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Facts
The assessee, M.B. Power (Madhya Pradesh) Ltd., engaged in power generation, faced depreciation disallowances for Assessment Years 2016-17 to 2018-19. The Assessing Officer initiated proceedings under Section 153C based on search operations on third parties (Paras Mal Lodha, Rajiv Saxena), alleging that funds amounting to Rs. 242.33 Crores paid to LANCO's subcontractors were bogus and siphoned off to the assessee's promoters. The Ld. CIT(A) deleted these disallowances, which the Revenue appealed. Additionally, for AY 2018-19, the assessee appealed against the disallowance of employee's PF contribution due to a one-day technical delay, and for AY 2021-22, against depreciation disallowance on new assets for lack of full documentation. The Revenue also appealed for AY 2021-22 against the deletion of an addition related to the reversal of an insurance claim.
Held
The Tribunal dismissed the Revenue's appeals, upholding the deletion of depreciation disallowances. It found no incriminating material seized related to the assessee or the relevant assessment years, statements of third parties were retracted and uncorroborated, and excel sheets lacked evidentiary value. The Tribunal noted the original contract to LANCO was transparently awarded as the lowest bid. For the assessee's appeal concerning delayed PF deposit, the matter was partly allowed and remanded to the AO to verify if technical glitches caused the delay and if sufficient bank balance existed. The depreciation disallowance on new assets was also partly allowed and remanded for the assessee to produce full documentation. The Revenue's appeal regarding the insurance claim reversal was dismissed, as the reversal was supported by facts, accounting standards, and the revenue-neutral position due to the assessee's loss status.
Key Issues
1. Whether depreciation disallowances based on uncorroborated third-party statements and excel sheets from search operations, where incriminating material did not pertain to the relevant assessment years, are valid under Section 153C of the Income Tax Act. 2. Whether delayed employee's PF contribution, attributed to technical glitches, is eligible for deduction under Section 36(1)(va) of the Income Tax Act. 3. Whether disallowance of depreciation on new assets is justified when full documentation for purchase and put-to-use was not provided initially. 4. Whether the reversal of excess income recognized from an insurance claim in prior years, based on a lower final settlement, should be disallowed.
Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
ORDER PER MANISH AGARWAL, AM :
The captioned appeals are filed by the assessee and the Revenue against the order passed by Ld. Commissioner of Income Tax (A)-27, Delhi [“Ld.CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of different assessment orders pertaining to Assessment Years 2016-17, 2017-18, 2018-19 and 2021-22 respectively.
2. As all the captioned appeals filed by the Revenue are having common issues which are inter-linked, inter-connected and this fact has been admitted by both the parties during the course of hearing before us, therefore, all captioned appeals filed by the Revenue are decided by a common order. We first take appeal of the revenue in for Assessment Year 2016-17 as the lead case.
[Assessment Year 2016-17] [Revenue’s appeal] 3. Brief facts of the case are that assessee company is engaged in the business of generation of power through coal-based source. The assessee e-filed its return of income on 30.09.2016 declaring loss of INR 14,78,60,65,595/-. The case was selected under scrutiny and notice under section 143(2) was issued on 28.12.2018. Thereafter, a search and seizure operation was carried out on 28.06.2016 in the case of Sh. Paras Mal Lodha by the Directorate of Income Tax (investigation), Delhi. Based on the statements of Shri Paras Mal Lodha and his trusted employees namely Shri Kailash Mohanty and Lokesh Kumar, the AO has recorded his satisfaction that there are certain payments made by the assessee to M/s LANCO Infratech Ltd. (LANCO, in short) towards installation of its power plant at Annupur, Madhya Pradesh. The AO further observed that LANCO had paid certain amounts to five firms of around 242 crores which were bogus in nature and no actual work was done by these firms. Accordingly, in the satisfaction note recorded by the AO wherein the he has observed expenditure relating to the LANCO are bogus and needs further verification and for this purpose proceedings for the year under were initiated/s 153C of the Act, by issue of notice us 153C on 15.10.2020. in response to this notice, assessee filed return of income on 1.04.2021 declaring loss of Rs. 1494,01,67,940/-.
Sections Cited
250, 143(2), 153C, 153A, 132(4), 132(4A), 127, 34, 36(1)(va), 143(3), 2(24)(x)
AI-generated summary — verify with the full judgment below
4. Thereafter, the AO issued various notices and final show cause wherein the Ao alleged that the assessee has awarded EPC contract to LANCO, who sub-contracted the work to 05 companies namely, Patel Engg. Ltd, J. Kumar Infra Projects Ltd., PNC Infratech Ltd., Moderns Infra Projects India Ltd. & Technofab Engineering Ltd. The AO observed that during the course of search at the premises of Paras Mal Lodha, various documents relating to the contract entered between LANCO and these five companies were found. Further the AO, based on the entries found noted in the excel sheets available in the digital data seized during the course of search, has quantified that total sub-contract work orders of Rs 242,33,64,975/- were issued to these companies are bogus. Further a search was carried out in the case of Moser Bear/ Hindustan Power group on 07.04.2019, wherein, Shri Paras Mal Lodha and his employee, Shri Lokesh Kumar were also again searched by the Department.
5. The AO in the order passed u/s 153C r.w.s.153A of the Act relied upon the statements of Shri Paras Mal Lodha and his employee, Shri Lokesh Kumur recorded on 07.04.2019 u/s 132(4) of the Act, wherein, Shri Lokesh Kumar has admitted that the transaction by LANCO with the above mentioned 5 companies were bogus transactions. The AO also referred the statements of Shri Paras Mal Lodha recorded during the course of search on 10.04.2019, wherein, Shri Paras Lodha has admitted that these five companies have further sub-contracted work to other entities from where the funds were siphoned off abroad through hawala for use by promoters of the assessee group i.e. Deepak Puri and Ratul Puri. Thus, on the basis of these statements, AO held that funds received from LANCO by these 5 companies for carrying out civil works were then siphoned off abroad through Hawala transactions. Accordingly, by holding the payments made to the LANCO of 242,33,64,975/- were subsequently transferred it to the above mentioned five companies in the year 2011 was bogus and thus disallowed the depreciation of Rs 36,35,04,746/- computed @15% by holding that the total cost to the extent of the sum paid to these five companies by LANCO is bogus and thus do not form part of the total cost of the power plant.
6. Against the said order, assessee filed an appeal before Ld. CIT(A) who vide common order dated 26.10.2023 for AY 2016-17 and AY 2017-18 allowed the appeal of the assessee.
Aggrieved by the order of Ld.CIT(A), Revenue is in appeal before the Tribunal by taking following grounds of appeal:-
1. “The Ld. CIT (A) has erred on facts and in law by allowing the appeal of the assessee by deleting the disallowance of depreciation of Rs. 36,35,04,746/- made in the hands of the assessee.
2. The Ld. CIT(A) has erred on facts and in law by ignoring the statement given by both key persons i.e., Shri Lokesh Kumar, an employee of Shri Parash Mal Lodha and Rajiv Saxena that no actual work had been done by the 5 bogus entities namely (1) Techno Fab Engineering Ltd., (2) M/s J Kumar Infraprojects Ltd., (3) M/s Modern Infra Projects India Ltd.. (4) M/s Patel Engineering Ltd. and (5) M/s PNC Infratech Ltd.
3. The Ld. CIT(A) has erred on facts and in law by not appreciating the fact that all corroborative evidences/files retrieved from the soft data, seized in 2 separate searches in case of different individuals, wherein certain transactions of the fund siphoned off abroad by Mr. Paras Mal Lodha, are matched with the fund siphoned off.
4. The Ld. CIT(A) has erred on facts and in law by holding that incriminating material on the basis of which satisfaction note was drawn by the AO, does not pertain to A.Υ 2016-17 whereas the incriminating material clearly indicates that the assessee company
had wrongly started to claim deprecation on bogus capital from A.Y 2016-17 and onward. 5. (a) Whether 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.”
Since all the grounds of appeal taken by the revenue are in respect to the deletion of the disallowance of depreciation claimed towards the total cost of power plant which includes cost of Rs. 242,33,64,975/- alleged as bogus thus, the cost to the extent of this sum could not form part of total cost capitalized during the year of power plant owned by the assessee situated at Annupur, Madhya Pradesh
Before us, Ld. CIT DR for the Revenue vehemently supported the assessment order. He submits that a search action was carried out in the case of Shri Paras Mal Lodha on 28.06.2016 wherein it was found that Shri Paras Mal Lodha was involved in large scale Hawala transactions and also engaged in providing accommodation entries of bogus expenditures on commission basis. As per ld. CIT DR this fact was admitted by Shri Paras Mal Lodha, his trusted employees and close associates namely Shri Kailash Mohanty & Shri Lokesh Kumar. Further, during the course of search, various documents were found and seized containing entries of Hawala transactions carried out between Shri Paras Mal Lodha and one person Shri Rajeev Saxena on behalf of Moser bear/Hindustan Power Group promoted by Shri Ratul Puri and his father Shri Deepak Puri and the assessee part of Moser bear group. These documents include invoices, bills etc. related to the power plant project constructed / commissioned by Lanco Infratech Ltd. (“LANCO”) owned and installed by the assessee company at Annupur, Madhya Pradesh. Ld. CIT DR submits that based on these documents, satisfaction was recorded in the case of Paras Mal Lodha and proceedings u/s 153C in the case of the assessee were initiated. Ld. CIT DR drew our attention to the fact that assessee company has made payment to LANCO in various AYrs starting from AY 2010-11 to 2017-18 towards the cost incurred on power plant constructed and commissioned by it. He further submits that LANCO has sub-constructed certain works to various entities which includes Five independent companies namely (i) M/s. Patel Engineering Ltd.; (ii) M/s J Kumar Infratech; (iii) M/s PNC Infratech Ltd.; (iv) M/s Modern Infra Projects India Ltd.; and (v) M/s Technofab Engg. Ltd. and total work of INR 242.33 crores was sub-let to these companies. Ld. CIT DR stated that at page 3 of assessment order, one excel sheet in digital data seized during the course of search at Shri Paras Mal Lodha on 28.06.2016 is reproduced, according to which details of payments made to these five companies are appearing. Ld. CIT DR submits that Shri Paras Mal Lodha further admitted that payments made to these companies were bogus and no actual work was carried out by any of these companies and the payments made by LANCO to these companies are ultimately reached to the promotors of the assessee company.
This fact is further re-confirmed by Shri Paras Mal Lodha and his key employees during the course of another search carried out u/s 132 of the Act by the Investigation Wing on 07.04.2019 and AO has reproduced such statements at pages 8 to10 of the assessment order. Ld. CIT DR drew our attention to statement of Shri Paras Mal Lodha and his key employees wherein they stated that all these funds were sent to Shri Rajiv Saxena who was residing out of India and kept these funds on behalf of Shri Ratul Puri. He thus submits that all these payments were routed through LANCO and ultimately received by the promotors of the assessee company. Ld. CIT DR also refers Excel Sheet and tables printed in the assessment order wherein the AO has tried to match the entries found recorded in the documents seized from the possession of Shri Paras Mal Lodha and sheets submitted by Shri Rajeev Saxena to support his finding that the funds received from five sub-contractors were actually siphoned to the promoters of the assessee company outside India. Ld. CIT DR submits that based on these credible evidences, AO concluded that the expenditure to the tune of INR 2,42,33,64,975/- claimed as part of total cost of the power plant is bogus and accordingly, AO has disallowed the depreciation on this amount in the year under appeal.
Ld.CIT DR submits that Ld. CIT(A) has failed to appreciate all these facts and deleted the disallowance so made by observing that payments were made in Assessment Year 2011-12 to LANCO for the work executed by these Five sub-contractors alleged bogus. As per ld. CIT DR, the ld. CIT(A) wrongly observed that total cost recorded in the books of accounts was not doubted in AY 2011-12 and no action whatsoever was taken by the Department in AY 2011-12 to hold the cost to this extent as bogus and therefore, such cost cannot be tinkered/disturbed now after the expiry of almost Five years of recording of the same in the books of accounts i.e. in the year under appeal when total cost on which depreciation is claimed was brought forward from preceding years. Ld. CIT DR submits that it is the first year when the total cost was capitalized and depreciation was claimed thus the AO has every reason to verify and examine the total cost incurred. Ld. CIT DR submits that once the AO had information in his possession that total cost to the tune of INR 242.33 crores was bogus and has been able to establish that this amount was ultimately transferred for the benefit of the promotors of the assessee company. Therefore, the action of the AO in reducing the cost of project by this bogus cost and further disallowing the depreciation on the same, deserves to be upheld. He prayed accordingly.
On the other hand, Ld.AR for the assessee vehemently supported the order of Ld. CIT(A) and submits that expenditure doubted by AO were actually incurred by LANCO and were recorded in its books of accounts and the assessee has no relationship whatsoever with the day to day working of LANCO and made the payments to LANCO towards the work executed by it. The assessee has awarded contract to LANCO after inviting global tenders and appointed Tata Consultancy Engineering Ltd. as lead engineer for the project. Under this bidding process, LANCO was the successful bidder with the lowest cost of INR 4123.27 crores. The work as executed by the LANCO which was examined by the independent consultants appointed on behalf of the assessee company from time to time and after the consent from the independent consultant, payments were released to LANCO for the part work executed by it and verified by the independent consultant. It is also submitted by the ld. AR that the independent consultant firm M/s Lahmeyer International India was appointed by the SBI led consortium and assessee or its management has no control over the day to day functioning of this independent consultant.
Ld. AR submits that the allegation of the AO is that five sub- contractors to whom work was sub-contracted by LANCO had not carried out the work and mere book entries were made however, this arrangement made no impact or effect on total cost incurred by the assessee who is the awarder and had paid to LANCO for the work executed by it and if the LANCO has recorded certain bogus expenditure in its books of accounts, the same cannot be binding on the assessee company, particularly when all the payments were released after proper verification of the work executed. One more fact submitted by ld. AR is that no incriminating paper containing any name / related to the assessee was found / seized from the possession of the Shri Paras Lam Lodha or from the possession of any of his trusted persons and none out of the Five sub-contractor companies are having any direct or indirect relation with the assessee or any of its promotors.
14. Ld.AR further submits that the expenditure doubted by AO were incurred in the Financial Year 2010-11 relevant to Assessment Year 2011-12 where no doubts were raised by the AO on the cost recorded in the books of accounts by the assessee company. It is further submitted by Ld.AR that cost was recorded in the books of accounts of assessee company in respective assessment years when same was actually incurred and therefore, the doubt, if any, could only be examined/verified in that particular assessment year therefore, even otherwise, doubting such cost in the year under appeal is beyond the jurisdiction, scope and power of the AO.
Ld. AR further submits that AO has placed heavy reliance on the statement of Shri Paras Mal Lodha and his business associates and also the Excel Sheet provided by Shri Rajeev Saxena, who was alleged the person managing the funds generated from this transaction outside India on behalf of the promotors of assessee. However, Shri Paras Mal Lodha has retracted from the statements and once the statements were retracted their evidentiary value has lost and such statements cannot be given credence unless corroborative material / evidences were brought on record. Ld. AR further stated that, in the case of Shri Rajeev Saxena, inquiries was carried out by the Enforcement Directorate and after making concrete verification of the entries found noted in the said Excel sheets, in the petition filed before the Hon’ble Delhi High Court, in para 41 of such petition, the Enforcement Directorate itself requested to remove Shri Rajeev Saxena as approver has he had fudged the documents to give them shape which suits his interest and had failed to give true and full disclosure to the facts. As per ld. AR the entries contained in the excel sheets cannot be held as incriminating material more particularly when no reference of any such sheets was made in the satisfaction note recorded in the case of the assessee nor any satisfaction was recorded by the AO of Shri Rajiv Saxena that such sheets belonged to assessee. Ld. AR submits that the statement of Shri Paras Mal Lodha and his associates and excel sheets submitted by Shri Rajeev Saxena should not be made the sole basis for doubting the cost incurred by the assessee on the construction of power generation plant and therefore, he submits that the total cost recorded in the books of the assessee is correct and requested for the confirmation of order of Ld. CIT(A) deleting the disallowance of depreciation made by the AO.
Besides, ld. AR made detailed written submissions which is reproduced as under:-
Background facts On 04.06.2008, Hindustan Thermal Power Projects Ltd. (HTPPL), the holding company of the assessee signed an MOA with Govt. of Madhya Pradesh to build, own & operate 1200 MW (2×600) thermal power plant at Anuppur, MP. (briefly “Anuppur power plant). The assessee a Special Purpose Vehicle / Generating Company was formed to establish and operate Anuppur power plant. By the Implementation Agreement dated 1st December 2009, the execution of the MoU was assigned to the assessee. Award of contract to LANCO on 20.12.2010 The assessee to build Anuppur power plant, entered into an agreement with Lanco Infratech Ltd. (briefly “LANCO”), a Hyderabad based company. Process of award of contract to LANCO - Page 11 of the order of CIT(A) Contract to LANCO was awarded through International competitive bidding (“ICB”) process., which inter-alia proceeded as under: Tata Consulting Engineers Ltd (TCE) was lead Engineer for the project.
On 06.02.2009, a notice inviting tender for supply, installation, commissioning and testing of thermal power plant was published in all editions of “Economics Times, a copy of which is at page 1 of the paper-book. Fourteen parties, submitted their technical & financial credentials & sought quotations documents. Based on evaluation, following seven parties were required to submit their proposals (i) BHEL, (ii) Punj Lloyd, (iii) Lanco Infratech Ltd, (iv) China Datang- Gannon Dunkerly JV, (v) Speco Electrical Power Construction Corp, (vi) Essar Construction (India) Ltd & (vii) Reliance Infrastructure Ltd. Out of seven parties, bids were submitted by the following five parties, namely (i) Punj Lloyd, (ii) BHEL, (iii) Lanco Infratech Ltd, (iv) China Datang- Gannon Dunkerly JV and (v) Essar Construction (India) Ltd. The bids were examined by TCE and a detailed comparison statement, considering technical & commercial parameters was prepared. The comparison statement, which is at page 2 to 5 of the paper-book show that LANCO’s bid at Rs.4123.27 Cr. was lower by Rs.224.34 Cr of the next lowest bid. Accordingly, Letter of Award (LoA) was issued to LANCO on 15.11.2010. LANCO’s bid was also examined by the consortium of banks led by State Bank of India. Since the consortium has been granting lending facilities to number of other power projects, they were in know of competitive pricing in thermal power sector, therefore, their approval vindicates that LANCO’s bid was lowest. Advance against bank guarantee Advance to LANCO of Rs.5,05,94,50,000/- was made against bank guarantee of equal amount in the year 2010 and 2011. The details of advance are at pages 6 - 32 of the paper-book. In March 2011, LANCO sub-contracted a part of the contract to five companies engaged in EPC namely (i) PNC Infratech Ltd. (ii) J Kumar Infratech, (iii) Patel Engineering Ltd, (iv) Modern Infra Projects India Ltd and (v) Technofab Engg Ltd. Online description of the sub-contractors show that they had completed number of infrastructure contracts, both public and private sector are at page 33 to 67 of the paper-book.
Search on Mr. Paras Mal Lodha (a) On 28.06.2016, a search was conducted on Mr. Paras Mal Lodha. During search, following documents were recovered (page 4 of assessment order for AY 2016-17): (i) work order(s) issued by LANCO to sub-contractor Companies (ii) acceptance of work order(s), (iii) corporate guarantee in favour of LANCO and (iv) bills for civil work at power plant by the sub-contractor Companies. (b) From the seized material (extracted at pages 5 to 7 of assessment order dated 3.9.2021), it is evident that all the documents pertained to LANCO and the transactions entered into by it with the sub-contractors and admittedly, the documents relate to the year 2011. (c) Besides above, digital data/excel worksheets - file scan0005.16437_usd.pdf (extracted at page 13 of the assessment order) and file Khosla_7757 (extracted at page 16 to 23 of the order) were also found. The entries in excel files also pertain to the year 2011 / for the entries were for period 17.03.2011 to 19.04.2011. Search on Hindustan Power-project Pvt Ltd, Mr. Lodha and his employee On 07.04.2019, search was conducted on (i) Hindustan Power- project Pvt Ltd, a group company of the assessee (ii) Mr. Lodha and (iii) Mr. Lokesh Kumar, an employee of Mr. Lodha. However, nothing incriminating was found / seized during the search page 68-71 / para 6 & 8 of paper-book. Statement of Mr. Lokesh Kumar recorded on 07.04.2019 and 08.04.2019 Mr. Lokesh Kumar in his statement under Section 132(4) inter- alia stated that there was no actual business relation between LANCO and the five companies to whom the work was sub- contracted (questions were lead questions). Basis the statement of Mr. Kumar, it was concluded that “….the bills, invoices, corporate guarantees were bogus and were prepared / handled by the employee of Mr. Paras Mal Lodha, including himself”. Statement of Mr. Lokesh Kumar was not provided to the assessee, though a part of it is extracted at pages 8, 9 & 10 of the assessment order.
Statement of Mr. Lodha recorded during search on 7th to 10th April 2019 At page 10 of the assessment order, reference has been made to the statement of Mr. Lodha, wherein he has stated that out of the contract amount paid to LANCO, around 250 Cr. being the amount paid by LANCO to sub-contractors was to be routed back to the promoters of Hindustan Power group through Kolkata based ‘Ram-Ram Companies’. It may be noted here that: During search on Mr. Lodha on 7th to 10th April 2019, no incriminating material/ document was seized, neither from his residence nor from the hotel. Statement of Mr. Lodha was also not provided to assessee, though a part of it is extracted at page 10 of the assessment order. Retraction of statement by Mr. Lodha Mr. Lodha vide letter dated 17.04.2019 addressed to Addl. DIT, Inv. Unit-3, (filed on 18.04.2019) has retracted from his statement recorded on 10.04.2019, saying that the statement was taken exerting pressure. In para 6 & 8, it is specifically noted that during search nothing was seized. Copy of letter dated 17.04.2019 is at pages 68 to 72 of paper book. Search on Mr. Rajiv Saxena on 30.06.2019 Though no satisfaction was recorded by Assessing Officer of Mr. Rajiv Saxena, however, the AO of the assessee referring to the file Moser Baer Master (pages 13 to 15 & 18 to 22 of the order) has alleged that entries in file ‘scan0005.16437_usd.pdf’ seized from Mr. Lodha match with file Moser Baer Master maintained by Mr. Saxena, with whom the funds were parked aboard (page 22 of the order). Generation of power Unit - I & Unit – II of the power plant were commissioned on 20.05.2015 & 07.06.2016. As such, LANCO & the sub- contractors executed the work assigned. In fact, revenue of Rs.12445.34 Cr., Rs.2057.52 Cr. & Rs.2620.44 Cr. was earned by the assessee in the financial years 2015-16, 2016-17 & 2017- 18 (pages 57, 103 & 112 of the paper book). Even as on today, power plant is functional and regularly supplying power to many states. Satisfaction of the Assessing Officer Basis the document seized during search on Mr. Lodha on 28.06.2016 AND the statements of Mr. Lokesh Kumar and Mr. P.M. Lodha recorded under Section 132(4) on 7th to 10th April 2019, the Assessing Officer of the assessee recorded the satisfaction to initiate proceedings u/s 153C on 13.10.2020 (pages 73 to 77 of paper book) that the promoters of Moser Baer group have siphoned off funds abroad to the tune of over Rs.242 crores through bogus contracts given by MB Power Ltd to LANCO. Satisfaction is not valid The satisfaction is fundamentally invalid, for it was not based on seized material found during search. Except for there is no material to support the inference drawn by the Assessing Officer that the promoters of Moser Baer group have siphoned off Rs.242 Cr. through bogus contracts given by the assessee to Lanco, in respect of general civil works at Annupur Power plant. The loose sheets (excel sheets) have no evidentiary value. In Common Cause v. UOI – known as Sahara Diaries case (2017) 394 ITR 220, Hon’ble Supreme Court quoting with approval CBI v. V.C. Shukla (1998) 3 SCC 410 has observed at page 229 that: “loose sheets of papers are wholly irrelevant as evidence being not admissible under section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value”. At page 230, it was further observed that: “There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co-relations with the random entries.” In Sunil Kumar Sharma v. Dy. CIT (2022) 448 ITR 485, Hon’ble Karnataka High Court has considered almost identical fact situation. In this case, besides the search on the assessee, a search was also conducted on one Mr. Rajendran at New Delhi. During the course of search on Mr. Rajendran, certain diaries & entries relating to affairs of the assessee were found. Statement of Mr. Rajendran was recorded u/s 132(4) of the Act. Basis the statement, not only his case was transferred to New Delhi u/s 127 of the Act but notices u/s 153C were issued to the assessee. On these fact, Hon’ble Karnataka High Court referring to V.C. Shukla (supra) and Common Cause (supra) quashed the notices u/s 153C, issued on the basis of the loose sheets, observing thus at page 504 of the report: “Following the law declared by the Hon'ble Apex Court, I am of the view that the action taken by the respondent- Revenue against the petitioner based on the material contained in the diaries/loose sheets are contrary to the law declared by the Hon'ble Apex Court. In that view of the matter, impugned notices issued under section 153C of the Act, based on the loose sheets/diaries are contrary to law, which require to be set aside in these writ petitions, as the same are void and illegal.” Thus, legal position is settled that the satisfaction must be based on incriminating seized material and the same must pertain to the assessment year in question. The statements without corroboration by the seized material pertaining to the assessee is no substitute of this fundamental requirement. Neither the seized not the Statements were provided to the Assessee Further, the seized material referred to in the Satisfaction Note was not provided to the assessee [page 41-44 of order of the CIT(A)]. The statements relied upon were also not provided. Hence, obviously opportunity to cross examine was also not provided, though the same was requested (page 297 & 301 of paper book). Show-cause notice By the notice dated 17.9.2021, the Assessing Officer required the assessee to show cause why the depreciation on capital work-in- progress of Rs.242,33,64,975/- be not disallowed. Assessment orders dated 30.09.2021 In this background, the Assessing Officer vide separate orders u/s 153C r/w 153A both dated 30.09.2021 disallowed depreciation of Rs.36,35,04,746/- & Rs.30,89,79,034/- on capital work-in-progress of Rs.242,33,64,975/-. In AY 2017-18, WDV of work-in-progress was taken at Rs.205,98,60,229/- (242,33,64,975 - 36,35,04,746). The stand of the assessee on the alleged pay-back by LANCO (a) LANCO bid was lowest. Compared to second lowest bid, LANCO’s bid was lower by Rs.224.34 Cr. This fact is sufficient to discount the theory of kickback.
(b) The consortium bank led by State Bank of India, in accord with ICB was in loop of bidding process and they had also evaluated the bid of LANCO and on being satisfied granted lending facilities. (c) The statements of Mr. Lokesh Kumar and Mr. Lodha that the invoices raised by the five sub-contractors were inflated would mean that “Lahmeyer International India” (LII), appointed by consortium Banks were also hand in glove with the assessee and facilitated the payout. Such an allegation cannot be made merely on the basis of oral statements because the work undertaken by the sub-contractors was actually executed and were supported by documentary evidence, which were examined by LII. Copies of first five ‘Construction Monitoring Reports’ carried out by LII, which are at pages 119 to 286 of paper book are self-speaking. (d) If the AO was not convinced of the reports of LII, he ought to have confronted LII. Without confronting LII, Construction Monitoring Reports cannot be brushed aside. Not only, LII was not confronted but even TCE was also not examined. (e) Payments to sub-contractors were inclusive of service tax @4.12% and TDS @2%. Further, since the payment made by the assessee to LANCO also included MP VAT @5%, therefore, total statutory levies were more than 11%. Considering the entire gamut of facts, the inference of payback would have made the execution of project unviable for LANCO, for its bid was lowest. (f) In June 2017, the Assessee encased the bank guarantee issued by LANCO. Refence in this regard is made to balance sheet for the year ended on 31.3.2018 [page 78 to 118 @ 112 (Note 43)]. It also proves that there was no under-hand understanding with LANCO. Had it been so, the Assessee would not have encashed the bank guarantee. (g) There is no document suggesting payment of kickbacks by LANCO to the assessee. The entire case of the Assessing Officer rests on the premise of the statement, having no evidentiary value. In any case, no addition can be made on the basis of statement. (h) Capital work-in-progress of Rs.1838.15 lakhs as at 31.03.2018 was pledged as security, for current & non-current borrowing (page 91 r/w 113 of paper book). Since banks before releasing the loan do make due diligence of the security, hence, the inference that work-in-progress was inflated was not correct. (i) The Respondent Company has produced a chart which gives details of 14 thermal power projects executed in India by several state-owned corporations like NTPC, NLC Tamil Nadu, Vallur Thermal Power Station etc. as also private corporations. It is seen from the chart that each of these 14 projects received approval of tariff based on the cost of setting up the power projects by the relevant Electricity Regulatory Commissions, including the Central Electricity Regulatory Commission and several State Regulatory Commissions as the case maybe. The chart gives references to the relevant Regulatory Commission orders in this regard, which constitute publicly available record. It is further seen from the chart, that the cost of setting up thermal power ranges from Rs.6.13 crore per MW in respect of a project set up by a joint venture of Karnataka Power Corporation Ltd. and Bharat Heavy Electricals Ltd. (being the highest in cost) and significantly the lowest cost is of Rs.4.49 crore per MW for projects set up by the Respondent Company and another Koderma TPS of DVC. The comparison statement, would show that Lanco’s bid at Rs.4123.27 Cr. was lower by Rs.224.34 Cr of the next lowest bid. Accordingly, Letter of Award (LoA) was issued to Lanco on 15.11.2010. (j) The aforesaid chart produced by the Respondent Company prima facie establishes the highest bona fides in favour of the Respondent Company whose cost of setting up the power plant in question, in respect of which the assessing officer levels the serious allegation of over invoicing by Rs.250 crore, is one of the lowest in the country and lower by a significant margin even when compared with projects set up by state entities like BHEL, NTPC etc., which are regarded as ‘Maharatna’ enterprises by the Government of India. (k) Further significantly, ‘Maharatna’ entity like BHEL participated even in the bid that was taken out by the Respondent Company. Despite this, it is submitted that it is Lanco that succeeded as its bid was inter alia lowest in price. Not only this, before issuing the LOI in favour of Lanco, the consortium of lenders (led by SBI) also evaluated Lanco’s bid (l) The aforesaid facts undermine and belie the allegation of the contract being executed with a kickback of Rs.250 crore. The requirement of recording of satisfaction by the AO of the searched person was not met No such satisfaction was provided to the assessee nor has the same been referred to in the Satisfaction Note dated 13.10.2020. It may be noted that satisfaction in the case of the assessee was recorded by ACIT,
Circle 16(1), Delhi and the case of the assessee was centralized with Central Circle-20, New Delhi in February, 2021 and made the assessment under Section 153C of the Act. Order of the CIT(A) dated 26.10.2023 The CIT(A) requisitioned assessment records from DCIT, Central Circle-20, Delhi on 20.10.2023 and having verified the facts has recorded following finding in para 6.2 of the order: “iii. In para 6, the AO has listed the documents seized from the premises of Paras Mal Lodha in the course of that search. iv. When these listed documents were examined, it is found that they pertain to transactions amongst various third parties with whom LANCO has transacted. v. The file found at the premises of Shri Rajiv Saxena i.e. scan0005.16437_usd.pdf contains the data which pertains to Jan-2011 while work orders had been given to these 5 subcontractors by Lanco in the month of March- 2011. Therefore, it is difficult to presume that these subcontractors had repaid part of the advance amount in the form of kickbacks to M/s Lanco as early as Jan-2011 that is prior to receiving any payment from Lanco. vi. The listed documents do not support the finding of the Ld. AO that the assessee company had entered into any dubious arrangement with LANCO to raise bogus bills in respect of the work awarded.” Having discredited the satisfaction recorded by the Assessing Officer, the CIT(A) deleted the disallowance inter-alia holding in para 6.2(xvi) that: “… all the transactions in respect of award of sub contracts pertain to AY 2011-12. If Id. AO was convinced that these contracts were sham, he should have initiated the proceedings u/s 153C r.w.s. 153A of the IT Act, if permitted by the provisions of Section 153C of the IT Act, for AY 2011- 12 and decided the matter whether the capital expenditures incurred by the appellant company during AY 2011-12 were genuine or not. Having not done this and further not taking any action in this regard for the AY 2012-13 to AY 2015- 16….”
Propositions I. No document pertaining to the assessee was seized during search on Mr. Lodha Case of the Revenue is that the documents pertaining to the assessee were seized during search on Mr. P.M. Lodha on 28.06.2016. However, all the seized documents relate / pertain to LANCO and the transactions entered into by it with the five sub-contractors. This fact is uncontroverted, for not only the seized documents are set out in para 6 of Satisfaction note but are also extracted in the assessment order under appeal. A bare look at the seized documents, extracted in the order leaves no doubt that the seized documents related to the transactions between LANCO & the sub-contractors. The satisfaction that LANCO has paid around Rs.242 Cr. to sub- contractors and the same was to be routed back to the promoters of Hindustan Power group is inference based on the statements of Mr. Lodha and Mr. Lokesh Kumar. However, there is not even a shred of material in the seized documents to support such an inference. Hence, the fundamental pre-condition to attract Section 153C of the Act was absent in the present case. II. Requirement that seized document must be incriminating was also not met In Pr. CIT v. Abhisar Buildwell (P.) Ltd. (2024) 454 ITR 212, Hon’ble Supreme Court has held that “no addition can be made in respect of the completed assessments in absence of any incriminating material.” Observation in para 12 of the judgment is relevant. In DCIT v. U. K. Paints (Overseas) Ltd (2023) 454 ITR 441 (SC), ratio of Abhisar Buildwell (P) Ltd. (supra) was applied to assessment u/s 153C. Here, the High Court had set aside the assessment u/s 153C for the reason that no incriminating material was found during search. Hon’ble Apex Court upholding the order of the High Court has held that: “As observed hereinabove, as no incriminating material was found in case of any of the Assessees either from the Assessee or from the third party and the assessments were under Section 153C of the Act, the High Court has rightly set aside the Assessment Order(s). Therefore, the impugned judgment and order(s) passed by the High Court do not require any interference by this Court. Hence, all these appeals deserve to the dismissed and are accordingly dismissed.” Hon’ble Delhi High Court in Saksham Commodities Ltd. v. ITO (2024) 464 ITR 1, Neeraj Bharadwaj v. ACIT (2025) 176 taxmann.com 692, CIT v. RRJ Securities Ltd. 380 ITR 612 and this Hon’ble ITAT in ITO v. Prajyoti Impex Pvt. Ltd [ITA 9068/Del/2019 dated 10.5.2023] has taken similar view. Since there is no incriminating material pertaining to the assessee having received back Rs.242 Cr. from LANCO was found during search on Mr. Lodha/ Mr.Saxena, therefore, without prejudice to proposition “I” above, jurisdiction u/s 153C was not validly assumed. III. Seized documents did not pertain to the assessment year 2016-17 & 2017-18 Admittedly, the seized material pertains to the period January, 2011 to March, 2011 i.e. assessment year 2011-12, as is evident from the details set out in para 6 of the satisfaction note [page 42-43 order of CIT(A)] and none of the alleged documents relate to the relevant assessment year 2016-17 & 2017-18. In CIT v. Sinhgad Technical Education Society (2017) 397 ITR 344, Hon’ble Apex Court has held that incriminating material which was seized must pertain to assessment years in question. It was observed as under: “……it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. On this proposition, Hon’ble Delhi High Court in Saksham Commodities Ltd. (supra) has this to say “unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the respondents to invoke those provisions. Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered”. [SLP against this judgment has been dismissed (2025) 171 taxmann.com 54 (SC)], In Neeraj Bharadwaj (supra), basis search on Moser Baer group, certain documents relating to purchase of land in the FY 2013-14 were seized, notices u/s 153C for AY 2015-16 to 2020-21 were issued to the assessee, a director and promoter of Moser Baer group. On writ petition, notices were quashed on account of absence of incriminating material for AY 2015-16 to 2020-21. It was held that: “However, it is not necessary to examine whether the purchase of the properties in the name of the Assessee's wife could have a bearing on the income of the Assessee. This is because, in any view of the matter, the said transaction has no bearing on the income chargeable to tax during the AYs 2015-16 to 2020-21. As noted above, the alleged payments in cash were during the financial year [FY] 2013-14 relevant to AY 201415. Thus, such payments may have bearing on the income chargeable to tax during the AY 2014-15. However, the information as noted in the satisfaction note does not provide any ground for issuance of the impugned notices for the AYs 2015-16 to 2020-21.” The CIT(A) while deleting the disallowance has specifically held that the seized documents pertain to assessment year 2011-12. This factual finding has not been discredited. This reason alone makes Section 153C inapplicable to the assessment years 2016-17 & 2017- 18. IV. Jurisdiction u/s 153C cannot be assumed on the basis of third -party statement Moreover, without corroborative evidence, jurisdiction u/s 153C cannot be assumed on the basis of statement of a third party. In CIT v. Anand Kumar Jain (HUF) (2021) 432 ITR 384 (Del), besides search on the assessee HUF, premises of one Pradeep Kumar Jindal were also searched. During search, statement of Pradeep Kumar was recorded u/s 132(4), wherein, he admitted to have provided accommodation entries to the assessee. Hon’ble High Court considering the question “whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) of the Act”, observed at page 390: “The Revenue’s case is hinged on the statement of Mr. Jindal, which according to them is the incriminating material discovered during the search action. This statement certainly has the evidentiary value and relevance as contemplated under the explanation to section 132(4) of the Act. However, this statement cannot, on a standalone basis, without reference to any other material discovered during search and seizure operations, empower the AO to frame the block assessment. This court in Pr. CIT v. Best Infrastructure (India) P. Ltd. [2017] 397 ITR 82 (Del) has inter-alia held that: “38. …statements recorded under Section 132(4) of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal.”
Though in terms of Explanation to Section 132(4) of the Act, statement can be recorded for investigation under the Act, however, such statement can be recorded / relied upon, if the conditions of Section 153C are met. Since during search conducted on 7th / 10th April 2019, nothing was seized, qua the assessee herein and the material seized during search conducted on 28.6.2016 did not pertain to the assessment years 2016-17 & 2017-18, therefore, statements of Mr. Lodha and Mr. Lokesh Kumar recorded under Section 132 on 7th / 10th April 2019 cannot be relied upon to assume jurisdiction under Section 153C of the Act, for the said statements under Section 132(4) were not to determine the total income of the assessee for the assessment year in question.. V. No presumption could have been drawn against the assessee. Section 132(4A) provides that where any books of account, documents etc. is found in the possession or control of any person in the course of search, it may be presumed that such books of account, documents etc. belong to such person and contents of such books and other documents are true. Qua the person searched, the document found may be presumed to be true & correct but not any other person – say, the assessee herein. It would be going beyond section 132(4A) / 292C of the Act to raise any presumption against the assessee herein. Reference may be made to Straptex (India) (P) Ltd. v. DCIT (2003) 79 TTJ 228 (Mum), wherein it was held that: “As per section 132(4A), where any books of account or document is found in the possession and control of any person in the course of search, it is presumed that they belong to such person. Thus, clearly, the presumption is in respect of the person from whom they were found. The use of the words "to such person" in the said section mean the person from whom the books of account or documents were found. Clause (ii) of section 132(4A) provides that the contents of such books of account or documents are true. In our opinion, this presumption can also be applied only against the person from whose possession the books of account or the documents were found.” VI. Denial of opportunity to cross-examine has vitiated the entire proceedings Admittedly, cross- examination of Mr. Lodha, Mr. Lokesh Kumar & others was not granted to the assessee though their statements were detrimental to assessee’s interests and the assessee vide letter dated 29.09.2021 (page 291 to 311 @ 297/301 of paper book) had specifically sought cross examination of persons whose statement were being relied upon. Denial of opportunity to cross examine of aforesaid persons has vitiated the entire proceedings.
In SKM Animal Feeds and Foods (India) (P.) Ltd v. ACIT (2023) 156 taxmann.com 385 Hon’ble Madras High Court relying upon Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3 (SC) annulled the assessment observing that: “……, it is clear that not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity…………….” Reliance is also placed on CIT v. Dharam Pal Prem Chand Ltd. 295 ITR 105 (Del), CIT v. S. C. Sethi [2007] 295 ITR 351 (Raj), CIT v. Eastern Commercial Ent (1994) 210 ITR 103 (Cal). VII. Mr. Lodha has retracted his statement recorded u/s 132(4) Invariably, statements u/s 132(4) are recorded multiples times, under great mental pressure and stress and most of times, the person whose statement is recorded do not have the relevant details, documents etc. In the absence of precise information, statements made u/s 132(4) are often vulnerable. CBDT by Instruction F.No.286/98/ 2013-IT(Inv.II) dated 18.12.2014 has acknowledged the practice of extracting admission during the course of search, which are subsequently retracted and the very purpose of search is defeated. The fact that there is mention in the statements that there was no pressure and the statement was given voluntarily cannot be given much significance, as has been held by Bombay ITAT in Deepchand & Co. v. ACIT (1995) [ITA No.1231/Bom/1993, dt 27.7.1994]: “The stereotyped mention at the end of the statement that whatever was stated was true and to the best of the knowledge and belief and the statement given was voluntary without any threat, force or undue influence, would not mean that they agreed for making additions. Putting certain expression at the end of the statement cannot be taken as true in view of the retraction. Retraction can be made only after understanding the correct meaning and consequences of the statement.” Admittedly, Mr. Lodha by letter dated 18.4.2019 had retracted from his statement recorded during 7th to 10th April 2019. VIII. Satisfaction was not recorded by the AO of the searched persons In any case, to assume jurisdiction u/s 153C, initially the AO of the searched person is required to record satisfaction. In the present case, no satisfaction was recorded by the AO of Mr. Lodha, who was assessed with Central Circle, Delhi. In the satisfaction note dated
13.10.2020, there is no reference to the satisfaction recorded by the AO of Mr. Lodha. In CIT v. Calcutta Knitwears (2014) 362 ITR 673, Hon’ble Apex Court has held that non recoding of satisfaction by the AO of searched person would vitiate entire proceedings. In Bhushan Finance Pvt. Ltd. v. DCIT [ITA 1242/Del/2021 dated 21.8.2024], Hon’ble ITAT has held that: “The Hon’ble Supreme Court in the case of CIT vs. Calcutta Knitwears (2014) 43 taxmann.com 446 (SC), has noted that a satisfaction note is sine qua non and must be prepared by the AO before he transmits the records to the other AO who has jurisdiction over such other person” Reliance is also placed on DCIT v. Aakash Arogya Mindir (P) Ltd. (2015) 58 taxmann.com 293 (Del) and DCIT v. Satkar Roadlines (2015) 62 taxmann.com 327 (Del). SUM-UP In view of what has been put-forth above, assumption of jurisdiction under Section 153C of the Act, for the assessment years 2016-17 & 2017-18 was not valid, for more than one reason. The foremost being the fact that contract to LANCO was awarded through International competitive bidding process. A. The bids received were not only evaluated by Tata Consulting Engineers Ltd but were also evaluated by consortium of banks led by State Bank of India. Hence, inference of kick-back of Rs.242 Cr, through sub-contractors cannot be inferred without the Revenue discharging the onus that lay upon it. There is no incriminating / corroborative material to support the presumption. B. The case of the department is that the entries in digital file seized from Mr. Lodha on 28.6.2016 show payment of kickbacks by sub- contractors in January, 2011, however, LANCO paid advance to sub- contractors on or after 3.3.2011, therefore, serious doubt stand casts on the presumption drawn. C. The disallowance of depreciation of Rs.36,35,04,746/- on work- in-progress on the basis of statements of Mr. Lodha and Mr. Lokesh Kumar was again bad in law because on 18.4.2019, Mr. Lodha had withdrawn / retracted from his statement recorded on 10.4.2019 and the statement of Mr. Lokesh Kumar recorded on 7.4.2019 was not only against the provisions of Section 132(4) of the Act but was also impermissible inasmuch as it was based on documents seized on 28.06.2016. Recording of statement of person other than the person searched after almost three years of seizure of documents is not permissible in law.
D. The requirement of recording of satisfaction by the Assessing Officer of the searched person was not met. Neither such satisfaction was provided to the assessee nor the same has been referred to in the satisfaction dated 13.10.2020, recorded by ACIT, Circle 16(1), Delhi with whom the assessee was assessed prior to centralization of its case with Central Circle-20, New Delhi. E. Though Revenue has relied upon the statements but it has failed to establish link between the seized documents & the statements. In the absence of corroboration, assessee cannot be saddled with liability on the basis of the statement of a third person. Such a course would lead to demand in case of any and every assessee. It is for this reason that Delhi High Court in CIT v. Sant Lal (2020) 423 ITR 1, Pr. CIT v. Manoj Hora (2018) 402 ITR 175 and CIT v. Radico Khaitan Ltd (2017) 396 ITR 644 have deleted the additions. F. The excel files seized from Mr. Rajiv Saxena do not constitute material pertaining to the assessee, for no satisfaction u/s 153C was recorded by the AO of Mr. Saxena. His statement cannot be relied upon, for no opportunity to cross examine him was granted. G. The stand of the assessee on the alleged pay-back by LANCO It is not the case of the Income Tax department that the work awarded to Lanco and carried out by Lanco by itself and through its sub-contractors, including the sub-contractors in question was not carried out. Rather, the material on record proving that work was in fact carried out and completed is exhaustive. It contains detailed commercial and technical contract between the Company and Lanco running into 10 volumes, invoices raised by Lanco, including supporting documents for work undertaken, construction monitoring report of M/s Lahmeyer International India appointed by consortium of lenders led by the State Bank of India and project completion certificates issued by Central Electricity Authority. A collected review of these documents establishes that the work was indeed performed by Lanco and whereafter the project was completed and stands commissioned. Significantly, these documents are on record and have not been refuted. No effort was taken by the assessing officer to summon and/or record the statements of any of these entities including CEA, SBI, Lahmeyer International India etc. despite the fact that the documents on the basis of which the present proceedings u/s 153C have been initiated were recovered by the department as far as back in 2016 itself. The whole case of department regarding inflated value of the contract by INR 250 crore is based on surmises and conjectures and based on oral evidence given by Mr Paras Mal Lodha and his employee Mr Lokesh Kumar. Firstly, there is no document suggesting payment of kickbacks by LANCO to the assessee. Secondly, as correctly held by CIT(A) in the impugned order dated 26.10.2023 (with an obvious typographical error (referring to file found at the premises of “Shri Rajiv Saxena” as the file was actually found at the premises of Mr. Paras Mal Lodha) that: “The file found at the premises of Shri Rajiv Saxena i.e. scan0005.16437_usd.pdf contains the data which pertains to Jan- 2011 while work orders had been given to these 5 subcontractors by Lanco in the month of March-2011. Therefore, it is difficult to presume that these subcontractors had repaid part of the advance amount in the form of kickbacks to M/s Lanco as early as Jan-2011 that is prior to receiving any payment from Lanco.” The aforesaid fact and correctly recorded finding of CIT Appeal nullify the entire case against the Respondent Company which clearly seems to have been proceeded with without due application of mind. There exists no material on record to establish the link between the alleged sub-contractors and the Respondent Company which could at all establish that cash was generated by these sub- contractors and then paid to the Respondent Company’s promoters. The entire link is missing and the allegation that sub-contractors paid MB Power in offshore accounts is fanciful. The legal position is settled that the satisfaction must be based on seized material. The oral statement without corroboration by the seized material pertaining to the assessee is no substitute of the requirement that satisfaction must be based on seized material. It is nobody’s case that either of the aforesaid individuals played any direct or indirect role in the Respondent Company let alone in the awarding and construction of the power project. The evidence is that certain invoices raised by 5 sub-contractors to Lanco were found during search conducted at Mr. Lodha’s office in the year 2016. These 5 sub-contractors were engaged/employed by Lanco to complete the works awarded to it by the Respondent Company. No direct association has been established between the Respondent Company and these five sub-contractors except an oral statement of Mr. Lodha that the sub-contract to these 5 companies was “loaded” by an amount of around Rs.250 crores which was to be routed back to the promoters. The burden on the Assessing officer to establish over invoicing was much higher, which simply cannot be said to have been discharged.
H. Excel sheets do not constitute “incriminating” material The case of the Assessing officer is that some entries found in the excel sheet taken from Mr. Lodha’s search match with some entries in the excel sheets provided by Mr. Rajiv Saxena to the Department. Basis these sheets, it was concluded that Mr. Lodha was involved in the hawala transactions to send the Rs.250 crore abroad which was received by Mr. Saxena in Dubai for the benefit of the assessee Company’s promoter Mr. Ratul Puri Mr. Ratul Puri’s name has not been taken by anyone, including Mr. Lodha and Mr. Lokesh Kumar, both of whom only pointed to the name of one officer of Lanco who was to give them some cheques but did not, to conclude that an unnamed person was involved ex-facie appears to be quite an extra ordinary leap by the department without any reliable piece of evidence. The question that does need to be determined is whether the excel sheets kept by Mr. Lodha and Mr. Saxena could be qualified as incriminating documents and whether such excel sheets are admissible evidence under the law. It is submitted that excel sheets by their very nature can be created and fudged. It cannot be overlooked that the person that is searched by the income tax authorities is generally looking to offset his own culpability upon others and therefore it is not unfathomable that such a person is then not capable of preparing and/or fudging excel sheets to shift his own culpability upon others. For these reasons, it is well settled law that excel sheets are not books of accounts admissible u/s 34 of the Indian Evidence Act. Hon’ble Supreme Court in Ishwar Dass Jain Vs. Sohan Law (2000) 1 SCC 434, has held that: “25. In the recent judgment of this Court in Central Bureau of Investigation v. V.C. Shukla it has been laid down that for purposes of Section 34, “book” ordinarily means a collection of sheets of paper or other material, blank, written or printed, fastened or bound together so as to form a material whole. Loose sheets of paper or scraps of paper cannot be termed as “book” for they can be easily detached and replaced. It has also been held that: The rationale behind admissibility of parties’ books of account as evidence is that the regularity of habit, the difficulty of falsification and the fair certainty of ultimate detection give them in a sufficient degree a probability of trustworthiness.”
When that is the legal position, extracts of alleged account books, in our view, were wrongly treated as admissible by the courts below though the original books were not produced for comparison nor was their non-production explained and nor was the person who had prepared the extracts examined.” In the case of L.K. Advani & Ors. Vs. Central Bureau of Investigation (1997 SCC OnLine Del 382), wherein the Hon’ble High Court of Delhi held that “A book of account” is an internal diary and its shall not be admitted in the courts as evidence as reiterated in Section 34 of Indian Evidence Act, 1872. Relevant para is as under:
Hon’ble Supreme court in the case of Narendra Jayantilal Modi Vs. Vadilal Bapalal Modi & Ors. (1989) 2 SCC 630, the account books were held to be not reliable where other important documentary evidence supporting account books was not produced. Relevant para is reproduced hereinunder: “13. The account books were produced by Defendant 1 with a list of documents, Ext.
Defendant 1, however, did not lead any evidence with respect to the same when his turn at the trial came. As mentioned earlier, he personally avoided the witness box, but examined some witnesses who did not attempt either to prove the books or speak about their authenticity. The books were admitted in evidence and marked as exhibits on the statement of the plaintiff which he made in cross-examination. Some of the books were shown to him and he admitted that they were in his handwriting, but immediately added: “I have written them as per the instructions of Defendant 1 and as directed by him. They are maintained from month to month.” The income from the Naroda chawl which was admittedly very small as compared to the vastness and the present value of the property, was included in the account books. According to the case of the respondent the books are authentic, and disclosed the true state of affairs. There was considerable discussion at the bar before us as well as before the High Court as is apparent from the judgment under appeal, relating to the law of evidence dealing with account books. Reliance was placed on Section 34 of the Indian Evidence Act which provides that entries in books of account regularly kept in the course of business are relevant whenever they refer to a matter into which the court has to enquire. It has been contended on behalf of the respondents that since the plaintiff stated that the books were being maintained from month to month the requirement of law was satisfied. Mr Mehta, the learned counsel for the appellant argued that apart from the formal proof of the execution of the document, the party relying thereon was under a duty to lead evidence in support of the correctness of the entries in the books which is completely lacking here. Besides, it was pointed out that the relevant books are merely joint khatabahis of Samvat 2005 to 2006 equivalent to 1948 to 1949 without the support of primary evidence of the cash books. The other relevant documents which are admittedly in possession of Defendant 1 have not been produced, including the account books of other years during the crucial period, the income tax returns and assessment orders for the period 1946 to 1952 and the counterfoil rent receipts.
It is apparent from the evidence that nobody takes the responsibility of supporting the correctness of the entries in the account books. When they were produced in court the plaintiff filed his objection as per his purshis, Ext. 172 (p. 368 of the paper book). Many of the documents produced by Defendant 1 were accepted, but the account books which were Serial Nos. 123-75 to 123-97 of the list Ext. 123 were in express terms not admitted. The plaintiff said that they might be exhibited, but subject to his objection. Defendant 6 also filed her objection as per the purshis Ext.
The plaintiff did not make any statement supporting the books in his examination-in-chief and only in reply to the question of the cross- examining lawyer of Defendant 1, he stated as mentioned earlier. It is significant to note that by saying that he had written as per the instructions of Defendant 1 he made it clear that he could not vouchsafe for their reliability. In spite of this situation, Defendant 1 could not summon courage to support them either personally or through any witness. No reason has been suggested at all on his behalf as to why he did not produce the other important documents in his possession which would have supported the account books and the joint case of the parties resisting the appellants' claim. In view of all these circumstances we have no hesitation in rejecting the account books as not reliable.” In view of the above settled position of law, the excel sheets recovered from Mr. Lodha and Mr. Saxena, cannot be the basis to establish that the contract was loaded i.e., over invoiced, whereafter funds were generated in cash and then these funds were sent to Mr. Rajiv Saxena for the benefit of Mr. Ratul Puri through hawala.
I. Excel sheet/Data fudged by Mr. Rajiv Saxena In the particular case of Mr. Saxena, it is a well-known fact that Mr. Saxena was brought in by the ED as their approver to aid and assist them in the Augusta Westland investigation and based on which Mr. Saxena provided considerable data to the department including in the form of excel sheets. But soon after, ED itself has taken a position that Mr. Saxena had “fudged” these excel sheets. This is evident from the perusal of the petition dated 14.05.2020 filed by ED before the Hon’ble Delhi High Court (in CRL.M.C. 1477/2020 & CRL.M.A. 6491/2020, CRL.M.A. 7117/2020) seeking revocation of approver status of Mr. Rajiv Saxena wherein the ED states that Mr. Rajeev Saxena has fudged the data in the excel sheet to suit his interest (Para 41, Page 39 of the Petition filed by ED before the Hon’ble High Court):
Given India’s premier investigating agency ED’s own stand that Mr. Saxena’s excel sheets have been fudged by their own approver to suit his own interests and that Mr Saxena is an untrustworthy person involved in manipulating and fudging of documents and evidence, any information provided by and/or linked to Mr. Saxena taints the whole document chain considerably. In the peculiar facts of this present case, any authority relying upon such documents to commence proceedings and draw conclusions purely based on such documents (which clearly are not in the nature of reliable documents such as books of accounts corroborated and supported by underlying documents and record) would cause gross abuse of process and waste significant time and resources. Such documents simply cannot be treated as incriminating documents for commencing and justifying proceedings under section 153C of the Act. The aforesaid conclusion and position would and does hold true even for the excel sheets seized from Mr. Lodha as one cannot rule out the possibility that he would have similarly implicated others to save himself and suit his own interests. In this regard, the judgment of the Hon’ble Delhi High Court in the case of Directorate of Enforcement v Rajiv Saxena’ CRL.M.C. 1477/2020 & CRL.M.A. 6491/2020 and in the Bail Application filed by one Mr. Sanjay Jain in a connected case are also noteworthy. Specifically, on the excel sheets prepared by Mr. Rajiv Saxena, the Hon’ble Delhi High Court has ruled that:
The aforesaid ruling of the High Court only underscores and fortifies the conclusion that neither Mr. Lodha nor Mr. Saxena’s excel sheets can be treated incriminating documents in the peculiar facts of the present case and therefore the decision of the authority to commence proceedings under s.153C was not permissible. In the lights of these facts, no case is made out that the funds in cash were generated through inflating the billing for setting up the power plant, and then these funds were sent to Mr. Rajiv Saxena for the benefit of Mr. Ratul Puri through hawala. Excel sheets recovered from /produced by Mr. Lodha and/or Mr. Saxena has no legal sanctity as these are not legally admissible evidence. In the absence of any evidence to support the stand of department w.r.t generation of cash through inflated billing and/or through any other means, no occasion has ever arisen to send the cash to Mr. Saxena through Hawala on behalf of or for the benefit of Mr. Ratul Puri. In view of what has been put forth above, the order of CIT(A) deserves to be sustained.
Heard the contentions of both parties and perused the material available on record. After considering the facts, allegations of the AO and observations of ld. CIT(A), following facts emerged: a.) In terms of the MOU executed between Hindustan Thermal Power Projects Ltd. (HTPPL) and Govt. of Madhya Pradesh to build, own & operate 1200 MW (2×600) thermal power plant at Annupur, MP., the assessee company was formed as a Special Purpose Vehicle (SPV). b.) The assessee company invited global tender where the Tata Consulting Engineers Ltd was appointed as lead Engineer for evaluate the project. The Tender was participated by as many as Fourteen parties including companies like BHEL, Punj Loyed, Reliance Infrastructure, LANCO etc. After detailed comparisons and the considering technical & commercial parameters, LANCO was awarded the contract who made the lowest bid at Rs.4123.27 Cr. The bid submitted by LANCO was also examined by the consortium of banks led by State Bank of India who had appointed one independent consultant namely M/s Lahmeyer International India to examine and verify the progress of the project on regular basis and after its approval only, payments were released to the LANCO. c.) A search and seizure action was carried out in the case of Sh. Paras Mal Lodha on 28.06.2016 wherein certain documents such as work orders issued by LANCO to sub-contractor Companies, acceptance of work orders, corporate guarantee in favour of LANCO and bills for civil work at power plant by the sub- contractor Companies were found and seized. Besides this certain digital data was also seized containing Excel sheet and incidentally all these documents and excel sheets were related to FY 2010-11. d.) A further search action was carried out in the case of Hindustan Power-project Pvt Ltd, a group company of the assessee, Mr. Paras Mal Lodha and his trusted employee Shri Lokesh Kumar, on 07.04.2019 but no incriminating material / document was found / seized. Their statements were also recorded which were later retracted. e.) After completion of construction, Unit - I & Unit – II of the power plant were commissioned on 20.05.2015 and 07.06.2016 respectively and revenue of Rs.12445.34 Cr., Rs.2057.52 Cr. & Rs.2620.44 Cr. was earned by the assessee in the financial years 2015-16, 2016-17 & 2017-18 respectively for which necessary financial statements are available in paper book pages 57, 103 & 112. f.) No document whatsoever indicating any payment of kickbacks by LANCO to the assessee was found/seized. Besides retracted statements and fudged excel sheets, revenue has not brought on record any corroborative material. g.) All the documents/statements referred by AO were in relation to the transaction between third parties i.e. between LANCO and its sub-contactors and none of the document supports the allegation of the AO that the assessee company had entered into any dubious arrangement with LANCO to raise bogus bills in respect of the work awarded to sub-contractors.
The observations made by ld. CIT(A) while deleting the disallowance as contained in para 6.2 at pages 45 to 51 of the order are reproduced as under:
6.2 Observation and Findings: i. “The satisfaction note was recorded by the AO invoking section 153C on 13.10.2020. ii. The basis of recording this satisfaction note is the documents found in the possession of Shri Paras Mal Lodha in the course of search & seizure proceedings on 28.06.2016. iii. In para 6, the AO has listed the documents seized from the premises of Paras Mal Lodha in the course of that search. iv. When these listed documents were examined, it is found that they pertain to transactions amongst various third parties with whom LANCO has transacted. v. The file found at the premises of Shri Rajiv Saxena i.e. scan0005.16437_usd.pdf contains the data which pertains to Jan- 2011 while work orders had been given to these 5 subcontractors by Lanco in the month of March-2011. Therefore, it is difficult to presume that these subcontractors had repaid part of the advance amount in the form of kickbacks to M/s Lanco as early as Jan-2011 that is prior to receiving any payment from Lanco. vi. The listed documents do not support the finding of the Ld. AO that the assessee company had entered into any dubious arrangement with LANCO to raise bogus bills in respect of the work awarded. vii. No efforts were made either at the stage of post investigation proceeding or assessment proceedings to examine Directors/CFO of LANCO/Kumar Infra Projects Ltd/Modem Infra Projects Limited/Patel Engineering Ltd/PNC Infratech Ltd/Technofab Engineering Ltd, to corroborate the statement of Shri Paras Mal Lodha and his employees. viii. No efforts were made to identify "ram ram se Kolkata parties (20 to 25 in nos. as claimed by Mr. P M Lodha in his statement) to whom back to back contracts were given by these 5 companies and from whose bank accounts the cash was actually withdrawn and delivered to the promoters of the appellant company. ix. No search/survey was carried out on MB Power (Madhya Pradesh) Pvt Ltd/LANCO/Kumar Infra Projects Ltd/Modem Infra Projects Limited/Patel Engineering Ltd/PNC Infratech Ltd/Technofab Engineering Ltd/ram ram se companies, while as per Id. AO the main purpose of conducting search on 07.04.2019 was to establish bogus expenses booked by the appellant. x. Mr. P M Lodha in his statement recorded on 10.04.2019 has stated that the bid of Lanco for Annupur Power Project of M/s MB Power (Madhya Pradesh) Pvt Ltd was overloaded by approximately Rs. 250 crores, is not found to be corroborated by any documentary evidence. On the other hand, it is observed that the appellant company has followed the elaborate process in awarding the subcontract. The process followed by assessee company to award Contract to L1 Bidder is as under (as submitted by the appellant): a. On 06.02.2009, notice inviting tender ('NIT') was published in all the editions of Economic Times, inviting expression of interest ('EOI') for supply, installation, testing and commissioning of coal based thermal power plant on EPC basis for complete equipment, systems including associated civil work for Phase-1 of the said Project. NIT was also mailed to 68 Embassies of various countries in India. The guidelines for submission of EOI document had well defined technical & financials criteria. b. By 16.02.2009, 24 parties had collected the documents for submission of their interest, out of which, 14 parties submitted their technical & financial credentials and sought 'Request for Quotation' (RFQ) document. Based upon credentials, the assessee prepared evaluation report and issued Request for Proposal (RFP) document to following seven (7) shortlisted parties: i. M/s Punj Lloyd ii. M/s Bharat Heavy Electricals Limited iii. M/s Lanco Infratech Limited iv. M/s Essar Construction (India) Limited v. M/s China Datang-Gannon Dunkerly IV vi. M/s Speco Electrical Power Construction Corporation vii. M/s Reliance Infrastructure Limited C. The aforesaid seven (7) potential bidders raised number of queries, which were responded to by the assessee in consultation with Tata Consulting Engineers Ltd. Finally, the bids were submitted by following five (5) parties: i. M/s PunjLlyod ii. M/s Bharat Heavy Electricals Limited iii. M/s Lanco Infratech Limited iv. M/s Essar Construction (India) Limited v. M/s China Datang- Gannon Dunkerly JV d. On receipt of the bids, the same were thoroughly reviewed by the evaluation committee in line with Standard Operating Procedures formulated by the assessee and with the help of the bid consultant ie., Tata Consulting Engineers Ltd. Based upon the offers received and subsequent discussions with bidders, a detailed comparison statement was prepared considering both technical & commercial parameters. Since LANCO's bid was the lowest, and was meeting all the parameters as stipulated, the Letter of Award (LoA) was issued to LANCO on 15.11.2010. e. Before issuing the LOA, LANCO's bid was also evaluated by a consortium of banks led by State Bank of India. f. To substantiate its case, following documents were submitted at assessment as well as appellate stage: * Detailed Commercial & Technical Contract entered between MB Power (Madhya Pradesh) Limited (MBPMPL) and M/s Lanco Infratech Limited (Lanco) * Standard Operating Procedure of approving the Invoices raised by Vendor * Commercial & Technical BID Document submitted by interested bidder * Note for Approval for awarding contract to L1 Bidder after analyzing each BID received in consultation with TATA Consulting Engineers Limited (TCE) * Board Approval for giving authority to enter in to a contract * BG encashment document for Lanco * Detailed Project Report of Anuppur Plant * Online description of alleged 5 companies, showing companies are in RPC business and had completed various Government/private contract successfully in the same fie All the companies are reputed companies and some of them are even listed at Stock Exchange. * List of Invoices raised by Lanco along with copy of Invoices (Including supporting document for work undertaken at Annupur Site) * Detail of Payment made to Lanco Infratech Limited along with bank statement showing payment to the party. * Construction monitoring report of M/s Lahmeyer International India appointed by Lenders. * Detail of TDS deducted on amount paid/credited to Lanco * Project completion certificate
* Comparative chart of several companies commissioned project near to our project commissioning date reflecting hard cost of setting up the project by us is one of the lowest in the industry. * Project Drawing * Note on process followed by MBPMPL to award EPC Contract to Lanco * Newspaper cutting for ICB Bidding * Copy of Ledger accounts of M/s LANCO Infratech Limited for the AY 2011-12 to AY 2017-18 in the books of the assessee company has already been submitted vide letter dated 20.09.2021. * Month wise details of work completed by Lanco Infratech Limited are enclosed herewith along with report of lender appointed engineers. The Id. AO could not find any fault/wrong-doing in the Bidding process through which contract was awarded to M/s Lanco by the appellant company. It is further observed that M/s Lanco was the L1 bidder i.e. all other bids were of higher amount and this bidding process was monitored by M/s Tata Consulting Engineers Ltd and further evaluated by the consortium of Bank lead by the State Bank of India. Therefore, claim of over loading the bid amount by Lanco is not supported by circumstantial evidences. xi. No evidence was found during the course of search operation conducted on the group regarding any receipt of cash or any commission in lieu of payments made through banking channels. xii. The sub contract to Lanco was awarded in the financial year 2010-11 relevant to the assessment year 2011-12. The assessment for AY 2011-12 was completed u/s. 143(3) vide order dated 28.02.2014. The capital expenditure incurred was considered and accepted not only in respect of AY 2011-12, but in all succeeding years. xiii. The Id. AO has failed to categorically identify the capital assets in respect of which depreciation should be disallowed i.e., whether the capital expenditure in respect of Plant & Machinery, Building or any other asset. However, while disallowing the depreciation a blanket rate of 15% was adopted. xiv. Further, action to disallow depreciation has been taken u/s 1530 only for AY 2016-17 and AY 2017-18, while the same issue was involved in the AY 2018-19, AY 2019-20 & AY 2020-21 also, as satisfaction was recorded on 15.10.2020 and therefore 6 previous years starting from AY 2020-21 to AY 2015-16 could have been covered u/s 153C. Not opening of these three AYs u/s 153C of the IT Act while the same issue was prevailing. is not understandable. xv. Now, one of the contentions of the appellant is validity of issuing notice u/s 153C of the IT Act. Hon'ble Delhi Hight Court, in the case of Principal Commissioner of Income... vs Index Securities Private Limited (ITA No. 566/2017), vide its order dated 4.11.2017 has held that, "31 As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of Income Education Society (supra) settles the issue and holds Tax-III, Pune v. Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in CIT-7 v. RRJ Securities (2016) 380 ITR 612 (Del) and ARN Infrastructure India Limited v. ACIT [2017] 394 ITR 569 (Del) also hold that in order to justify the assumption of jurisdiction under Section 153 C of the Act the documents seized must be incriminating and must relate to each of the Als whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act. it is futile for Mr Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment.
In the present case, the two seized documents referred to in the Satisfaction Note in the case of each Assessee are the trial balance and balance sheet for a period of five months in 2010. In the first place, they do not relate to the AYs for which the assessments were reopened in the case of both assessees. Secondly, they cannot be said to be incriminating. Even for the AY to which they related, i.e. AY 2011-12, the AO finalised the assessment at the returned income qua each Assessee without making any additions on the basis of those documents. Consequently even the second essential requirement for assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees.
33. This Court does not consider it necessary to examine the merits of the case as far as the deletions by the CIT (A) of the additions made by the AO under Section 153C of the Act are concerned. In any event, a detailed analysis has been undertaken by the CIT (A) of the materials produced by the Assessee which justified the deletion of such additions. Even on this score, no interference is warranted with the impugned order of the CIT (A).
34. For the aforesaid reasons, the Court finds that no substantial question of law arises from the impugned orders of the ITAT." xvi. On perusal of the assessment order and Satisfaction Note, it is observed that all the transactions in respect of award of sub contracts pertain to AY 2011-12. If Id. AO was convinced that these contracts were sham, he should have initiated the proceedings u/s 153C r.w.s. 153A of the IT Act, if permitted by the provisions of Section 153C of the IT Act, for AY 2011-12 and decided the matter whether the capital expenditures incurred by the appellant company during AY 2011-12 were genuine or not. Having not done this and further not taking any action in this regard for the AY 2012-13 to AY 2015-16 when the appellant was showing the capital expenditure as Work in Progress (WIP) or in other words when the spending on the project cost has not been disturbed or interfered with by the Id. AO and the capital asset is in existence as on 31.03.2016, the assessee is entitled to claim depreciation on the cost which is appearing in the Books of accounts provided the conditions precedent to claim depreciation as per IT Act are fulfilled. Therefore, considering that the material on the basis of which satisfaction was recorded by the ld. AO does not pertain to AY 2016-17, the assumption of jurisdiction u/s 153C of the IT Act is not found to be correct. 6.3 In view of the above discussion, it is held that the addition of Rs.36,35,04,746/- for AY 2016-17 and of Rs.30,89,79,034/- for AY 2017-18 on account of disallowance of depreciation are deleted and these grounds of appeal
are hereby allowed.
7. Grounds of Appeal Nos. 12 & 13 are either general or consequential in nature and therefore not adjudicated separately/at this stage.”
19. With the above facts, order of ld. CIT(A) and submissions of both the parties, issue in hand is discussed and decided as below:
Admittedly and beyond doubts work was in fact carried out and completed in terms of the contract awarded to LANCO running into various volumes duly supported by invoices raised from time to time, including supporting documents for work undertaken. The construction work was monitored by independent consultant firm M/s Lahmeyer International India appointed by consortium of lenders led by the State Bank of India and project completion certificates issued by Central Electricity Authority (“CEA”). A collective review of these documents establishes that the work was indeed performed by LANCO and the power plant was erected and stands commissioned.
No effort was made by AO to make independent enquiries to support his allegation of bogus claim of work executed through five EPC sub-contractors by LANCO by issuing summons and/or record the statements of any of the intermediary or supervisory agency including CEA, SBI, M/s Lahmeyer International India etc. It is also a matter of fact that the documents alleged incriminating and made basis for initiating proceedings u/s 153C of the Act were recovered by the department as back as in the year 2016 when the first search was carried out in the case of Shri Paras Mal Mehta.
It is the case of the AO that sub-contractors appointed by LANCO had not carried out any work and arrived at the conclusion that contract awarded to LANCO was overvalued by INR 242.33 crores however, no document whatsoever, in any manner was found in the form of legally admissible evidence which would suggest that work order awarded to LANCO was at a higher price than normal. In fact, as observed above, the contract was awarded in a transparent and comprehensive manner and entire bid process was going through international Competitive Bidding route involving Comprehensive evaluation,
short listing and elimination at various levels thereby ensuring competitiveness in terms of price, quality and schedule and reputed company like Tata Consulting was engaged for techno- commercial evaluation of the bids received. The bid was made by various companies like BHEL, Punj Llyod etc. Since LANCO has quoted lowest cost at Rs. 4123.27 Cr. the work was awarded to LANCO.
Now coming to main issue, i.e. suppression of cost to the extent of INR 242.33 Cr. through introduction of bogus five sub- contractors in March 2011, however, as per the documents found and seized, funds were generated and received in January 2011 via these sub-contractors i.e. two months prior to the date when sub-contracts were awarded to these Five sub-contractors to whom payments made were held as bogus. Since these payments have no direct or indirect relation with the entries found noted in the documents seized, allegation that the assessee or its management was benefitted by such funds generate in the grab of bogus payments is without any basis. In this regard, as reproduced herein above, ld. CIT(Appeal) at para- No. 6.2 (page No, 45 to 51) of the order has drawn the conclusion which is very conclusive and hereby upheld.
The most important fact is that the alleged transactions were carried out between LANCO and its Five sub-contractors and no transactions of any nature was carried out between these Five sub-contractors and assessee company at all. Further there is no evidence was brought on record suggesting inflation of cost/expenses in the books of the assessee company and/or any evidence of receipt back of cash by the assessee or by any other person on its behalf as a result of such alleged bogus expenditure.
The AO had based his findings on oral statements of Shri Paras Mal Lodha, his trusted person Shri Lokesh Kumar and Shri Rajiv Saxena and some excel sheets provided by Mr. Saxena. It is a matter of record that Shri Paras Mal Lodha retracted from his statements recorded on 07.04.2019 and 10.4.2019 within a short period of seven days vide letter dt. 17.04.2019 therefore, such statement lost its credibility as reliable evidence and no adverse inference could be drawn against the assessee company solely on the basis of such statements of alleged over invoicing/ hawala transaction. Something far more real and credible was required to be brought on record by the AO to support his allegation of bogus expenditure to ultimately disallow the consequent depreciation.
In view of the above discussion, it could be seen that based on oral evidences in the shape of retracted statements the genuinely incurred expenses could not held as bogus. It is settled law that solely oral evidence cannot be relied upon to dispute or negate documentary evidence that too in the situation when such statements were retracted by the person who made them. What is most relevant is that there must exists some corroborative material on record to establish the link between the oral evidence and expenses claimed alleged as bogus in the shape of payment to alleged sub-contractors and to support the allegation that cash was generated through these sub-contractors and received back by the assessee company or any person related to its management. The entire link is missing in this case and the allegation of AO that sub-contractors had paid cash to the assessee in its offshore is without any basis. It is settled legal position that satisfaction must be based on seized material and merely on assumption and presumptions no addition could be made in the case of assessment completed u/s 153C of the Act.
The Hon’ble Apex Court in the case of CIT v. Sinhgad Technical Education Society (supra) held that incriminating material which was seized must pertain to assessment years in question. It was observed as under:
“……it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act.”
Saksham 22. Further the Hon’ble Delhi High Court in Commodities Ltd. (supra) has held that “unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the respondents to invoke those provisions.
Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered”.
In the case of CIT v. Anand Kumar Jain (supra) has held that without corroborative evidence, jurisdiction u/s 153C cannot be assumed on the basis of statement of a third party. The Hon’ble High Court at page 390 has observed as under:
“The Revenue’s case is hinged on the statement of Mr. Jindal, which according to them is the incriminating material discovered during the search action. This statement certainly has the evidentiary value and relevance as contemplated under the explanation to section 132(4) of the Act. However, this statement cannot, on a standalone basis, without reference to any other material discovered during search and seizure operations, empower the AO to frame the block assessment. This court in Pr. CIT v. Best Infrastructure (India) P. Ltd. [2017] 397 ITR 82 (Del) has inter-alia held that: “38. …statements recorded under Section 132(4) of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal.”
With regard to the observations of the AO that the excel sheets of Mr. Rajiv Saxena are also corroborating the payments transferred by the sub-contractors to the management of assessee company through Shri Lodha, it is seen that such sheets were provided by the employee of Shri Saxena on his instructions but no supporting documents such as books of accounts and bank statements etc. were provided by Mr Rajiv Saxena in support of the entries in such sheets.
Moreover, as observed above, these sheets are not forming part of the seized material and, therefore, these excel sheets cannot be considered be treated as incriminating material against the assessee. It is further seen that that Mr. Saxena was brought by the ED as their approver to aid and assist them in some investigation where he had provided excel sheets. However, ED itself hold Shri Saxena had fudged these excel sheets. In this regard our attention is invited by the assessee towards the petition dt. 14.05.2020 filed by ED before the Hon’ble Delhi High Court (in CRL.M.C. 1477/2020 & CRL.M.A. 6491/2020, CRL.M.A. 7117/2020) seeking revocation of approver status of Mr. Rajiv Saxena by observing that he has fudged the data in the excel sheet to suit his interest, the relevant extract of the same as available in the written submission filed by the assessee is reproduced as under:-
24.1. Therefore, the excel sheets provided by Shri Saxena cannot be considered as incriminating documents for commencing and justifying the proceedings under section 153C of the Act against the assessee.
In view of above facts and circumstances of the case, we are of the view that the AO has failed to establish any direct or indirect relationship between the assessee company and the Five sub- contractors who were alleged as bogus solely on the basis of retracted statements of Shri Paras Mal Lodha. Moreover, no material was brough on record to hold that cash were generated through inflating the cost of the power plant, and then these funds were sent for the benefit of management of the assessee company through Shri Paras Mal Lodha. We have already hold that the excel sheets recovered from /produced by Mr Lodha and/or Mr Saxena has no legal sanctity as these are not legally admissible evidence. Further all the payments alleged as bogus were made in the financial year 2010-11 and no action was taken by the department in that year to doubt the cost recorded in the books of accounts. Once the AO has not raised any doubts in the year when cost incurred was recorded in the books of accounts, and the same stood brough forward in the year under appeal forming part of the total cost capitalized during the year under appeal, claim of depreciation on such cost cannot be disallowed. Under these circumstances, we are of the considered opinion that ld. CIT(A) was justified in deleting the disallowance made by AO out of depreciation which order is hereby upheld. Accordingly, all the grounds of appeal raised by the revenue are dismissed.
In the result, appeal of the revenue for AY 2016-17 in is dismissed.
Now we take up the revenue’s appeal in for AY 2017-18.
(Revenue’s Appeal) [AY 2017-18]
In this year, disallowance of INR 30,89,79,034/- was made out of the total depreciation claimed by the assessee on the Written down value of the Power plant owned and operated by the assessee situated at Annupur, Madhya Pradesh by alleging the same as part of the bogus cost recorded in the books of accounts through bogus billings for which depreciation was firstly disallowed in AY 2016-17.
The facts and circumstances existed in the year under appeal and the observations and allegations made by the AO while making the disallowance are the same, as were made in the assessment order for AY 2016-17. Further, Ld. CIT(A) also passed a common appellate order for both the assessment years for deleting the disallowance of depreciation made by the AO.
As there is no change in the circumstances, which fact is admitted by both the parties during the course of hearing and a common submission was made by both the parties, therefore, by following the observations made by us while dismissing the appeal of for AY 2016-17 which are Mutatis Mutandis applied, the Revenue’s appeal for AY 2017-18 in is also dismissed.
Now we take the cross-appeals filed by the assessee and revenue for AY 2018-19 against the order of ld. CIT(A) 27, Delhi in Appeal No. CIT(A) Delhi-27/10030/2020-21 dt.23.11.2023 arising out of the assessment order passed u/s 143(3) of the Act dt. 30.12.2022.
(Revenue’s Appeal) [AY 2018-19] 32. In this year, a disallowance of INR 26,26,33,679/- was made out of the total depreciation claimed by the assessee on the Written down value of the Power plant owned and operated by the assessee situated at Annupur, Madhya Pradesh by alleging the same as part of the bogus cost recorded in the books of accounts through bogus billings.
The facts and circumstances existed in the year under appeal and the observations and allegations made by the AO while making the disallowance are the same, as were made in the assessment order passed for AY 2016-17. Further, Ld. CIT(A) has also followed the findings given in the appellate order for Assessment Years 2016-17 & 2017-18 while deleting the disallowance of depreciation made by the AO.
As there is no change in the circumstances, which fact is admitted by both the parties during the course of hearing and a common submission was made by both the parties, therefore, by following the observations made by us while dismissing the appeal of the Revenue in for AY 2016-17, the Revenue’s appeal for AY 2018-19 in is also dismissed.
(Assessee’s Appeal) [AY 2018-19]
Aggrieved by the order of Ld. CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:-
1. “On the facts and the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming an addition of Rs. 25,08,730/- made by the Ld.. Assessing Officer u/s 2(24)(x) r.w.s. 36(1) (va) of the Income Tax Act, 1961 on account of delay in deposit of employees' contribution to PF despite the fact that the said amount was deposited before the due date of filing of return of income.
2. On the facts and the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition made u/s 36(1)(va) of the Act, by applying the ratio in the case of Checkmate Services P Limited, 448 ITR 518 (SC), delivered on 12th October, 2022 and Explanation 2 to section 36(1)(va) inserted as a clarification in Finance Act, 2021, whereas, during the relevant assessment year, certain Judgments of the High Courts were favoring the appellant on what constitutes the 'due date and these later developments were not available.
3. The appellant craves leave to add, to alter, amend, modify and/or delete all or any of the foregoing grounds of appeal.”
In support of all the grounds of appeal, the assessee has made following submission:
“The due date to deposit employee’s contribution for the Month May was 15.06.2017. The Appellant generated Challan on 13.6.2017, however, due to technical glitches, the challan could be deposited in the bank account only on 16.6.2017 (page 330 of paper book). From Column 20(b) of Tax Audit report, it is evident that delay in deposit of employee’s contribution was only one day (pages 312-326 @ 315 of paper book). Order of CIT(A): The CIT(A) following the judgment of Hon’ble Supreme Court in Checkmate Services (P.) Ltd. v. CIT (2022) 448 ITR 518 has upheld the disallowance. Submissions: That Checkmate Services (P.) Ltd (supra) is not applicable to the facts of the present case, for the assessee had already generated the challan on 13.6.2017 but could not deposit the same due to technical glitches, which was beyond the control of the assessee. Reliance is placed on Tandem Data Processing Pvt. Ltd. v. ADIT [ITA 1519/Ahd/2024 dated 15.01.2025]. Here, also for AY 2018-19 itself, though the assessee for the month July 2017 had generated the challan on 15.08.2017 i.e. on the due date, however, due to technical glitches could deposit the same on 16.08.2017, thereby leading to a delay of one day. ITAT following the order of coordinate bench in FIL India Business & Research Services (P) Ltd. v. DCIT [2023] 154 taxmann.com 251 (Del) deleted the disallowance observing as under: “On going through the facts of the instant case, on perusal of the challans of payment produced by the Counsel for the assessee, we observe that though the assessee had made payment within the due date, however, there was a one-day delay in the date in which this amount was credited to the account of EPF/ESIC. Apparently, this seems to be on account of certain server issues / technical glitches in the system, causing a one- day delay in the date of credit of this amount to the account of EPF/ESIC. As per the challans produced before us, the assessee had made the payment on / within the due date prescribed under the respective Act. In our view, looking into the instant facts, this is not a fit case for making disallowance under Section 36(1)(va) of the Act, since on his part the assessee had made payment within the due date prescribed under the respective Act and it was only on account of a technical glitches, there was a one day delay in credit of such amount to the respective account of the PF/ESIC authorities.”
On the other hand, ld. CIT DR supports the orders of the lower authorities and submits that when admittedly the payment was delayed, in terms of the judgement of hon’ble Supreme court in the case of Checkmate Services (P.) Ltd. v. CIT reported in (2022) 448 ITR 518 (SC), the ld. CIT(A) has rightly confirmed the disallowances and he requested for the confirmation of the order on this issue.
Heard the parties and perused the material available on records. From the perusal of the challan available at paper book page 330, it is seen that the assessee has generated challan on 13.06.2017 at 22:50:36 hrs for INR. 50,12,724/- which includes INR 25,08,730/- towards employees’ contribution towards PF. The said challan is presented on 16.06.2017 at 06:07:34 hrs and realization date as per the said challan is 19.06.2017 at 00:00:00 hrs. From the dates and time, it appears that assessee has paid the amount when the challan is generated online on 13.06.2017 at 22:50:36 hrs. From the date and time of presentation it could be seen that the same was presented before the bank on 16.06.2017 at 06:07:34 hrs. Since the challan is presented in early morning at 6:07:34 hrs. of 16.06.2017 which is much prior to the opening working hours of the bank therefore, it cannot be said that the same was deposited delayed and certainly there was some system errors. It appears that due to some technical glitches only the same was shown presented and cleared after the due date. However, from the details available before us, it is not clear whether during these days i.e. from 13.06.2017 to 19.06.2017, sufficient balance was available in the bank account of the assessee or not?
Though the judgement delivered by the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. (supra) provides that no deduction should be allowed for delayed payments of employee’s contribution towards PF however, exceptional circumstances should be considered. In the present case, as observed above, assessee has been able to demonstrate that challan was deposited within due date and due to technical glitches, it was realized beyond the due date. Thus, by respectfully following the judgement of coordinate bench of Ahmedabad Tribunal in the case of Tandem Data Processing Pvt. Ltd. v. ADIT (supra) and also in the case of Delhi bench of Tribunal in the case of FIL India Business & Research Services (P) Ltd. v. DCIT (supra) wherein it is held that where the delay is due to technical glitches and the circumstances were beyond the control of the assessee, no disallowance should be made u/s 36(i)(va) of the Act. Accordingly, we direct the AO to verify whether sufficient balance was available in the bank account of the assessee during the period from 13.06.2017 till 19.6.2017 when the payment was realized, and if so, no disallowance be made for such technical glitches. With these directions, both the grounds of appeal raised by the assessee are partly allowed for statistical purposes.
In the result, appeal of the assessee in [AY 2018-19] is partly allowed for statistical purposes.
(Assessee’s Appeal) [AY 2021-22] (Revenue’s Appeal) [AY 2021-22]
These are the cross appeals filed by the assessee and revenue against the order of ld. CIT(A)-27, New Delhi in Appeal No. CIT(A), Delhi-27/10030/2020-21 dated 23.10.2023 for AY 2021-22.
(Assessee’s Appeal) [AY 2021-22]
The assessee has taken following grounds of appeal:
1. “On the facts and the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in not squashing the assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961.
2. On the facts and the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming a disallowance amounting to Rs. 1,85,20,443/- made by the Ld. Assessing Officer on account of depreciation on assets including plant, machinery and other equipment put to use during the month of March, 2021.
3. The appellant craves leave to add to, alter, amend, modify and /or delete all or any of the foregoing grounds of appeal. The appellant prays before the Hon'ble Tribunal to delete the addition made by the AO and confirmed by the Ld. CIT(A) and/ or any other relief as the Hon'ble Tribunal may deem fit.”
Before us, Ld. AR for the assessee submitted that Grounds of appeal Nos.1 & 3 raised by the assessee are general in nature and the solitary effective Ground of appeal No. 2 is with respect to disallowance of depreciation of INR 1,85,20,443/- claimed by the assessee on the assets acquired and put to use during the year under appeal which was disallowed on the ground that the assessee failed to file any details like purchase bills, e-way bills etc. nor any details were filed when these assets put to use. Ld. CIT(A) confirmed the findings of the AO for the same reason. Ld. AR drew our attention to various letters filed before AO and before Ld. CIT(A) through which sample copies of bills and other evidences were filed before the lower authorities. Ld. AR submits that the assessee had filed sample copies of bill regarding purchases and also filed details when such assets were put to use however, the same were not appreciated by the AO nor by ld. CIT(A). He thus, prayed that if one more opportunity is provided to the assessee, it would file all the details before AO for necessary verification. Ld. AR further filed submissions on this issue which is reproduced as under:- Ground No.2 (grounds 1 & 3 are general in nature) “During the relevant previous year, addition of Rs.33.94 Cr. was made on which depreciation of Rs.5,22,46,727/- was claimed. Since there was mistake in calculation, the assessee filed fresh calculation claiming depreciation of Rs.1,85,20,443/-. The details of revised calculation are set out at page 15 & 16 of the assessment order. However, even the revised claim was not allowed by the Assessing Officer for the reason that neither any bill/e-way bill of purchase of assets was furnished nor any proof of the asset having put to use was placed on record, except self-generated work completion certificate, which has no authenticity. First appeal In appeal, the CIT(A) upheld the disallowance for the reason that till date the details sought by the Assessing Officer have not been furnished and as such, depreciation as claimed cannot be allowed. Submissions: It is a matter of fact that the assessee by letters dated 9.11.2022, 5.12.2022, 19.12.2022 & 26.12.2022 [pages 92, 155, 157 r/w 211 & 289 of Deptt. paper book] had filed sample of relevant documents. On account of volume of the documents, all bills and supporting documents along-with proof of put to use of the assets could not be filed. Hence, in the interest of justice, it is prayed that the Assessing Officer may be directed to verify the bills and allow the claim in accordance with law.”
44. On the other hand, Ld. CIT DR supports the orders of lower authorities and submits that since the assessee has failed to produce details of assets purchased alongwith relevant proof put to use of the same during the previous year therefore, depreciation claimed on the same was disallowed. However, he raised no objection if the matter is set aside to the file of AO for necessary verification of the bills and date when the same were put to use, as requested by Ld.AR for the assessee.
Heard the parties and perused the material available on records. At the outset, it is seen that solitary reason for disallowing the depreciation on the new assets purchased and put to use during the year was that the assessee failed to produce all the necessary evidences of purchases and put them for use. Before us, it is prayed by Ld.AR that if one more opportunity is given, assessee will produce all the requisite details in support of claim of depreciation. Thus, in the larger interest of justice, we set aside the issue to the file of AO and direct the assessee to produce all the bills and vouchers with respect to new assets purchased and further direct to prove that all these assets were put to use during the year under appeal. With these directions, Ground of appeal No.2 raised by the assessee is partly allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed.
The Revenue has taken following grounds of appeal: 1. “The Ld. CIT(A) has erred on facts and in law by allowing the appeal of the assessee by deleting the reduction in insurance claim under the head of other expenses for Rs. 45,60,29,295/- made in the hands of assessee during the year under consideration which is not pertaining to the year under consideration.
2. The Ld. CIT(A) has erred on facts and in law by ignoring the date of the survey report which was submitted to the insurance company showing that the insurance claim was limited by the insurance companies very much later end of the F.Y. in which such loss was booked. 3. “The Ld. CIT (A) has erred on facts and in law by allowing the appeal of the assessee by deleting the disallowance of depreciation of Rs. 16,12,89,908/- made in the hands of the assessee.
4. The Ld. CIT(A) has erred on facts and in law by ignoring the statement given by both key persons i.e., Shri Lokesh Kumar, an employee of Shri Parash Mal Lodha and Rajiv Saxena that no actual work had been done by the 5 bogus entities namely (1) Techno Fab Engineering Ltd., (2) M/s J Kumar Infraprojects Ltd., (3) M/s Modern Infra Projects India Ltd.. (4) M/s Patel Engineering Ltd. and (5) M/s PNC Infratech Ltd.
5. The Ld. CIT(A) has erred on facts and in law by not appreciating the fact that all corroborative evidences/files retrieved from the soft data, seized in 2 separate searches in case of different individuals, wherein certain transactions of the fund siphoned off abroad by Mr. Paras Mal Lodha, are matched with the fund siphoned off.
6. The Ld. CIT(A) has erred on facts and in law by holding that incriminating material on the basis of which satisfaction note was drawn by the AO, does not pertain to A.Υ 2016-17 whereas the incriminating material clearly indicates that the assessee company had wrongly started to claim deprecation on bogus capital from A.Y 2016-17 and onward. 7. (a) Whether 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.”
The Revenue in Grounds of appeal Nos. 1 & 2 has raised the issue of deletion of addition of INR 45,60,925/- by the AO on account of reduction in insurance claim.
49. Before us, Ld.CIT DR for the Revenue supported the orders of lower authorities and submits that assessee had disclosed additional income in preceding assessment years on account of insurance claim however, complete details were not filed, and it is not clear whether the claim was finally settled. Therefore, it cannot be said that loss occurred to the assessee became final. Ld.CIT DR submits that later, based on final insurance settlement received in the month of May 2021 i.e. after the end of Financial Year, assessee had claimed reduction therefore, the same should not be allowed to the assessee. He submits that AO has rightly disallowed the claim of the assessee on account of reduction in the insurance claim which deserves to be uphold. He prayed accordingly.
50. On the other hand, Ld.AR for the assessee submits that there was a fire accident in boiler of Unit-2 of Power Plant on 16.05.2016 and after getting repaired, the unit was re-started on 14.05.2017. The assessee has lodged claim of INR 144.90 crores on account of restoration cost and INR 665 crores on account of loss of profits with the insurance company. Part of the claim was received in FYs 2016- 17 & 2017-18. Thereafter, in the financial statements for March, 2017 & March, 2018, total sum of INR 480 crores was offered as income under the head “other borrowing income”. For this, Ld.AR drew our attention to page 112 where in Note No.43 of the balance sheet, this issue is explained in details by the Auditors. Ld.AR also drew our attention to page 103 title “other income”, the assessee has shown insurance compensation as income. Ld.AR submits that during the year when the assessee received letter from the Insurance Company about the final settlements in the month of May, 2021, in order to declare true and fair income, assessee has claimed expenditure towards the excess revenue declared in preceding years on account of insurance claim, though the final settlement was of the lessor amount therefore, the claim of the assessee being fully supported by the necessary documents and verified by the Auditors and accordingly, Ld.CIT(A) had appreciated these facts and deleted the additions made by the AO. Ld.AR submits that said disallowance has rightly been deleted by Ld. CIT(A) which orders deserves to be uphold.
In the alternate, Ld.AR submits that entire exercise is revenue neutral, since the assessee has declared losses in all the year when it was offered for tax and also in the year under appeal when reduction was claimed as expenditure. For this, he placed reliance on various judgments forming part of the written submissions which is reproduced as under:-
Ground No.1 and 2 “On 16.05.2016, there was fire accident in boiler Unit-II of the power plant. As such, 600MW unit became non-operational. After repairs, Unit-II became operational from 14.05.2017. The assessee lodged a claim of Rs.144.90 Cr. on account of restoration cost and Rs.665 Cr. on account of loss of profit with New India Assurance Co. Ltd. During the financial year 2016-17 & 2017-18, the assessee received Rs.200 Cr. and Rs.135 Cr. (125 + 10) from the insurance company. In the balance sheet as at 31.3.2018, giving relevant facts, it was explained that the assessee on conservative basis has recognized Rs.86.97 Cr. and Rs.33.02 Cr. towards restoration cost in the year ended on 31.03.2017 & 31.03.2018. Similarly, a sum of Rs.480 Cr. (427.71+52.29- 480) has been recognized as "other operating income" in the aforesaid years. [Page 103 r/w 112 of Assessee's common paper book) By the final survey report dated 03.06.2021, the claim on account of 'business interruption loss was allowed at Rs. 434,39,70,705/- (434.39 Cr). Since the assessee had already recognized Rs.480 Cr. as "other operating income" in AY 2017-18 & 2018-19, therefore, difference of Rs.45,60,29,295/- was reversed and debited to other expenses as 'reduction in insurance claim (Note 31 & 41 to the balance sheet as at 31.3.2021-pages 192 & 199 of Deptt. paper book).
Assessment order The Assessing Officer disallowed the claim of loss inter-alia for the reasons that (i) the assessee did not submit any detail of loss whether it was capital or revenue, (ii) there is nothing to indicate that the claim has achieved finality and (iii) the loss was notional, the assessee presumed that had the accident not occurred, it would have earned profit of Rs.480 Cr. and as such, the expenditure was not real. Order of CIT(A) The CIT(A) held that since admittedly sum of Rs.480 Cr. has been recognized as income in earlier years but the claim was short allowed by Rs.45,60,29,295/-, therefore, analogy of claim of bad debt would apply and hence, disallowance of Rs.4560.29 lakhs requires to be deleted. However, a caveat was put that in case, the assessee receives any extra amount in subsequent year, the same would be liable to tax in that year [para 5.3-page 38 & 39 of the order] Submissions The reason of the Assessing Officer that the assessee did not file any details of the loss incurred is incorrect because complete details are set out in the final survey & loss assessment report dated 03.06.2021, which was filed under the cover of letter dated 17.11.2022. Entire exercise is revenue neutral Since both in the earlier and the year in question, the assessee has been assessed at loss, it matters little whether the income is assessed in the assessment years 2017-18/2018-19 or in the assessment year 2021-22, for the entire exercise is revenue neutral. The Courts have consistently taken the view that in such cases, the Revenue should not agitate the issue. Reference is made to judgment of jurisdictional High Court in CII v. Dinesh Kumar Goel (2011) 331 ITR 10, wherein, referring to CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom), Hon'ble Court has observed thus, "....... The receipts relate to the unexecuted packages, which are not shown in the instant year would be shown in the succeeding year. Rate of tax in respect of companies remains the same in all these years. Therefore, the Revenue does not lose anything, as it would receive the tax on this income in the succeeding year...." To the same effect are the judgments in CIT v. Shri Ram Pistons and Rings Ltd. (2008) 220 CTR 404, CIT v. Triveni Engineering and Industries Ltd. (2011) 336 ITR 374 and CIT v. Modipon Ltd. (No.1) (2011) 334 ITR 102 (Del).”
Heard the contentions of both the parties and perused the material available on record. Admittedly, due to fire, the extra income offered by the assessee in AYs 2017-18 & 2018-19 on account of insurance claim was not doubted by Revenue in the respective years when such income was offered for tax. During the year under appeal, the assessee made a reversal for the excess income offered as the claim was settled by the insurance company therefore, there is no ambiguity in the claim of assessee. Further, though the letter of the final claim is received in subsequent year however, it is received much before the balance sheet date and in terms of the Accounting Standard followed by the assessee company, any event occurred after balance sheet but before signing of the balance sheet, if the same had substantial impact on the financial statement of the assessee, the same should be accounted for in the year itself. Accordingly, the assessee has carried out the necessary entries in the books of accounts with respect to the loss on account of reduction in the insurance claim. Ld. CIT(A) appreciated these facts and deleted the disallowance by making following observations in para 5.3 of the impugned order:-
5.3 Observations and Findings: i. “It is not in dispute that on 16 May, 2016, an accident in the boiler of Unit il, was happened due to which 600MW unit became non-operational for remainder of F.Y 2016-17. The unit was restored to commercial operation in the month of May, 2017. The assessee had claimed of Rs. 144.90 Cr. for restoration related cost and Rs. 665 Cr. for loss of profit with the insurance company. ii. It is also not in dispute that the appellant had recognized the possible recovery of Rs. 480 crores from Insurance companies on account of loss incurred by it on account of accident in the boiler of Unit II. iii. It is also not in dispute that the appellant company had declared this Rs.480 crores as its income in the AY 2017-18 (Rs.427.71 crores) and in AY 2018-19 (Rs.52.29 crores). iv. Now, the appellant has submitted the report of surveyor which shows that claim to the extent of Rs.434,39,70,705/-has only been recommended for approval. v. It is a common understanding that Insurance companies do not approve anything over and above the amount recommended by the surveyor. vi. In other words, there is a good certainty of receiving only Rs.434,39,70,705/- from Insurance companies. vii. Now, the appellant has actually claimed the difference between the income it had declared in AY 2017-18 & AY 2018-19 and which has actually been received i.e. Rs.45,60,29,295/- (480,00,00,000-434,39,70,705) as "other expenses" during the year under consideration. The terminology of other expenses was used because Rs.480 crores were also shown as "Other Operating Revenue" in the AY 2017-18 & AY 2018-19. viii. This whole issue can be understood by applying the analogy of "Claim of bad debt". While deciding the allow ability of bad debt, the criteria is, a. the corresponding income must have been declared in earlier years; and b. the amount claimed as bad debt should have been written off in the books of account of that AY in which bad debts are claimed. Provided if bad debt is recovered in any subsequent year, the same would be liable to be assessed as income of that year. ix. In the present case, the appellant a. has declared Rs.480 crores as its Income in the AY 2017-18 & AY 2018-19 b. not showing the amount of Rs. 45,60,29,295/- as receivable from the Insurance companies against its claim. x. Therefore, there is nothing wrong if the appellant wants to adjust this Rs.45,60,29,295/- as deficit of income/bad debt in the year under consideration. xi. However, in any subsequent year, the appellant receives any extra amount from the Insurance company against the claim as discussed above, same would be liable to assess as income of the appellant of that AY.”
As observed above, the assessee’s claim is duly supported by the respective details and it is also a matter of fact that in all the assessment years, there were loss declared by the assessee therefore, even otherwise no loss to the revenue if the claim was made during the year under appeal or was reduced from the total income for the respective Assessment Years i.e. 2017-18 & 2018-19. Accordingly, we uphold the order of Ld.CIT(A) on this issue. Grounds of appeal Nos. 1 & 2 raised by the Revenue are dismissed.
Regarding Ground of appeal Nos. 3 to 6, Ld. AR for the assessee mainly relied upon the detailed submissions made in AY 2016-17. In this year, a disallowance of INR 16,12,89,908/- was made out of the total depreciation claimed by the assessee on the Written down value of the Power plant owned and operated by the assessee situated at Annupur, Madhya Pradesh by alleging the same as part of the bogus cost recorded in the books of accounts through bogus billings.
The facts and circumstances existed in the year under appeal and the observations and allegations made by the AO while making the disallowance are the same, as were made in the assessment order passed for AY 2016-17 where the AO for the first time has made the disallowance out of depreciation claimed by the assessee installed and operated by it. Further, Ld. CIT(A) has also followed the findings given in the appellate order for Assessment Years 2016-17 & 2017- 18 while deleting the disallowance of depreciation made by the AO.
It is further seen that the AO has not made any disallowance in the AY 2019-20 and 2020-21 out of depreciation claimed on the cost incurred of 242.33 crores in FY 2010-11 and had disallowed the same for the first time in AY 2016-17 when power plant was put to use and assessee capitalized the total cost of power plant from Work-in- progress brought forwards from earlier years.
As there is no change in the circumstances as existed in AY 2016-17 and the year under appeal, which fact is admitted by both the parties during the course of hearing, therefore, by following the observations made by us while dismissing the appeal of the Revenue in for AY 2016-17, the Revenue’s grounds of appeal No. 3 to 6 are dismissed.
In the result, appeal of the Revenue is dismissed.
In the final result, all appeals of the Revenue in [AY 2016-17]; 3870/Del/2023 [2017-18]; 3923/Del/2023 [AY 2018-19]; and 267/Del/2024 [AY 2021-22] are dismissed and appeals of the assessee in [AY 2018-19] and [AY 2021-22] are partly allowed.
Order pronounced in the open Court on 19.12.2025.