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Facts
The Assessing Officer made additions for accommodation entries and commission expenses. The CIT(A) restricted the addition for accommodation entries to 15% and deleted the commission addition. The Revenue appealed against this partial relief.
Held
The Tribunal upheld the CIT(A)'s decision, finding that the Revenue failed to disprove the genuineness of the subcontractor payments and that the disallowance of 100% was not warranted. The commission addition was also found to be unsubstantiated.
Key Issues
Whether the CIT(A) was justified in restricting the disallowance for accommodation entries to 15% and deleting the commission addition, and whether the Revenue proved the payments were not genuine.
Sections Cited
143(3), 147, 148, 115JB, 133(6), 263
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Income Tax Appellate Tribunal, A BENCH, MUMBAI
, 1152 & 1153/Mum/2024 CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 Date Conclusion of hearing : 11.06.2024 Pronouncement of order : 26.06.2024 O R D E R
Per Rahul Chaudhary, Judicial Member
The present batch of appeals preferred by Revenue and cross- objections preferred by the Assessee pertain to Assessment Years 2011-12 and 2012-13. Since identical grounds/cross- objections arising from identical factual matrix were raised the appeals/cross-objections were heard together and are being disposed by way of a common order.
Assessment Year 2011-12 2. With the consent of both the sides, we would first take up appeals/cross objections for the Assessment Year 2011-12 as a lead matters.
We find that two appeals preferred by the Revenue for the Assessment Year 2011–12 are listed before us. The Learned Departmental Representative submitted that the Revenue had filed the appeal electronically and thereafter, furnished appeals in physical form. Two separate appeal numbers, being and ITA No. 1153/Mum/2024, were inadvertently allotted by the Registry for the same appeal. It was submitted that ITA No. 1152/Mum/2024 listed before us be treated as a duplicate appeal and be dismissed as withdrawn. The Learned Authorized Representative did not have any objection to the aforesaid submission. Accordingly, the ITA No. 1152/Mum/2024 preferred by the Revenue is dismissed. CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 Appeal by Revenue : ITA No. 1152/Mum/2024 Cross Objection by the Assessee: Co. No. 71/Mum/2024 4. The appeal filed by the Revenue [ITA No. 1152/Mum/2024] and Cross-Objection filed by the Assessee [CO No. 71/Mum/2024] pertaining to Assessment Year 2011-12 arise from the order of the Learned Commissioner of Income Tax (Appeals)- 50, Mumbai [hereinafter referred to as ‘the CIT(A)’] passed on 31/01/2024, which in turn arose from the order, dated 31/12/2018, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’].
The Revenue has raised following grounds of appeal in
1. Whether in the facts and circumstances of the case and in law the Ld. CIT(A) justified in restricting the addition to 15% of the total addition made by the AO on account of accommodation entries? 2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) is justified in allowing the relief to the assessee ignoring the judgment of Hon'ble Apex court in the case of N.K. Proteins Limited on this issue wherein, the SLP filed by the assessee has been dismissed by Hon'ble Apex Court? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CII(A) erred in not appreciating the decision of CIT(A) in respect of addition on account of accommodation entries after noting that assessee failed to negate the information based on enquiry conducted by DDIT(Inv.), Unit-4(3), Mumbai that they were non- genuine dealers and providing bogus accommodation entries? 4 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the burden of proof cast on the assessee was of a very high degree and assessee failed to discharge this burden? 5 Whether on the facts and circumstances of the case and in law the Ld CIT(A) is justified in holding that there is no CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 documentary evidence to substantiate the allegation of the AO regarding payment of 1% commission expenses to the subcontractors and estimated the commission payment on the basis of assumptions?” 5.1. The Assessee has raised following grounds of cross objection in CO No.71/Mum/2024: “1. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the validity of the reassessment proceedings under section 147 of the Income Tax Act, 1961.
2. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding addition to the extent of 15% on the alleged accommodation entries.”
6. The brief facts, relevant to the adjudication of the issue raised for consideration, are as follows:
6.1. For the Assessment Year 2011-12, the Assessee filed return of income on 29/11/2011 declaring total taxable income of INR.49,36,05,479/- under the normal provisions of the Act. The Appellant declared Book Profit of INR.72,96,88,814/- under Section 115JB of the Act. Subsequently, the Appellant filed revised return of income on 12/04/2012 and thereafter, on 07/08/2012. As per the revised return of income filed on 07/08/2012, the Appellant declared total taxable income of INR.22,06,52,480/- under the normal provisions of the Act, while the Book Profit computed under Section 115JB of the Act did not undergo any revision. Since the tax payable under Section 115JB of the Act was higher than the tax payable under the normal provisions of the Act, Minimum Alternative Tax (MAT) liability of INR.14,54,30,630/- was determined as income tax payable for the Assessment Year 2011-12. 6.2. The regular assessment in the case of the Appellant was CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 completed under Section 143(3) of the Act vide order, dated 27/04/2015. Thereafter, reassessment proceedings were initiated in the case of the Appellant under Section 147 of the Act based on information received from the Investigation Wing – Deputy Director Income Tax (Investigation) – Unit 4(3), Mumbai and notice, dated 27/03/2018, was issued under Section 148 of the Act. Subsequently, reassessment proceedings were completed vide order dated 31/12/2018, passed under Section 143(3) read with Section 147 of the Act. For the purpose of computing income under normal provisions of the Act, inter alia, an addition of INR 8,81,30,000/- was made in respect of the following entries which were held to be bogus/accommodation entries by the Assessing Officer: SNo. Name of the Party Amount (INR) Nature of transaction 1 Kumar Enterprises 6,05,98,000/- Job work (PAN : ADWPG2980N) (sub-contractors payments) 2 Shivam Enterprise 2,75,32,000/- -do- (PAN : ADkPT5556H) Total 8,81,30,000/- 6.3. The Assessing Officer also made addition of INR 8,81,300/- [1% of INR 8,81,30,000/-] in respect of commission paid for the alleged accommodation entries. However, the Assessing Officer made no alteration to the Book Profits computed under Section 115JB of the Act. Since Book Profits computed under Section 115JB of the Act was more than tax payable as computed under normal provisions of the Act (even after the additions), the income of the Assessee was assessed on the basis of Book Profits computed under Section 115JB of the Act.
6.4. In appeal preferred before the CIT(A) in respect of initiation of reassessment proceedings and the above additions, the CIT(A) CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 granted partial relief by restricting the addition on account of accommodation entries to 15% of the sub-contracting expenses (aggregating to INR.8,81,30,000) and deleting the addition of INR 8,81,300/- in respect of commission for the aforesaid accommodation entries. However, the CIT(A) rejected Appellants challenge to the validity of the reassessment proceedings.
Being aggrieved by the partial relief granted by the CIT(A), the Revenue has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 5 above, while the Assessee has preferred cross objections reproduced in paragraph 5.1 above. Since all the grounds raised in the appeal and cross objections are connected, the same were taken up together hereinafter.
We have heard both the sides.
8.1. The primary contention of the Revenue is that the CIT(A) has granted partial relief without appreciating that the Assessee had failed to discharge the onus and establish the genuineness of the payments made to Kumar Enterprises (INR 6,05,98,000/-) and Shivam Enterprises (INR 2,75,32,000/-) engaged as sub- contractors and as well as the commercial expediency of making such payments. Notices issued under Section 133(6) of the Act to both the aforesaid parties could not be served at their office addresses. The Assessee also failed to produce the proprietor/key-persons of the aforesaid parties during the assessment proceedings. As per the report of Investigation Wing money deposited in the bank accounts of the aforesaid parties were withdrawn soon thereafter. This clearly showed that the entities were shell entities not having any business of their own. CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 8.2. Per contra, it has been contended on behalf of the Assessee that the Assessee company was part of Shapoorji Pallonji Group and was involved in execution of large and complex civil engineering projects. The Assessee generally sub-contracted a part of the main contract work to other sub-contractors to ensure timely completion of the contract. The services of M/s. Kumar Enterprises and M/s Shivam Enterprises were availed by the Assessee for ongoing projects and a part of the work was sub- contracted to the said entities. A statement providing details of the projects in respect of which services of the aforesaid parties/sub-contractors were availed was furnished during the reassessment proceedings along with project completion certificate issued in respect of the relevant projects. The payments to the aforesaid parties were made through banking channels after deducting tax at source. During the reassessment proceedings the Assessee had filed copies of invoices issued by the parties, running account bills issued by the parties, PAN of the Parties, bank statements, ledger account of the parties, TDS Certificate issued to the parties, copy of the work orders, and copy of the project completion certificates. Thus, the Appellant had provided sufficient evidence that the services were actually availed and discharged the onus of establishing the genuineness of the transactions. Merely because the third party has not responded to the notice under section 133(6) issued by the Assessing Officer cannot be the reason to conclude that the transactions were not genuine. The withdrawal of cash was routine given the nature of industry since the sub-contractors would be required to make payments of labour charges and daily wages. Appreciating the aforesaid, the CIT(A) granted relief to the Assessee by restricting the disallowance to 15% of CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 payments made the sub-contractors. It was vehemently contended that even the Assessing Officer had itself not doubted the actual performance of work and therefore, entire amount of payment made to the sub-contractors cannot be added in the hands of the Appellant. The CIT(A) had reduced the addition to 15% and in order to avoid protracted litigation the Assessee had decided not to challenge the order of CIT(A). However, since the Revenue has preferred the present appeal, the Assessee has filed the cross-objections.
We have considered the rival submissions and perused the material on record in relation to grounds of appeal raised by the Revenue. The primary grievance of the Revenue is that the CIT(A) has reduced the amount of disallowance from 100% of payments made to the sub-contractors to 15% of such payments. According to the Revenue the disallowance made in the hands of the appellant should be restored to 100% of the payments made to sub-contractors. In this regard, it would be pertinent to refer to the following findings returned by the CIT(A) while granting partial relief to the Assessee:
“11. The appellant is in the business of involved in the execution of large and complex civil engineering projects in India as well as abroad. For the purpose of carrying out work, the appellant had engaged several sub contractors. There is no dispute on the fact that, the projects for which the sub-contractors were deployed have been completed and handed over to the clients who were various Government and semi-Government authorities. It was not possible for the appellant to carry out such contract work without engaging sub contractors to carry out the same. It is also not a matter of dispute that the income earned from such activities has been offered for tax. At the same time, it is also observed that these contractors were not traceable on the address provided by the appellant. In the said facts of the case, the entire subcontract payment made to these two CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 subcontractors cannot be disallowed. In the identical set of facts, the Honble ITAT Ahmedabad as discussed above, in case of Ultratech Transmission (P) Ltd, relying on various decision, has restricted the disallowance to 10%. In the Appellant’s own case for the A.Y 2010-11, on the same facts, the A.O, disallowed 12.5% of subcontract charges.
In the backdrop of these facts, in my opinion to cover up the discrepancies, disallowance to be restricted to 15 % of the total payments made to the two sub-contractors. Accordingly the ground no 4 is PARTLY ALLOWED” (Emphasis Supplied) 9.1. In our view, the Revenue has failed to dislodge the factual findings returned by the CIT(A) during the appellate proceedings before us. We find merit in the contention advance on the behalf of the Appellant that the Assessing Officer has failed to bring any material on record to establish that the work was not actually performed and therefore, disallowance of 100% payments made to sub-contractors is not warranted in the facts and circumstances of the present case. In this regard it would be relevant to refer to paragraph 6.5.(n) of the reassessment order, dated 31/12/2018 wherein the Assessing Officer has recorded as under:
“It is interesting to note that the assessee has sub-contracted its work two M/s Kumar Enterprises and M/s Shivam Enterprises which is alleged bogus entry provider therefore if the work has been completed by the assessee company it is not a certain as to how and from whom the work was completed. The completion of work itself prove that the assessee has got were completed either on its own or from some other agencies whose sources of payments have not been disclosed. The above inference are drawn after considering the fact that M/s Kumar Enterprises and M/s Shivam Enterprises are shell companies engaged in providing accommodation entry only. Therefore, ………” (Emphasis Supplied) 9.2. Further, nothing has been brought on record by the Assessing CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 Officer to challenge the veracity of the documents (including completion certificates) placed on record by the Assessee. The CIT(A) has taken into consideration the fact that the notices issued under Section 133(6) of the Act to the two parties could not be served at the office address provided by the Appellant while restricting the disallowance to 15% of payments made to sub-contractors. There is nothing on record to support that the contention advance of the Revenue that 100% of payments made to sub-contractors should be disallowed. In our view, the CIT(A) has rightly restricted the disallowance to 15% of payments made to sub-contractors by taking into consideration the assessment order passed in the case of the Assessee for the Assessment Year 2010–2011 wherein the Assessing Officer had, in similar facts and circumstances, disallowed 12.5% of payments made to sub-contractors. During the course of hearing, it was pointed out by the Learned Department Representative that the Revenue had not accepted the aforesaid assessment order for the Assessment Year 2010-2011 and revision proceedings under Section 263 of the Act were initiated. In this regard, it was clarified by the Learned Authorized Representative for the Appellant that the Revenue had sought to revise the aforesaid assessment order under section 263 of the Act, however, the revision order passed under section 263 of the act was set aside by the Tribunal on the ground that the view taken by the Assessing Officer was a plausible view. Thus, the assessment order for the Assessment Year 2010-2011 on which reliance was placed by the CIT(A) stands restored.
In view of the above and taking into account the facts and circumstances of the present case, we are not inclined to interfere with the order passed by CIT(A) restricting the CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 disallowance to 15% of payments made to sub-contractors. There is nothing on record to persuade us to take a view that disallowance at a higher rate was warranted in the facts and circumstances of the present case. We have already rejected the contention of the Revenue to restore the disallowance at the rate of 100% of payments made to sub-contractors. We also concur with the CIT(A) that in absence of any material to substantiate the allegation that Assessee had paid commission at the rate of 1%, the addition made in respect of commission expenses of INR 8,81,3000/- cannot be sustained merely on assumptions and guess work. Accordingly, Ground No. 1 to 5 raised by the Revenue in the appeal are dismissed. Since we have dismissed the Appeal of the Revenue, the cross objections raised by the Assessee are dismissed as not pressed in view of instructions received by the Learned Authorized Representative. Accordingly, the appeal of the Revenue and the Cross Objections by the Assessee are dismissed.
Assessment Year 2012-13 Appeal by Revenue : Cross Objection by the Assessee: Co. No. 72/Mum/2024 11. We would next take up appeal filed by the Revenue [ITA No. 1149/Mum/2024] and Cross-Objection filed by the Assessee [CO No. 72/Mum/2024] pertaining to Assessment Year 2012-13 arising from the order of the CIT(A) passed on 31/01/2024, which in turn arose from the Assessment Order, dated 31/12/2018, passed under Section 143(3) read with Section 147 of the Act.
For the Assessment Year 2012-13 the Assessing Officer made disallowance of INR 4,79,34,733/- in respect of payments made CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3 to sub-contractors and addition of INR 4,79,347/- in respect of commission for accommodation entries. In appeal CIT(A) restricted the disallowance respect of payments made to sub- contractors to 15% of the payments and deleted the aforesaid addition in respect of commission for accommodation entries. Now the Revenue is in appeal before the Tribunal while the Assessee has filed cross-objections.
During the course of hearing both the sides agreed that grounds raised
in appeal and the cross objection for the Assessment Year 2012-13 are identical to those raised in appeal for the Assessment Year 2011-12. Since there is no change in the facts and circumstances in the case in comparison to Assessment Year 2011-12, both the sides adopted the submission made for the Assessment Year 2011-12 and agreed that our findings/adjudication in relation to grounds of appeal raised in Assessment Year 2011-12 shall apply mutatis mutandis to the corresponding grounds raised in appeal for Assessment Years 2012-13. Accordingly, adopting the reasoning/findings given while adjudicating appeal and cross-objections for the Assessment Year 2011-12 in paragraph 8 to 10 hereinabove, we decline to interfere with the order passed by CIT(A) restricting the disallowance to 15% of payments made to sub-contractors and deleting the addition in respect of commission expenses. Accordingly, Ground No. 1 to 5 raised by the Revenue in the appeal are dismissed. Since we have dismissed the Appeal of the Revenue, the cross objections raised by the Assessee are dismissed as not pressed in view of instructions received by the Learned Authorized Representative. Accordingly, the appeal of the Revenue and the Cross Objections for the Assessment Year 2012-13 by the Assessee are dismissed. CO No. 71 & 72/Mum/2024 Assessment Years : 2011-12 & 2012-3
14. In result, all the three appeals preferred by the Revenue [ITA No. 1149/Mum/2024, 1152/Mum/2024 and 1153/Mum/2024] as well as the two Cross-Objections preferred by the Assessee [CO No. 71/Mum/2024 and 72/Mum/2024] are dismissed.