DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE)-8(3), MUMBAI, MUMBAI vs. AFCONS INFRASTRUCTURE LIMITED, ANDHERI WEST

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.

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 ITA No. 1152/Mum/2024 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 It was submitted that ITA No. 1152/Mum/2024 listed before us be treated as a duplicate appeal and be dismissed as withdrawn.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

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 ITA No. 1152/Mum/2024: ”

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?”

The Assessee has raised following grounds of cross objection in CO No.71/Mum/2024:

The brief facts, relevant to the adjudication of the issue raised for consideration, are as follows:

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/-

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.

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.

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

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: