M/S MKS ACME BUILD PVT. LTD,NAGPUR vs. D.C.I.T CENTRAL CIR.2)1), NAGPUR

Mitcon Infraproject Pvt Ltd. (MIPL} (AAGCM1868H) Oa Poo PPj,} 1251 284/NAG/2016 MKS CONSTRO 8 Lokshohi Publications Pvt Ltd. (LPPLHAABCL6673L} MITZ Infraproject Pvt Ltd (AAGCM3047A) Sakshi Gruh Nirman Pvt Ltd. (SGNPLJIAAOCS79746] Balaji Stone Crusher & Infraventure Pvt Ltd (AADCB5273C] 9 IO, 11. 12,2 The group has also entered into joint ventures with various other civil contractors of the city to secure some civil contracts; A few of them are listed below: 1 M/s MG Bhangdiya & Hitbhav Engg UJV} (AAOFM474SL) M/s M.G. Bhangdiya & $ S. Patil & Co. UVH(ABIFS3645L} M/s Darshan Construction (JV) {AAHFDO6S4N} Mjs M R Dhoble &s K M Bhangdiya {JVHAAPFMO62ZB) 2. 3 4 123 The nature of the business of the Bhangdiya group primarily is executing civil contracts The group works mainly for Government departments like M/s Vidarbha Irrigation Development Corporation and has been engaged in executing various contracts pertaining to the irrigation projects in the state of Maharashtra During the course 0f Search operations incriminating documents were found and seized from the "esidential premises of Shri Mitesh Bhongdiya. Item no 1 to 65 0f Annexure- B seized from his residence are the diaries containing ledgers, daily cosh books and bank books maintained by the Bhangdiya group. 36 Cash books contained entries for the period from 26/07/2006 to 18/07/2011 ond 27 diaries relate to the financial yeur 2006-07 to 2010-11 whereas the remaining two diaries were maintained for house hold and miscellaneous expenses 4 statement of Shri Mitesh Bhangdiya WaS recorded on oath on 20.07.2011. In his sworn statement recorded during the course of search action, Shri Mitesh Bhangdiya was confronted with the entries borne out from the seized diaries marked as B-1 to B-65 and to explain the contents of these diaries, Shri Mitesh Bhangdiya in his statement recorded has submitted that the entries in the diaries and the ledger pertain to the business receipts and business expenditure The Assessing Officer in the assessment order has recorded finding that as per the item no; 1 to 65 0f annexure-B, it is apparent that the amounts withdrawn from the bank accounts of the sub- contractors were credited to the doily cash balance of Bhangdiya group which was confirmed by Shri Mitesh G, Bhangdiya in his statement duted 14/09/2011 The Assessing Officer has repruduced the statement of Shri Mitesh Bhangdiya recorded on 14/09/2011 in para 6 0f the @ssessment 1252 _ F 5 284/NAG/2016 MKS CONSTRO order The Assessing Officer in the assessment Order has also recorded 0 finding that the seized documents being B+I to B-65 contain entries % all thc Bhangdiya group in cash from RX 2006-07 expenses incurred by onwards and expenses incurred through the bank accounts from F.Y 2009- 10 onwards Thus; the Assessing Officer found that the actual expenses incurred do not match with those shown to have been incurred in the books The Assessing Officer thus concluded that the books of account of Shri MG Bhangdiya maintained far income-tax purpose do not reflect the true business affairs and are not at allreliable The Assessing Officer analyzed the entries in the diuries and took the view that on receipt side various receipts including the withdrawal from the bank ofthe assessee group concerns were recorded und on payment side entries 0f expenses like interest payment repayment of Ioan; deposit into bank account household expenses personal expenses, payment to Various persons in cash and investment in properties are found recorded. It was also noted by the Assessing Officer that some of the entries made in the seized diartes were found reflected in the books %f maintained by the Bhangdiya Group Statement of Mitesh account Bhangdiya was recorded on 20/07/2011. During the course of search; Mitesh Bhangdiya was confronted with the entries borne out from the seized diaries marked B-l to B-65. Im reply to question No. 30 of his statement Mitesh Bhangdiya submitted that the entries in the diories and ledgers pertain to the business receipts und business expenditure but at present it is very difficult for him to state whether the entries recorded in the seized diaries and accounted in the regular books of account and same can be explained only after verification of the entries of the diaries with che regular maintained by the Bhangdiya Group. Shri Mitesh books 0f account Bhangdiya, reply to question Na 38, we noted voluntorily offered additional unaccounted income of Rs26 crores for the block period including the current financial year over and above the regular income declared in the return filed for the assessment year falling within the block period The income so declared are summarized aS under: WHangWY:GLQUP Grand Totdl AY201?-43 [Rs} Ar 06-0} XY2007-08 AY ZOBB-0S AXz0g-14 Ax 210-11 AYZO[J-TZ Purrkglar WtsWLG Bhngdiln Comtract [ncome 0: per priginal retm] [303,90_275 22,00,540 24,96131 [G61,6j 56,370,7I2 543,10,322 714,82,707 Additlanpl Income declared duriny Juney Additionol Income Ofered During Sgorch 66,46,DIB 23,97,61 1194,009 27,04312 1,50,336 864,27,783 5.09,860 27,18,952 524a1,678 25517.293 Controct Ixcoute Declorer 45,66,175 85,Q0,000 2 [zwon,onD 970,00,000 2314,64,076 45,97,901 4BOO,QnD On n353 6 284/NAG/2016 MKS CONSTRO MXGonstoz Yuntkmg Pltd Eortrnc[ Ixrome 05 Perorginai rettNt 182,75.373 [92,75,37} Adrtionwl Ittome dcetured during Sunvey Adilitionert {acumt Ofered Durixg Seorch 104.74,627 164,74,627 Conlract (ncome Declored 397,50,Ot 347,50,00Q M Moheidci Lonzmicion Controft Incymf: Of ner orgumn} retuxn Additionol tncome declored 'during Survey Additiono} Income (ffrerert Dyrlrly Sgarch J6,77,656 325,10,05} 26,48,924 20,60,666 7330,074 "626,15 7,50,488 366,28,174 4,41,836 49,17.076 7,14112 14,13.224 I07,86,30G 26,00,446 37,72673 IB3d,46$ 426,J20 1ZB,61,920 101,73,685 264K,512 347,93,SIV Contrnct Ixcume DJeclored 1tkOD,OD z1z,01,0 52,op,00 40,o,opC Zo2,00,0 178,DO,Dp 3cop,o 822 ,pw,0on MsMtabengg Const AMG Bliulndtk [ ContrLt Incnhie 18 e" OrNnIttH} reqrn Additionol Incomg declared duvitg Swvgy Additiomo} {rrome Offered During Sestr ch 157,47,756 J10,9z,74] 715,[4,147 3SB,75,3z0 74,77,336 1617,07,302 [57,14,964 I9s,QWIis 492,69,083 803,87,112 257,[,820 J90.24,G80 372,22,664 61964,164 Cpntroct Irlenti Declatev 314,67,730 504,90,856 1465,00,080 S4q,0n,00p 2470,00Q 3080,58,578 W E_KAhrinodiko Cnntruct [nctlRN: 05 pet Oholnwl retkra 1018705 32,86,795 27,20,401 21,08,306 61,66,670 32,99234 186,00,111 Additionol Ixcomt declared durIng Svnvey Additiono} [ncon Ofered Qlrirg} Senrch 1412,344 25,22,355 19,09,360 7,50,653 65,94,712 8,90,850+ 10,71234 28,41,041 50,3,*0 33,00,766 134,36,226 Contract Inrome Poclatd 24,31,049 67,00,QUD 57,0,0Op 57,0w,0p0 I200,p00 66,00,00P 391,31,049 MES dgnghuildE Utd psH +54 7 284/NAG/ 2016 ASA MKS CONSTRO Corcact Inrcr' (I" per Origivol !ttiju 34,70,653 34.70.653 Adslitmmol {r1<0JrIt" dcciared daring Sunx Additiorol {ncoxna Offered Durix} Seoe"h [6,29,47 {6,29,347 Contirrc} (ma?rig Dechlzhf S2,00,NOU SLOE,p* MZSHfi ligint unt_Wtilllutv lnp [ Crtrrtty Drcrnpe : pur orillnu} tulrrh 26,84,727 2,Z0,187 4.63.947 4,68.994 30,37,905 Additlrrtu} Incqxne declared dtring Sunvey Addislpnn} Inenrne Offered DurIng Seurch 5,63,503 30,344 5,93,927 2,49,469 13KQQ6 3,80,475 APPEM Contruct {munlnto Doclrerf 32,46310 5,00.0op 4.61.947 6,0n,adp) 40,[2,307 m MfkG Biooding gId SS PATIL I Controzt {ncome 05 per original returi Additkonal Income declored during Evxev Additional Income Offered Durtng Seorch 065,923 477,504 9,43,462 601,929 8,38,506 14,40,515 40,} 40,00p Contrart Ingame Derlored 1o,6?,AS? 1316,130 40,n00 24,23,982 MfKMRbb(tlikg W Contrert Jncome d8 pEY origina} retum Additionol Incomg dectored durng Junt" Addltinngl Incomg Ofered During Sorch 5+4,551 9,32,461 1443Q12 505,444 [1,67.5.39 17,52,908 Contrott Incone Dectared fA,on00 ZI,C,TOD 32,00,@00 8 284[NAG/2016 MKS CONSTRO d55 Hitonn llio Rolect ELld Cnxtroct {ncovne T5 prr oriquno} returm {nsW(Um 4398429 S3,2nOSI [5737,$n Additiorol Income deciored 'during Suurvey Additionui Intum? Offerad During Seorc} 6z,61,Dm0 Mdi,s7I 9,79,849 103,82,520 Eontroct {ncoms DerJared [Z3,0QO 155,/,000 62,00Jp 340,40,0o ActditionLltoome ohersun QE#IOf Indixidual Mfresh Bhangdiyn 74,79,442 74,79442 Klrtkumor Blltgdiy 30,0O,0QD 3 nn,00p Shriknnt Dlangdid 35,OI,Om 3S,un,oo Keshrr Singh Ratele 1n,2,S53 12,04,097 80,93,260 [03,38,910 Conmliduted Ex AL Entitizi Contract Incontb Q5 per orglrol retum Additionoi Incoxlc dclared during Sgryey Additona} [ncolte QJered Jurng Search 60,96,901 349,06,656 414,86,202 91.5_34,018 1107.159.74 956,85,476 278,24,565 3990,49,752 78,1,bn1 251,56,4313 26[.38Q66 5+3,13,590 1104,+,592 26,80,448 51,34533 29,07,Z03 323,92,392 1022.43,67 606,J4,524 216,65,435 2356,01,640 Cntract Icame Dectered 174,28,950 652,35572 705,2[,4473 [652,41,0QW 2129,63.497 (643,0u,do 494#JOW 7451,79,992 Addititfona] Incone fq #4Str 0f Indivldgol 10,42.553 12,03,9Z R0,93,260 [39,79,042 243,18,352 7 Li 2 3 12.4 From the statement 0f Shri Mitesh Bhangdiya, it is apparent that the diary found and seized belongs to the ossessee graup and the assessee group did not disown these diaries even though in the subsequent statement recorded on 27/07/2013 Shri Mitesh Bhangdiya stated that these diaries were primarily maintained by his father Gotumal Bhongdiya The Assessing Officer; we noted, has also observed that these seized diaries also contain the payment made in cash for probable extraneous gratification to various persons including politicians, government officers/officials which are recorded along with their names; dates of payment and amount paid. We noted that the Assessing Officer has not examined these persons for bringing the corroborative evidence on record in support of his finding that the cash +s3 9 284{NAG{2016 I356 MKS CONSTRO has been paid by the assessee group for probable extraneous gratification. We noted that the Assessing Officer made an exercise to match the entries 0f the tax payment and receipt with the entries in the regular books of account of Bhangdiya Group The Assessing Officer came t0 the conclusion that the receipts are predominantly withdrawals from thg bank account by way of creating bogus suh-contract expenditure The Assessing Officer found that the assessee group hasdeducted 0 Sum of Rs361 crores towards the Sub- contract payment agoinst the gross receipts aggregating to Rs.579 crores It was found by him after verifying from Z1 contractors that a sum of Rs.54.40 crore is attributable to the amount deposited in the bank account of the sub- contractor by account payee cheques by various concerns Of Bhangdiya Group, which was subsequently withdrawn in cash and is reflected on the receipt side of the seized diaries The tutal amount S0 reflected in the diaries on the receipt side was computed at Rs.182.52 crore The Assessing Officer added the said unaccounted amount of Rs.182..50 crore in the income of the assessee group concern: A sum &f Rs.54.40 crore WOS udded in proportion to the amount of cheque credited by respective group concern in the hands of the respective group concerns For the balance Gmount of Rs 128.12 crore; the Assessing Officer added the same in proportion to the contract receipt shown by the group concern in the respective assessment years to the total turnover 0f the group concern in that year: Now the question before uS arises whether the said sum of Rs182.52 crores, found recorded in the diaries found during the course of search as receipt being withdrawal from the bank account of the group concern &S well as from the bank account 0f the sub-contractor can be regarded to be the unaccounted incomg of the assessee; At the micro level, if we lvok into the nature Of the receipt it is not denied by the Revenue that the receipt has come from the bank account 0f the assessee group concern and part of the receipt and has come out 0f the cash withdrawn by the sub-contractor to whom the assessee group concern had made the payment The assessment has been made by the Assessing Officer ufs 153A in the case 0f the assessee as well as assessee'$ group concern: Proceedings have also been initiated by the Assessing Officer in the case @f the sub-contractor u/s 153C of the Act: The sub-contractor has submitted the return in response to the notice u/s 153C The sub-contractor has shown the income from the contract receipt being amount paid to them by assessee group. The said income has duly been accepted by the Assessing Officer on Substantive basis in the hands of the sub-contractor The Assessing Officer thus hos duly accepted while framing the assessment of the sub - contractor that the payment received by the sub-contractor from the assessee @S well as the assessee group concern were not bOgus but were the payment received by performing the obligation for & consideration entrusted on them under the sub-contract This denotes that the relationship of the assessee Q5 well 4S assessee group concern with the sub-contractor; 45 genuine; has duly been accepted by the Assessing Officer: Once the sub- contractor has been assessed and their income has duly been accepted by the 10 284/NAG/2016 MKS CONSTRO 854 Revenue; in our view; the Revenue; 0n the basis of the sume fucts in the case of the assessee; cannot toke the view that the payment made to the sub- controctor were bogus Further it i5 not the case @f the Revenue that the Revenue has disallowed the payment made to the sub-contractor It is & case where the Revenue hus added the impugned receipt from the sub-contractor entered into the diaries found and seized during the course @f the Search; From the analysis of these diaries, the Assessing Officer has categorically given the finding that the diaries cansist of the receipt being the withdrawal made by the sub-contractor 0S well 4S the withdrawal made by the assessee from the bank account of the group The diary also consists of the payment some @f which relate to the site expenses, expenses recorded in the books of account investment in the immovable property, personal expenses, expenses for the jewellery @S wcll ds money transferred and the umount paid to various persons It is not the cuse of the Revenue that the assessee has debited the amount paid to various persons intq his regular hooks of account and claimed the deduction 50 that these expenses can be disallowed by applying the explanation to section 37 of the Act In fact the assessee has not claimed deduction of these expenses The Assessing Officer added the receipt being amount withdrawn by the contractor as income of the assessee The receipt in fact is coming out 0f the sub contract receipt of the sub- controctor as well as assessee and group concerns; which has already been assessed to income tax by the Assessing Officer_ The source of the receipt therefore; is apparent Where the nature and source of the receipt stands explained, it cannot be added to the income of the assessee On this basis itself; in our view, no addition in view of the cash withdrawn from the bank account of the group concern and the sub-contractor which are duly disclosed to the department; can be added in the income of the assessee 12.5 This is not the case of Revenue that these cash withdrawals are from the bank account which have not been disclosed to the Revenue or in which the assessee has deposited the cash outside the books pf account So for the source pf the receipt is concerned, It is not denied that the business of the assessee is executing the Government contract and all the receipts in the bank account 0f the assessee is generated only through the contract receipt from the contract taken from the State Government No cogent material or evidence was brought to our knowledge which may prove that the State Government has made the payment to the assessee outside the books of account On this basis itself; we confirm the order of CIT(A) that the addition cannot be sustained 0n the basis of cash receipt found recorded out 0f the cash withdrawal by the assessee 0r the contractor from their bank account: We also noted that the Assessing Officer has not only analyzed the receipt side Of the diaries but has also analyzed the payment side 0f the diaries and found from the payment side that @ sum Of Rs.24.05 crore has been invested +3&5 11 284/NAG/ 2016 1358 MKS CONSTRO in the immovable property outside the books 0f account and similarly, @ sum 0f Rs.8.47 crore has been utilized 05 expenses outside the hooks Of account As regards to observation of outgoings observed by the Assessing Officer in respect of seized document; it is noted that the Assessing Officer has mainly drawn adverse inference without there being any material evidence on record for such conclusign, Even before uS; no corrobarative evidence were referred to and brought on record. Thus, the outgoing/investment to the extent of Rs.32.52 crore cun be regarded to hove been incurred by the assessee outside the books of uccount but the same ure spent out of money withdrown from bank the source thereof cannot be regarded to be unexplained We noted that in this case the assessee DS well &s assessee group concern; during the course of search. surrendered @ sum of Rs.26 crore and accordingly filed the return in response to the notice U/s 1534, At the most the Assessing Officer could have made the additivn in respect of the unaccounted investment provided they are not covered by the amount surrendered by the assessee during the block period. In fuct; in our view; the source 0f the said expenditure shown in the diary is also coming out of the cash withdrawal from the bank5 of the group concern as well as of sub- contractor which has already been disclused to the Revenue and the receipt thereof has already been assessed t0 income tax 12.6 We nated that the business income assessed by the Assessing Officer in percentage of the gross receipt in the hands of the various group concern varies from 9.34% to 129.92% as Is apparent from the following chart;: Particular AY2006-07 Ar 2007.08AY2008-0Q AX20Q9- AFZO1o- aY 2011-12 AK2012-13 Iq 11 Mfs MG Bhongdiya 11.790 MKS Constro Ventur P Ltd 41279 35,609 18.60% 27 4469 495026 9.340 Mfs; Wahendro 1078% Construction M/s Mahendra Const & M. G. Bhangdiya JV 43,130 25.4436 11.04w, 21.79CR 33,0596 27.739 49,539 73.4496 17, 692 41.81% 16,039 M/ $ , K.M_Bhongdivo 11,9796 23,399 26.769 26.2696 15.220 13,949 MKS Acme Buily P Hd I8.2854 M/S M G Bhongdiyo ond Hitbhov Engg JV 66,.533 11.90% 27.8306 0,00@ MJs M G Bhangdiyo ond 55 PATIL V 54,829 129.920 13.1806 Dmi 12 284{NAG/2016 MKS CONSTRO M/S KM Bhongdiya{V 25,280 39.529 Mitcon Iifra Prpject P Ltd J 0.07W 10.003 10,O0X ConSolidluted 12.36% 47,0198 74369 JB.520, 34.25% 49.9790 44,5906 In the case of the assessee group the assessment u/s 153A have been framed for assessment year 2006-07 to assessment year 2011-12 while assessment for the assessment year 2012-13 u/s 143/3} of the Act: The hature of the activity being execution 0f government contract was the same during all the assessment yeqrs In assessment year 2006-07, the nature 0f the work executed for Vidarbha Irrigation Development Corporation remains the same QS in the case 0f the assessee for subsequent assessmentyears The sub - contractors; who have executed the work, are also similar in various assessmentyears The Assessing Officer; we noted, in the case of the assessee groupfor the assessmentyear 2006-07,has accepted the income aS shown by the assessee group in the return about 12% of the gross receipts The Assessing Officer, as is apparent from the aforesaid chart; has assessed the income on different footing in the subsequent assessment years under the similar circumstances There had been search in the case of the assessee The nature 0f the business of the ossessee remains the Same No other business activity pr the business were found from where the income is derived or generated In various noting in the seized documents ie; diaries are part of the gro55 receipt 0f the contract receipt of the group entity, is not disputed The Assessing Officer; while making the addition, observed that the amount withdrawn from the diary is utilized for unaccounted payments which are not allowable like gratification paid to politician and Government officials; However, the Assessing Officer does not refer to any corroborative evidence on record to hold that the assessee has made payment &S illegal gratification He has taken & view by observing that payment made in cash is probable extraneous gratification During the course of search; statement of Shri Mitesh Bhangdiya Wq5 recorded on 20/07/2011 and he in answer to question No 30 explained that the seized documents are details of cash flow: During the assessment proceedings Shri Mitesh Bhangdiya has explained that the diaries are noting for the movement of the cash in reply tO question No. 23, in the statement recorded on 27/07/2013. It was also explained by him in the course Of the assessment proceedings that the sub-contractors on the withdrawal of the money gave to his father for safe custody, the amount which are found to be noted in the seized documents In the statement recorded, the assessee has clearly explained that the notings made in the seized documents has nothing to do with the palitical leaders aS much @5 political leaders have no business transactions with Bhangdiya group Even we noted that the Assessing Officer has not brought out Qn record any 4fr 13 (250 284/NAG/2O16 MKS CONSTRO specific evidence to show that payment is made to any politician or the Government officer/official to whom the gratification payment have been given by the Qssessee group We noted that the Assessing Officer out of the SulI of Rs.182.52 crores added Ra54.40 crores on the basis of deposition of the sub-cantractor for which when the assessee has asked for the cross examination, the cross examination was not allowed t0 the assessee; which is contrary to the principles of natural justice Hon'ble Supreme Court in the case 0f Andman Timber Industries VS, Commissioner of Central Excise; Kolkata (Civil Appeal No 4228 of 2006}, under the similar circumstances, when the adjudicating authurity did not allow the cross examination of the witnesses; held as under: "According to US, not allowing the assessee to cross examine the witness by the Adjudicating Authority though the statements of those witness were made the basis of the impugned order is & serious flaw which makes the order nullity inasmuch a5 it amounted to violation of principles of natural justice because of which the assessee was adversely affected In view of the above; we are of thc opinion that if the testimony 0f these two witness is discredited, there was no material with the Department on the basis of which it could justify its action, a5 the statement of the aforesaid twu witness was the only basis of issuing the Show Cause Notice MI We; thus; Set aside the impugned order aS passed by the Tribunal and allow this appeal" Following the said decision of Hon'ble Supreme Court; the statement of the sub-contractor; in our view; Cannot be relied 0m. Even Otherwise also, we noted that no corroborative evidence being brought on record t0 prove that the receipts; which has been added by the Assessing Officer in the income of the assessee is the undisclosed income of the aSSessee In fact the receipts for which the addition has been made by the Assessing Officer represents the part of the gross receipts of the assessee and assessee group concern and thg sub-contractor; which has duly been taxed to income tax As pointed by US earlier; due to this addition there has been huge variance in the income assessed as percentage with the receipts by the Assessing Officer: The CITIA} therefore; was correct in rejecting the basis of making the addition by the Assessing Officer: In the facts of the present case, it is seen that regular assessment came to be made aS net profit percentage of receipts and which 14 284/NAG/2016 MKS CONSTRO were also upheld in appellate proceedings und have achieved finality. The returns u/s 153A have ulso been filed a5 percentage of receipts in this group entities: It will only appropriate to determine the income as percentage of receipts as the same are available on record which Ore accepted by the assessee and the Revenue authorities without dispute 12.7 We may mention that in the case of the ussessee group, survey action was conducted on 17/02/2009 wherein under the Similar situation, the payment to sub-contractor was dlsputed and daubted by the Assessing Officer: The survey action relates to the assessment year 2006-07 to 2008- 09, which are part 0f the block period for the search action conducted on 19/07/2011. The Assessing Officer while making the assessment applied 4 net profit @14% but when the matter reached to the Tribunal, the Tribunal Nagpur Bench in L.TA.Nos 268, 269 and 285/Nag/2812 vide order dated 03/04/2013, after considering the impounded material, directed the Assessing Officer to adopt the net profit @12% as against the net profit edopted by the Assessing Officer @14%. There are alsu the similar type of defects found as have been found in the course 0f search We noted the CIT(A} has in the impugned assessmentyears made in consequence of search; directed the Assessing Officer to estimate the profit @16% and not @12%. Even though the CIT(A) was fully aware of that during the assessment year 2006-07 to 2009-10, the assessee group has surrendered additional income at RsII crore and the Tribunal has directed the Assessing Officer to estimate the net profit @1z%. The Tribunal in that urder under paro 4 observed a5 under: "4 Brief facts of the case are that & Survey u/s 133A of the Income Tax Act; 1961 was carried aut in the business premises of the assesses and his associates on 17.02.2009. During the course Of survey operations it WAs found that most of the bills, vouchers and other evidence in support of the entries in the books of account like labour charges; material purchases; 'maching hire charges; site expenses; sub contract expenses; oil and lubricants; repairs and maintenance etc pertaining to this AY were not available Statement of Sri Mitesh Bhangadiya waS recorded under Section 1334 and u/s 131 of the Act on behalf of the.assesse In the statement dt24.02.2009 and 13.03.2009, in response to various questions relating to the genuineness of the payments to third party sub contractors and in respect to other deficiencies; the assessee admitted additional income in group cases of Rs 11 ctore and proportionately were allocated between all the assessmentyears relaling to these four assessee Ot ) Jazt 1343 15 Z84/NAGIZOIG MKS CONSTRO For the year under consideration Le for 07 in case of Sri Mithesh cissessment year 2006 offered at Rs;_ {MicheshoBhangGdide he Gdditional ncome was originally 7835110/ bosidetc the at Rs.23 , income showin Due tux issuance %f notice was paid before the 2 under Section 148 as admitted by the AO ie para of his order; The importont recarded On 24-02-2009 contents of submission and 13-3-2009 Bhangadiya are of Sri Mithesh incorporated in the order of the AQ question No 11, it In waS query of gnswered that during survey; it was noticed that there the course of are certain omissions and to cover ai} discrepuncies and up such discrepancies we out mind to offer have made additional income over and above the income We are under the process to regular determine such additional income to avoid litigation and, to buy in response to question Nos 18 & peace of mind Thereafter on 13-3-2009, 19 of the statement recorded it was answered that the sub awarded the sub contract work contractors were notes and the by our firms as per contract nature of sub contractors has been that abacr charges and machine hire charges The sub large illiterate and therefore, their contractors by and be incomplete, without books Of accounts found to The maintenance % any bills and vouchers expenses incurred by our firm has been on the basis_ called vouchers raised by them and of the SO the therefore; discrepancies there in the appears expenses claimed stated that the It wDs further assessee has admitted in his previous recorded during the statement course of survey that there discrepancies and anomalies in the sub are certain their books of accounts; non contract expenses in the past three availability of bills and vouchers for assessmentyears Accordingly, that there were certain it was submitted discrepancies and anomalies in contract accounts in books of the sub 2006-07 to 2009-10. accounts for assessment years The aSsessee declared the income of Rs 11 crore in their firm and additional in the assessment the five sister concerns year 2006-07 to 2009-10. The additional income 0f Rs 1l crores will be working of the done the same will be shown These accordingly and part of the statements have incorporated in the order of the AO a5 state beew the AO started scrutiny of the above Thereafter case. The assessee has AO shown various noted that the wages, machine hire expenses under the head labour & charges; site expenses and sub expenses etc: 0n very higher side; tntract which valid vouchers: Neither ore not supported by any further evidence wa5 filed also observed by the AO that since there It waS in are accounts of sub various deficiencies contracts and sum of Rs 23,97,361/- the aSsessee has offered & 0n account of 'discrepaneies in respect 4a 16 284/NAG/2016 MKS CONSTRO RZz to sub contruct; therefore; he pruceeded to make further addition on account of various deficiencies i.e in absence Of bills and vouchers; excess claim towards machinery hire charges, verification of applicability of provision of Section 194C and denial of alleged sub contractors regarding the sub contract given by the assessee: All these discrepancies are noted by the AO in his order: Thereafter in para 7, the AO has observed that after having rejected the books 0f account Of the assessee under Section 14503} of the Act; the profit of the ussessee has to be estimated reasonably. The AO also observed that the assessee hasdeclared net profit ratio of 6% and 7% of the total turnover in assessment years 2006-07 & 2007-08 After offering additional income of Rs23,97,360/- for assessment year 2006 07, the results in revised net profit comes to 12,87% of the contract receipts: However; this net profit was found by the AO on lower side. The AO noted that in one of the group case namely, Mfs Mahendra Construction & M.G. Bhangndia UV) who had declared additional income 0f Rs 1,57,47, 760/. in the Assessment Year 2007-08, which gives 4 net profit ratio of 13.840 of the net contract receipts In view of these facts the AO adopted 14% net profit Thereafter the A0 completed the assessment and made addition of Rs: 30,12,722/- against additional income shown by the assessee at Rs. 23,97,360/-, which resulted further addition of Rs,6,15,362/- and ultimately under para 7 aS reproduced hereunder, estimated net profit @1296:

After considering the submission and perusing the material on record, wefind that the assessee deserves to succeed in his appeal in part We noted for the year under consideration i.e for assessmentyear 2006-07, the assessee's NP rate comes to 12.879, for assessment year 2007-08, the assessee's NP rate comes to 10.53%. respectively We also noted that if the MP rate of all the concerns are taken into consideration, then it is Seen that all the assesses have shown government receipt gt Rs.258,55,37,850/- and income on these cantracts have been shown by these ussessee at Rs.6,49,57,111/- which gives Q NP rate of 6.389. The assessee hos offered additiona} income declared during the survey at Rs 11, 03,85,877 / , which gives 4 NP rate of 4.27% and the total NP rate in all these concerns comes to 10.659, Of course; the additional income of Rs 11 crore or odd waS segregated proportinnately on the basis of tazt 17 Jah 234/NAG/2016 MKS CONSTRO contract receipts in the hands of each concern In case of M/s Mahendra Construction & M.G Bhangadia UV} the NP rate cames to 13.84 i.e for assessment year 2007-08 and this rate has been adopted by the AO and has applied the NP rate of 14% in all the years in case of all these assesses 0n whom EL survey was cunducted. In view, this opproach of the AO was not correct approach In case of M.G Bhangadiya; the NP rate of three vears come to 9.87% whereus in cuse of other assesses ie Sanjay Heda, Mfs Mahendra Construction & M.G Bhangadiya UV}_ the NP comes to 9.509 and in cuse 0f M/s Mahendra rate Construction & M.G. Bhangadiya (IV) the average NP rate of comes to 11.28% and in case of M/s three years KirtikumarBhangadtya, the NP rate comes to 8.7ZY and in case Of MG, Bhangadiya and M/s Mahendra Construction & M.G; Bhangadiya UV) the NP rate comes to 6.129k. In case of M.G Bhangadiya and S.S Patil & M.G Bhangadiya, the NP %f three years comes to 11.55%. As stated above the uverage NP rateof all the three years comes to 10.650 all the assesses for Therefore; in our view; M rational approach should have been adopted by the AO or by the learned CIT (A} For one case Le Mjs Mahendra Construction & M.G Bhangadia (JV} the NP rate was 13.84% and ifthis rate is applied in all other cases which in our view; is not justified. However, there is also no dispute that there were S0 many discrepancies in maintaining vouchers; bills, accounts' and other heads; which were not sub contracts verifiable, therefore; the assessee and his group came forward to offer an additionul income of Rs: 11 crore and the same has also offered and due tax has been paid. Since &S stated above, there are certain discrepancies, we are 0f the View, that if NP rate of 129 is adopted instead of 14%, that will meet the end of justice We made it clear that where NP rate shown by the assessee in any year is more than 12% then the more NP rate shown by the assessee has to be taken as assessee has declared himself and in other ygars where NP rate shown by the assessee is lower than 12%, then 12% NP rate has to be taken The AQ will recomputed the income accordingly: For the sake %f clarification in case %f assessee for assessment year 2006-07, the NP rate comes to 12.879 after showing the additional income, therefare, the income shawn by the assessee has to be accepted However; for assessmentyears 2007-08 & 2008-09, the NP rate shown brthe assessee after additional income comes to 10.69% and 10.53%. The AO will adopt the rate Of 12% and will compute the income accordingly: 18 284/NAG/ 2016 MKS CONSTRO 12.8 We noted that the CIT(A] even though fallowed the order 0f the Tribunal in the case of the assesseefor the assessmentyear 2006-07 to 2009- 10 but directed the Assessing Officer to estimate the net profit during the block period @16% and for that he has given the reasons that there is material difference in the years under appeal Le. search action has also resulted into detection of the unaccounted assets t0 the tune of Rs.26 crores und unaccounted jewellery of Rs.2.37 crores which has not been disclosed by the assessee group in their respective returns filed nor the source Of such acquisition 0f such assets could be explained satisfactorily We do not agree with such finding of CIT(A} Gs we noted thul during the block period, the assessce has surrendered Rs 11 crore during the course of survey for the assessment year 2006-07 to 2008-09 and further during search L7 sum 0f Rs,26 crore was surrendered: Thus, 4 Sun 0f Rs37 crure was available with the assessee which assessee could have utilized for investment in the assets aS well aS for the purchase of jewellery: The unaccounted assets aS well as unaccounted jewellery is only Rs.28.37 crore; which i5 much less and is duly covered by the disclosure of Rs.37 crore during Lhe block period made by the assessee, Rs.11 crore during the survey and Rs26 crore during the block period Even otherwise also, the Assessing Officer; we noted, has gathered the information 0f unaccounted assets and unaccounted jewellery out of the documents found during the course of search which shows the utilization of the amount which the assessee has received by way of withdrawal fram the bank account Of the group concern aS well as frum the bank account of the sub-contractor which cannot be regarded to be undisclosed We, therefore; Srelir do not agree with the reasoning of the CIT(A) in adopting the net profit @16% %f the gross receipts In our opinion; no addition on account 0f unaccaunted assets to the extent of Rs.26 crores and unaccounted jewellery {uoo4' of RsZ.37 crores could be made We, therefore; after considering the facts of the case; past history, relevant case laws and nature of the activities carried on by the assessee; are of the view that the estimution 0f the income by the CITIA) is at & higher side and is not justified. "Therefore, we set aside the order 0f CITIA) to the extent of directing the Assessing Officer to estimate the net profit @16% of the gross receipts and direct the Assessing Officer to estimate the net profit an the gross receipc @1Z% as has been estimated and returned by the assessee group in their respective returns filed in response to the notice issued u/s 1534 and u/s 139 0f the Income Tax Act 6 Respectfully following the said decision, W@ sel aside the order of the CITCA) to the extent of directing the AO to estimate the net profit at the rate of 169 of the gross receipt and direct the A0 to estimate the net profit On the gross receipts at the rate of 124 s has been estimated and returned in the return filed 123z 19 1366 284/NAG/2016 MKS CONSTRO Now there remains ground nos 5 and 6 for Outr adjudication. 8 We heard the rival submission carefully considered the same alongwith the orders of the tax authorities below. We noted lhal the only issue involved in these grounds is enhancement of the income by the CIT(A) to the tune of Rs 2838869/- This income has been enhanced due to the fact that CITIA} has given the direction to the AO to estimate the income by applying net profit rate of 16% on the contract receipt by the assessce Thc income in this manner cane to Rs, 7938869/- The 4Q has estimated the income from the contract activities at Rs. 510000o/- therefore, the income af the assessee has been enhanced by the amount of Rs. 2838869/- We noted that during thc impugned Assessment Year; the a5sessee has shown the contract income of Irs. 5100000 Lakhs The Ld: AR before uS has taken the plea that the facts involved and the issue involved in the case of the assessee is identical to the issue involved in the case of Mitesh Bhzngdiya. This Tribunal in the preceding paragraph in the case of Mitesh Eangdiya has directed the AO to estimatc thc net profit of the assessee at the rate of 1Z9 of the gross receipt; therefore; we accordingly, direct the AO to assess the income from contract activities at Rs 5954152/- in the case 0f the assessee ie. 12% of the contract receipt amounting to Rs. 49617934/-` therefore, the income enhanced by the CITCA) got reduced to Rs. 854152/- from Rs: 2838869 /- thus, these grounds are partly allowed 9 The last ground in assessee's appeal relates to the charging of interest u/s 2344, 234B and 234C. Learned counsel for the as5essee wJs fair enough to concede that these grounds are conseguential in nature: We; therefore; direct the Assessing Officer that the interest chargeable u/s 2344, 234B and 234C be recomputed after giving effect to this order: Thus, this ground is allowed for statistical purposes in all the appeals. KAbh 1REF 20 284/NAG/ 2016 MKS CONSTRO 10. In the result; the appeal filed by the assessee is partly allowed Order pronounced in the open court on 30.06.2017 (AMARJIT' SINGH) JUDICIAL MEMBER {PK BANSAL} VICE PRESIDENT Nagpur Date: 3Dth June; 2017 R Dhoke; PS. Capy to: 1) The Appellant; 2) The Respondent; 3) The CIT(A); 4 The CIT, Nagpur City Concerned; 5} The DR, ITAT, Nagpur; -Guard File By Order (Dy /Asstt TRTT Netnr 47 KL rar Hid& '5I;' {#QU , mt Tax Appe;,t Tnhana? TiaTQ" ~Wta / 'Nappur Berch