that Ld. CIT-A has dismissed the said ground with respect to the disallowance of Rs. 93,93,047/- on account of WCT/VAT as prior period expenses on the grounds that the assessee has conceded this ground which is seriously disputed/agitated by the assessee before us that it never conceded this ground before learned CIT(A) . We have observed from the replies filed before learned CIT(A) by the assessee which are placed in paper book that the assessee had made detailed averments during appellate proceedings before learned CIT(A) objecting to the additions made by the AO , which pleadings were not considered by learned CIT(A) and the ground stood dismissed in limine on the grounds that the assessee has conceded the same by learned CIT(A). There are three written replies filed by the assesssee before learned CIT(A) which are placed in paper book /page 124-141, 328-334 filed before the tribunal , in which we found that the assessee is seriously agitating/disputing these additions before learned CIT(A). In any case this ground has not been adjudicated by Ld. CIT-A and keeping in view the interest of substantial justice we are restoring this matter back to the file of learned CIT-A for fresh determination of the issue on merits in accordance with law . We clarify that we have not commented on the merits of the issue‟s in the grounds of appeal raised by the assessee before the tribunal. Needless to say that the assessee be provided with proper and adequate opportunity of being heard by learned CIT(A) in accordance with law by adhering to the principles of natural justice. The learned CIT(A) is directed to allow assessee to file necessary evidences/explanations in support of its contention which shall be admitted and adjudicated on merits in accordance

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with law. Needless to say that powers of learned CIT(A) are co-terminus with powers of the AO. This ground raised by the assessee is allowed for statistical purposes .We order accordingly.

Disallowance of Rs.9,70,000/- paid as consultancy charges to Mrs. Rama Srinivasan 16. The assessee submitted before the Ld. CIT-A as under:- “ During the assessment proceedings the A.O. disallowed an amount of Rs. 9,70,000/- paid as Consultancy Charges to Mrs. Rama Srinivasan on the grounds that the Appellant had not given justification for the expenditure. The Appellant submits that the above sum paid to Mrs. Rama Srinivasan for supervising the Administration and Personnel functions of the company. The disallowance was made merely because Mrs. Rama Srinivdsan falls within the scope of Sections 40(A)(2) of the Act. The Consultancy Charges paid to Mrs. Rama Srinivasan was also comparable for such services in the open market. It is submitted that Courts and Tribunals have consistently held that excessive payment cannot be presumed / inferred just because payment is made to a sister concern / relatives. It is incumbent upon A.O to give clear and specific finding by bringing cogent material. No subjective satisfaction permitted. No surmises, conjecture allowed. In absence of material to discredit the payment, the addition cannot be sustained. (i) CIT v/s. Indo Saudi Services (Travel) P Ltd. - {(2009) 310 ITR 306 (Bom)} (ii} Jt. CIT v/s. Modi Olivetti Ltd. - {(2004) 84 TTJ (Del) 1038} (iii) Dy. CIT v/s. Lab India Instruments P. Ltd. - {(2005) 277 ITR (AT) 39 (Pune)} The said disallowance was made merely because Mrs Rama Srinivasan was related party u/s 40A(2)(b), actually she looks after administration work of company and the amount paid was comparable and hence ought to be allowed. Without prejudice the above we further submit that Mrs. Rama Srinivasan is a regular tax payer and she had filed her return of Income for the same year and paid the taxes accordingly. (Copy of ITR acknowledgement is enclosed herewith for your ready reference), in view of the same we pray that addition of Rs. 9,70,000 is not justified and ought to be deleted.” The learned CIT-A observed that no evidence was filed by the assessee to support the contention that Mrs Rama Srinivisan was supervising the administrative and personnel functions of the assessee and also no details 17

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were filed as to the nature of consultancy rendered. It was observed by learned CIT(A) that no details of qualification held by Mrs Rama Srinivasan are on record. It was held by learned CIT(A) that she has not rendered any services to the assessee company and hence entire amount needed to be disallowed and payments were made only because she was relative and 40A(2)(b) is squarely applies and hence additions were confirmed by Ld. CIT-A as were made by the AO. Aggrieved by the appellate order passed by learned CIT(A), the assesse has come in appeal before the tribunal . Before us , Ld. Counsel for the assessee submitted that Mrs Rama Srinivasan was assessed to tax and her copy of Income Tax return acknowledgment form for assessment year 2010-11 vide e-filing acknowledgment no. 144455530310710 dated 31.07.2010 with the returned income of Rs. 9,44,770/- and tax payable of Rs. 189964/- is placed on record in paper book filed with the tribunal at page no. 1. It is also submitted that the audited financial statements of the assessee company is placed on record by assessee at page no. 2-30 filed before the tribunal , wherein she is signing the financial statements of the assessee company as Director of the assessee company. It was claimed that she was rendering administrative and personnel functions of the assessee company. Thus, it was submitted that no prejudice is caused to the Revenue as the tax has been paid by her in the return of income filed by her with the revenue. The Ld. DR submitted that consultancy charges of Rs. 9,70,000/- were paid to Mrs Rama Srinivasan and no evidence of her rendering services to the assessee company is brought on record and he relied on orders of the authorities below. We have considered rival contentions and perused the material on record. We have observed that the assessee company has paid Rs. 9,70,000/- as consultancy charges to Mrs Rama Srinivasan who is also Director of the assessee company . She has paid taxes on her income which is emerging from the acknowledgment of the return of income placed in paper book /page no. 1 filed by the assessee before the tribunal. She has also signed financial statement of the assessee company . It is claimed that she is rendering administrative and personnel services to the assessee company , however, detailed services rendered by her to the assessee were not brought

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on record . Keeping in view interest of substantial justice, we are of the view that the assessee deserves one more opportunity and let the matter go back to the file of learned CIT-A for fresh adjudication on merits in accordance with law. The assessee is directed to produce all details of services rendered by said Mrs Rama Srinivasan to the assessee company during the relevant period as the onus is on the assessee to prove that it availed services from Mrs Rama Srinivasan for which consultancy fee of Rs. 9,70,000/- was paid during the relevant period under consideration as the said amounts are debited in the books of the assessee for which deduction of expenses are claimed by the assessee. The learned CIT-A shall provide proper and adequate opportunity of being heard to the assessee company in accordance with the principal of natural justice in accordance with law . The assessee will be allowed to submit evidences and explanations in support of its contention to sub-serve the interest of substantial justice which shall be admitted by Ld. CIT-A and be adjudicated on merits in accordance with law. Needless to say that powers of learned CIT(A) are co-terminus with the powers of the AO. This ground of appeal raised by the assessee is allowed for statistical purposes. We order accordingly

Disallowance of Rs. 1,36,85,788/- on account of cessation of liability u/s. 41(1) of the Act. 17. The assessee being aggrieved by the addition of Rs. 1,36.85,788/- on account of cessation of liability u/s. 41(1) of the Act, filed first appeal before the Ld. CIT-A. The assessee has made elaborate arguments before learned CIT-A which are detailed as hereunder:- “The A.O disallowed an amount totalling to Rs. 1,36,85,788/- in respect of sundry creditors that has been added back u/s 41(1) of the Act, on the ground that these liabilities are no longer required to be settled and amounts to remission of liability. The Appellant submits that the amounts represent outstanding liabilities on account of service received/good supplied to/by the assessee. Most of the creditors listed in the Assessment Order are for amounts that are either sub-judice, due to the creditor or in dispute with the creditors who have claimed higher sums than that shown in the books of accounts. Further it was explained to the A.O. that the assessee has a system of reviewing its outstanding liabilities and any liabilities that has ceased to exist, are offered as part of the income year after year as may be seen from the 19

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companies audited accounts. It has been enunciated in many court ruling that just because an outstanding liability appears in a balance sheet year after year, it cannot be concluded that the liability ceased to exist, warranting application of Section 41(1) of the Income Tax Act, 1961. There has to be positive evidence to establish that such trading liabilities ceased to exist and no more payable by the assessee. The AO has not mentioned any concrete evidence for arriving at the conclusion that such outstanding liabilities have ceased to exist. The A.O. has taken cognizance of write back of Rs. 1,70,49,946/- in the subsequent year u/s 41(1) in case of one of the party viz. Kimberly Trading. However the liability towards the balance sundry creditor has been added back merely on conjecture without assigning any reason thereof. The creditor wise explanation of the Sundry Creditors referred to in the Assessment Order is provided below: Name of Creditor Explanation Corrosion Matters - Rs. 529,440/- Still Considered due. Vendor for corrosion protection system for Assessee's Syria project. The Assessee has an ongoing dispute with the client on account of with project is yet to be complete and consequently the sum due to the sub vendors under the project are held up. Enclosed Annexure 'G' is email correspondence with the vendor wherein the outstanding sum is still referred to by the vendor Godrej & Boyce - Rs. 166, 787/- Still Considered due. The outstanding is the payment due to the creditor for the filing cabinet system purchased in the year 2008. The cabinet supplied did not meet the purchase order requirements and hence payments were withheld pending rectification. Kindly find enclosed as Annexure „H‟ email dt. 12th November, 2009 from vendor outlining the proposal to rectify the supplied filing system and asking for the outstanding payment upon delivery. Kimberley Trading - Rs. Given Cognizance in the 17,049,947/- Assessment order as written back in subsequent year. This creditor were the Assessee's agents in Kenya for securing the contract for construction of storage

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tanks in Kenya. As per the contract agreement the agency commission valued at 12.5% of the contract value was to be paid within three weeks of signing the contract. The said agency commission was acknowledged in the Assessment order of the AO for the AY 2003-04 while assessing our income. However white approving the transaction the Reserve Bank of India did not accord permission to remit the fee in one go and accorded permission to remit the payments in instalments based on the payment received into the country. Thus despite the contractual obligation the assessee was obliged to make the payments to the creditor in instalments. While execution of the project the project value was reduced substantially and based on the sums received into the country the entire payment contracted could not be made. Upon closure of contract with the client, the outstanding liability was added back and offered as income in the AY2011-12. Other Creditors Kenya - Rs. This outstanding relates to the 8,519,760/- assessee‟s civil contractor M/s. Vishva Builders in Kenya. In view of the lack of progress the assessee terminated the contract on Vishva Builders and proceeded to get the works executed on risk purchase M/s. Vishva Builders had petitioned the assessee in the High Court in Kenya for the sum equivalent to Rs, 8,519,760/- vide case number ELD HCCC No. 80 of 2003. Enclosed as annexure 'I' are relevant correspondences. The said sum was added back as liabilities no longer required along with Kimberly trading upon squaring of the project in AY 2012-13 and offered for income. In the event of an adverse court ruling the sums if

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any determined as payable by the court would be accounted in the year the award is received. It would be pertinent to point out here while the assessing officer took due cognizance of the writing back of the Kimberly Trading outstanding in his assessment order, the writing back of Other Creditors Kenya was not taken into cognizance. N.A. Narsihaman-Rs. 18.644/- Settled in the AY 2011-12 Ramesh Builder- Rs. 65,000/- Constitutes society maintenance fee and offered for income in AY 2011-12 Salini NDT Services –Rs. Considered Due to the extent of Rs. 6,18,000/- 618,000/-. The creditor is a Radiography contractor for works carried out at various project sites. The vendor had an outstanding claim of Rs. 1,850,146.61. Enclosed as annexure 'J' is the letter from the vendor. Of the sum of Rs. 1,850,146.61 claimed the assessee determined a sum of Rs. 1,234,166.88 untenable and offered the said sum for income as ability no longer required leaving a sum of Rs. 618.000/- outstanding. This said sum would be paid to the creditor upon his agreeing to the final settlement. Sriram Institute - Rs. 1,483/- The said sum was written back and offered for income in AY 2011- 12 Yash Enterprises - Rs. Considered Due and paid for 1,614,129/- The vendor is a supplier of welding electrodes. As against the outstanding of Rs. 16,14,729/- we were obliged to pay a sum of Rs. 12 lakhs in AY 2011-12 and Rs. 8 lakhs in AY 2012-13 consequent to the High Court Order. Thus leaving a debit balance of approximately Rs. 4 Lakhs in the creditor ledger. The High Court order is yet to attain finality and once the final

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sum due is determined the debit balance of Rs. 4 Lakhs and any such additional / reduced sum so determined would be accounted for as expenditure. IOCL-Rs. 91,719/- Considered good and liquidated This ledger refer to the client ledger of M/s. Indian Oil Corporation Limited and reflect the running account bill and payments for the contract being executed. Enclosed as annexure K is the ledger for subsequent year reflecting the same. Suspense - Rs. 261,239/- Offered for income in subsequent year. This refers to sundry balances that have been written off in AY 2011- 12 and offered for income. Enclosed as annexure „L‟ the ledger statement.

The learned CIT-A considered lengthy arguments of the assessee and gave part relief to the assessee wherein additions to the tune of Rs. 30,20,075/- were upheld/sustained by learned CIT(A) , as against disallowance of Rs 1,36,85,788/- made by the AO on account of cessation of liability u/s. 41(1) of the Act , while rest of the additions as were made by the AO were deleted by learned CIT(A) , by holding as under:- “ 8.3, I have carefully considered the finding of the AO and the submissions above. The AO did not give any break up in the order for adding Rs.1,36,85,789/-. He had arbitrarily taken some figure for making disallowance. The detailed explanation with regard to each of the creditor given in the submission has been perused by me. As far as M/s Kimberley Trading is concerned, the appellant's contention is that since the contract has been completed the outstanding liability was added back and offered as income in A.Y.2011-12. The AO did not make specific addition on this creditor. Since the liability was written back and offered as income there is no question of making addition u/s 41(1) of I.T.Act. From the submissions made I find that the appellant had also written back the liability and offered it as income in A.Y.2011- 12 or paid the creditor in the subsequent year in few other cases. The details are as under: 1. N.A Narsimhan Rs. 18,644/- 2. Ramesh Builders Rs. 65,000/- 3. Sri Ram Institute Rs. 1,483/- 4. Suspense account Rs. 2,61,239/- Rs. 3,46,366/-

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1 Since the above amounts have been offered as income or paid to the creditor the addition made by the AO u/s 41(1) is hereby deleted. 8.3 2 As far as Rs.85,19,760/- in respect of other creditors Kenya, the explanation offered reveal that the outstanding amount relates to Civil Contractor M/s Vishwas Suppliers engaged by the appellant in Kenya. The contract given to this party was terminated by the appellant due to lack of progress. Therefore, the contractor has filed a case against the appellant in High Court of Kenya for a sum equivalent to Rs.85,19,7607- in the year 2003. The relevant correspondences filed by the appellant to support this is available in annexure "I" of the submission. It was also claimed that in case of adverse Court rulings and if any amount is determined as payable by the Court then it would be accounted in that year. I find the explanation offered by the appellant in respect of this liability is found to be genuine. Therefore, the addition made on account of this creditor is also deleted. 8.3.3 However, I am not in a position to agree with the explanation offered by the appellant with regard to other creditors since liability no more exists. Therefore, the addition made by the AO is sustained to the extent of Rs. 30,20,075 (Rs. 2,89,36,1487- - Rs. 1,70,49,9477- = Rs. 1,18,86,2027-) (Rs.1,18,86,201 - 3,46,366 +85,19,760 = 30.20,075). This ground is partly allowed.”

The main grievance of the Revenue in the appeal filed with the tribunal vis-a- vis the relief granted by learned CIT(A) is that assessee has filed additional evidences before Ld. CIT-A which was not forwarded by Ld. CIT-A to the AO and hence there was non-compliance of Rule 46A of the Income-tax Rules, 1962. The assessee has filed additional evidences before learned CIT-A for the first time which were not placed before the AO and this fact is not disputed by learned counsel for the assessee. Even in respect of relief of Rs. 85,19,760/- given with respect of creditor in Kenya M/s. Vishwas Supplier , the assessee has contended that there was a dispute and matter was before the Hon‟ble High Court of Kenya and these evidences were filed before the CIT-A for the first time . It is also not disputed by learned counsel for the assessee that no remand report was called by learned CIT(A) from the AO w.r.t. additional evidences filed for the first time before the learned CIT(A) and the AO was not allowed to rebut the same. Rule 46A of the Income-tax Rules, 1962 mandate that learned CIT-A is required to record a finding as to the reasons for the admission of additional evidences as stipulated in Rule 46A and the circumstances under which the assessee will be allowed to produce the additional evidences as are stipulated in Rule 46A(1) of the 1962 24

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Rules. Rule 46A(3) clearly stipulate that learned CIT-A shall not take into account any evidence produced under sub-rule(1) of Rule 46A unless the AO is allowed an reasonable opportunity to examine the additional evidences filed by the assessee and to allow cross examination of the witness produced by the assessee. Rule 46A is not merely an empty formality and principles of natural justice are enshrined in Rule 46A, which are clearly vitiated in the instant case before us as learned CIT(A) admitted additional evidences and adjudicated the issue without forwarding the said additional evidences to the AO for rebuttal. Thus keeping in view mandate of Rule 46A and principles of natural jsutice, we are of the considered view that relief granted by learned CIT-A cannot be sustained and matter need to be set aside back to the file of learned CIT-A for re-adjudication of this issue on merits after complying with Rule 46A and principles of natural justice . With respect to the addition confirmed by learned CIT(A), Ld. Counsel for the assessee had relied upon the decision of Hon‟ble Gujarat High Court in the case of Pr. CIT v. Matruprasad C. Pandey (2015) 377 ITR 363(Guj) , we have observed that learned CIT-A has not given detail findings with respect to the additions confirmed/sustained and no reasoning has been given for confirming/sustaining the additions rather cryptic order is passed sustaining /upholding the additions. In our considered view , this matter need to be set aside and restored to the file of learned CIT-A to give detailed finding with reasoning on each creditor with regard to the upholding/sustaining of the addition u/s. 41(1) or vice-versa. Thus, the entire issue is set aside and restored back to the file of learned CIT-A for re-adjudication of the issue on merits in accordance with the law after complying with principles of natural justice and also after complying with Rule 46A of the 1962 Rules , as directed by us as above. The learned CIT-A shall provide proper and adequate opportunity of being heard to the assessee company in accordance with the principal of natural justice in accordance with law . The assessee will be allowed to submit evidences and explanations in support of its contention to sub-serve the interest of substantial justice which shall be admitted by Ld. CIT-A and be adjudicated on merits in accordance with law. Needless to say that powers of learned CIT(A) are co- terminus with the powers of the AO. Thus, ground of appeal raised both by

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the Revenue and the assessee on this issue are allowed for statistical purposes. We order accordingly.

Disallowance of Rs.24,51,435/- on account of bogus purchases. 18. The AO made additions to the tune of 100% of the alleged bogus purchases of Rs. 24,51,435/- based on the information being received from Investigation Wing of Income Tax Department, Mumbai which in turn was based on investigation carried on by Maharashtra Sales Tax Department and also in the absence of assessee furnishing documentary evidences such as purchase orders , delivery challans, vajan kata receipts, transporter‟s bills, stock register for verification etc. . During the course of the appellate proceedings before learned CIT(A), the assessee made following submission before learned CIT-A:- “ Amounts totalling Rs. 24,51,435/- has been disallowed allegedly on account of bogus purchases merely on the basis of findings of the Sales Tax Department The Appellant had submitted all documents in support of the above purchases. The materials purchased are raw materials required during the normal course of business that the assessee is involved in. The purchases have been settled by account payee cheques details of which were also submitted to the A.O. Further, the Appellant was not given an opportunity to make its submissions on the reported findings of the Safes Tax Department. The appellant is company under taking various projects mainly of IOCL, HPCL etc which are Govt. Companies. Most of the materials are produced from reputed suppliers however for executing the works at site some material be purchased from local vendors also. While purchasing, we as business men can not foresee that particular supplier will not pay their VAT and not file their VAT return-declaring them as bogus parties. We had actually procured the material from these parties, paid them by account payees cheques, used the material for our turnkey projects and shown the projects as our Sales. The sales shown were also not doubted as it were to organization controlled by Govt. such as IOCL and HPCL. The AO added the amount merely from the statement taken by Sales Tax Department without investigating the case at his own and treated the entire .purchases from these parties as Bogus and added in our Income which is completely unjustified. In this matter we rely on the recent Judgment of Hon. ITAT "D" Bench Mumbai in case of ACIT- 25(2) Vs. Shri Ramita Prawn Shah which is 26

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similar to our case and in which such addition were deleted by ITAT. (Copy of Judgment is enclosed) Reliance can further be placed on the Judgment of the High Court Mumbai in case of The CIT - 1 Vs. Nikunj Eximp Enterprises Pvt. Ltd., Income Tax Appeal No. 5604 of 2010 which is also similar to our case and in which, such addition were deleted by the High Court Mumbai (Copy of Judgment is enclosed)” The assessee was directed by learned CIT-A to file copies of invoice , delivery challans, stock inward register, purchase orders given by the parties etc. along with the ledger extract of the supplier . But the assessee filed only copies of invoices and not other details called for by learned CIT(A) . Thus, the assesse only filed ledger extract and invoices before learned CIT(A). The learned CIT-A confirmed the additions to the tune of 15% of the total alleged bogus purchases The learned CIT(A) relied upon decision of Hon‟ble Gujarat High Court in the case of CIT v. Bholanath Poly Fab Private Ltd. reported in 355 ITR 290(Guj.) and came to conclusion that profit embedded in these purchases are to be brought to tax. Thus , learned CIT-A brought to tax 15% of the alleged bogus purchases towards the profits embedded in such alleged bogus purchases vide appellate order dated 19-05-2015 passed by learned CIT(A). The Revenue is aggrieved by the relief granted by learned CIT-A and has filed an appeal with tribunal, the contentions were raised by learned DR that addition to the tune of 100% of the alleged bogus purchases were made by the AO which was wrongly reduced to 15% of alleged bogus purchases. The learned DR relied upon the order of the AO. The Ld. AR on the other hand relied upon the decision of learned CIT-A and submitted that it is only profit element embedded in the said alleged bogus purchases which can only be brought to tax. 19. We have considered rival contentions and perused the material on record. We have observed that the assessee is a contractor and undertaking turnkey projects of erection and fabrication of oil storage tanks for oil companies. information was received by the AO from investigation wing of Income Tax Department which was in-turn based upon information from the Maharashtra VAT Department that the assessee has a allegedly made bogus

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purchases to the tune of Rs.24,51,435/- from six parties as detailed here under:-

Name of the suppliers Purchases During the year Rohit Enterprises 6,69,754 3,00,136 Mahavir Sales Corporation National Trading Co 4.22,550 Samarth Enterprises 5,30,970 Amar Enterprises 1,56,257 S.S. Enterprises 3,61,758 ---------------- 24,51,435 Total ------------

The AO made addition to the tune of 100% which were restricted to 15% the alleged bogus purchases. The main allegation is that the evidence of delivery/transport details order no. challan etc. could not be supplied by the assessee. The Maharashtra VAT department made detailed enquiries and these six parties were surveyed and these parties deposed before Maharashtra VAT department that they have only supplied accommodation entries by issuing bogus bills without supplying any material. The AO has however not made any independent investigation/enquiry as no notices u/s. 133(6) or summons under section 131(1) were issued and rather reliance was placed by the AO on the enquiries conducted by Maharashtra VAT Department. Thus, the assessee has mainly not discharged its primary onus as the assessee has not furnished details of delivery of material and also the assessee has not produced stock registers before the AO. The assessee is a contractor and undertaking turnkey projects of erection & fabrication of oil storages tanks for oil companies and the material is stated to be consumed for construction work for doing projects. The payments were made by account payee cheque and ledger extract were submitted . We have also gone through the replies submitted by the assessee before the authorities below which are placed in the paper book and we have observed that the assessee has not given any stock reconciliation/stock records and the said

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amount was shown to be toward alleged purchases of material which was shown to be used/consumed for turnkey projects. Thus , under these circumstances matter need to be restored to the file of learned CIT-A for fresh adjudication on merits in accordance with law whereby the assessee is directed to discharge its primary onus as to the genuineness of these purchases and prove consumption of material for its construction related projects . Once the assessee discharges it primary burden, the onus will shift on revenue to rebut the same. If once the assessee discharges its primary onus and the revenue still wants to rely on incriminating statements /material obtained by Maharashtra Sales Tax Department/ Investigation wing of the Income Tax Department, the copies of such relied upon incriminating material/statements shall be provided by Revenue to the assessee for rebuttal and cross examination of the witnesses shall be allowed. The learned CIT-A shall provide proper and adequate opportunity of being heard to the assessee company in accordance with the principal of natural justice in accordance with law . The assessee will be allowed to submit evidences and explanations in support of its contention to sub-serve the interest of substantial justice which shall be admitted by Ld. CIT-A and be adjudicated on merits in accordance with law . Needless to say that powers of learned CIT(A) are co-terminus with the powers of the AO. The appeal of the Revenue is allowed for statistical purposes and this disposes off ground no. 3 and 4 raised by Revenue in its appeal.

Disallowance of payment towards tender fee amounting to Rs. 2,12,055/- 20. The assessee submitted before learned CIT(A) that the AO while disallowing tender fee of Rs.2,12,055/- has referred to Rs. 1,88,055/- with respect to deposit with clients made by the assessee , but however additions have been made to the tune of Rs. 2,12,055/- . The assessee submitted that sum of Rs. 1,88,055/- is the initial security deposit paid by the assessee to its client HPCL for project of construction of pipeline in Mathura Refinery . It was submitted that the said contract was terminated in the year 2001 and arbitration award was against assessee and hence the said deposit of

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Rs.1,88,055/- was not recoverable. The learned CIT-A deleted the addition by holding as under:- “10.3 I have carefully considered the finding of the AO and the submissions above. Out of the sum disallowed Rs. 2,12,055/-, a sum of Rs.1,88,055/- was shown as security deposits made by the appellant to M/s Hindustan Petroleum Corporation relating to construction of pipe line project in Mahul Refinery. The contract was terminated by the client and after arbitration proceeding was completed the appellant was directed to pay a sum of Rs.34,70,176/-. The detailed correspondences and the arbitrary order along with termination is available in Annexure „N‟ of the submission. Without examining these evidences, the AO had come to the conclusion that the entire sum was claimed on account of tender fees for participation in various tenders which is factually incorrect. Therefore, the addition made by the AO is hereby deleted.” The Revenue has come in an appeal before the tribunal being aggrieved by learned CIT(A) appellate order so far as deletion of the disallowance is concerned towards tender fee of Rs. 2,12,055/- . The main grievance of the Revenue in the appeal filed with the tribunal vis-a-vis the relief granted by learned CIT(A) is that assessee has filed additional evidences before Ld. CIT- A which was not forwarded by Ld. CIT-A to the AO and hence there was non- compliance of Rule 46A of the Income-tax Rules, 1962. The assessee has filed additional evidences before learned CIT-A for the first time which were not placed before the AO and this fact is not disputed by learned counsel for the assessee. It is also not disputed by learned counsel for the assessee that no remand report was called by learned CIT(A) from the AO w.r.t. additional evidences filed for the first time before the learned CIT(A) and the AO was not allowed to rebut the same. Rule 46A of the Income-tax Rules, 1962 mandate that learned CIT-A is required to record a finding as to the reasons for the admission of additional evidences as stipulated in Rule 46A and the circumstances under which the assessee will be allowed to produce the additional evidences as are stipulated in Rule 46A(1) of the 1962 Rules. Rule 46A(3) clearly stipulate that learned CIT-A shall not take into account any evidence produced under sub-rule(1) of Rule 46A unless the AO is allowed an reasonable opportunity to examine the additional evidences filed by the assessee and to allow cross examination of the witness produced by the assessee. Rule 46A is not merely an empty formality and principles of natural justice are enshrined in Rule 46A, which are clearly vitiated in the

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instant case before us as learned CIT(A) admitted additional evidences and adjudicated the issue without forwarding the said additional evidences to the AO for rebuttal. Thus keeping in view mandate of Rule 46A and principles of natural justice, we are of the considered view that relief granted by learned CIT-A cannot be sustained and matter need to be set aside back to the file of learned CIT-A for re-adjudication of this issue on merits after complying with Rule 46A and principles of natural justice . Thus keeping in view Rule 46A of the 1962 Rules, we are of the considered view that relief guaranteed by learned CIT-A cannot be sustained and matter need to set aside back to file of learned CIT-A for re-adjudication of this issue on merits in accordance with law after complying with Rule 46A. Thus , we have observed that principle of natural justice as enshrined in Rule 46A are clearly breached and relief granted by learned CIT-A cannot be sustained , thus matter need to be restored back to the file of learned CIT-A for fresh adjudication on merits in accordance with law after complying with the principle of natural justice and also Rule 46A of the Income-tax Rules, 1962. The learned CIT-A shall provide proper and adequate opportunity of being heard to the assessee company in accordance with the principal of natural justice in accordance with law . The assessee will be allowed by learned CIT(A) to submit evidences and explanations in support of its contention to sub-serve the interest of substantial justice which shall be admitted by Ld. CIT-A and be adjudicated on merits in accordance with law . Needless to say that powers of learned CIT(A) are co-terminus with the powers of the AO. The revenue appeal is allowed for statistical purposes. We order accordingly.

Addition on account of understatement of sales amounting to Rs. 19,99,999/-. 21. The assessee made following submissions before learned CIT-A as under:- “12.2 ..... The A.O. had made an addition of a sum Rs. 19.99.999/- allegedly for understatement of sales for the year. It is apparent from the order of the A.O. that, the Appellant had declared total sales of Rs. 10.25,16,615/- as compared to total sales of Rs. 9,31,63,864/- appearing in the Form 26AS. As such there is no understatement of sales by the assessee; on the contrary the assessee has indicated an 31

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income of a sum of Rs. 93,52,751/- over and above that appearing as per Form 26AS. The A.O. erroneously concluded that there has been under statement of Sales by the assessee. Enclosed as Annexure 'N' in Invoice copy of IOCL Pune that has been wrongly considered by the AO at Rs. 41,97,424 instead of actual value of Rs.21,97,425/-. Also enclosed in copy of Form 26AS bringing out the erroneous consideration made by the AO. In view of the above and submissions made by us, we pray that the various additions and disallowances made by the Assessing Officer may be set aside and the appeal be allowed in full. The Appellant submit that the AO has not justified adding Rs. 19,99,999/- treating the same as understatement of Sales. From the Order U/s 143(3) at para 13.1 and 13.2 as written by AO it is crystal clear that our sales was more than the sales as appeared in AS26 or AIR. However, the AO made the addition based on Running Bills in case of IOCL Akola & Pune. We submit that we are raising the Running Bills as per our estimation of completion of works, however final bills will be as per work certified by respective parties, all the TDS or VAT are calculated based on certified work, hence we had to account for the same as per certified by Party, that is why there was difference in running Bills and accounted bills and this was not a understatement of sales. Further the payment also made by party based on their certified bills only hence accounting of running bills instead of certified bills will have no meaning.” The learned CIT-A allowed the contentions of the assessee and deleted the addition by holding as under:- “ 12.3 I have carefully considered the finding of the AO and the submissions above. As discussed in ground of appeal no. 5 the appellant has been following consistent practice of raising running bills to government and semi-government bodies. Thereafter the clients verified the bill and after satisfying themselves certify the work which may be either equivalent or less than running account bills. There is always a difference between the running account bill and the bill certified by the contractor. In the present case, the appellant had brought to my notice that the invoice raised in respect of IOCL Pune has been wrongly considered at Rs.41,97,424/- by the AO instead of actual value of Rs.21,97,4257-. In support of this, copy of the bill raised in respect of IOCL Ltd., Pune was filed which is available in page 184 to 187 of the paper book as Annexure 'N'. The perusal indicates that the net value of the work done (since previous bill) was Rs.21,97,424/- the gross value of the bill (up to date) Rs.22,42,270/- and the net value of the work done (up to date) was Rs.21,97,424/-. The bill was raised for the period 10.09.2009 to 10.03.2010 against the work order dated 27.07.2009. The AO without realizing the facts had wrongly come to the conclusion that the appellant had understated the sales. Since the bill raised up to date of the work was admitted, I find the AO had incorrectly taken the figure and according to me, the appellant had

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disclosed the net value of the contract for the period correctly. Therefore, the addition made by the AO is deleted. This ground of appeal is Allowed.” 22. The main grievance of the Revenue is qua this addition is regarding admission of additional evidences by Ld. CIT-A without forwarding the same to AO for rebuttal in breach of Rule 46A of 1962 Rules. The main grievance of the Revenue in the appeal filed with the tribunal vis-a-vis the relief granted by learned CIT(A) is that assessee has filed additional evidences before Ld. CIT-A which was not forwarded by Ld. CIT-A to the AO and hence there was non-compliance of Rule 46A of the Income-tax Rules, 1962. The assessee has filed additional evidences before learned CIT-A for the first time which were not placed before the AO and this fact is not disputed by learned counsel for the assessee. It is also not disputed by learned counsel for the assessee that no remand report was called by learned CIT(A) from the AO w.r.t. additional evidences filed for the first time before the learned CIT(A) and the AO was not allowed to rebut the same. Rule 46A of the Income-tax Rules, 1962 mandate that learned CIT-A is required to record a finding as to the reasons for the admission of additional evidences as stipulated in Rule 46A and the circumstances under which the assessee will be allowed to produce the additional evidences as are stipulated in Rule 46A(1) of the 1962 Rules. Rule 46A(3) clearly stipulate that learned CIT-A shall not take into account any evidence produced under sub-rule(1) of Rule 46A unless the AO is allowed an reasonable opportunity to examine the additional evidences filed by the assessee and to allow cross examination of the witness produced by the assessee. Rule 46A is not merely an empty formality and principles of natural justice are enshrined in Rule 46A, which are clearly vitiated in the instant case before us as learned CIT(A) admitted additional evidences and adjudicated the issue without forwarding the said additional evidences to the AO for rebuttal. Thus keeping in view mandate of Rule 46A and principles of natural justice, we are of the considered view that relief granted by learned CIT-A cannot be sustained and matter need to be set aside back to the file of learned CIT-A for re-adjudication of this issue on merits after complying with Rule 46A and principles of natural justice . The assessee will be allowed by learned CIT(A) to submit evidences and explanations in support of its contention to sub-serve the interest of substantial justice which shall be

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admitted by Ld. CIT-A and be adjudicated on merits in accordance with law . Needless to say that powers of learned CIT(A) are co-terminus with the powers of the AO. The revenue appeal is allowed for statistical purposes. We order accordingly. 23. In the result appeal of the assessee as well revenue are allowed for statistical purposes.

Order pronounced in the open court on 13.04.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 13.04.2018 को की गई ।

Sd/- Sd/- (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, dated: 13.04.2018 Nishant Verma Sr. Private Secretary

copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, 6. Master File // Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI