M/S MKS CONSTRO VENTURE PVT. LTD,NAVI MUMBAI vs. D.C.I.T CENTRAL CIR.2)1), NAGPUR

The order passed by AO. is illegal, invalid and bud in law and consequent thereupon is liable to be cancelled 2. The learned CIT(A} ought to have directed to accept the income aS shown in return filed ufs 139 ofLT Act 1961. 3. The learned CIT(A) erred in not accepting the prayer 0f assessee to adopt net receipt for determining the estimated income at the hands of Qni 2 284/NAG/2015 MKS CONSTRO nssessee after excluding the recoveries made by the Government Departments on account of material supplied, sales tax and Service tax etc The addition made by learned CIT(A) by adopting 16% of receipts is unjustified, unwarranted and excessive 5. The learned CIT(A) erred in enhancing income by Rs 28,38,869/- in respect to activity of business The addition made by learned CIT(A) at Rs. 28,38,869/- to the incame from business is unjustified, unwarranted and excessive 7 The assessee denies liability to pay interest under section 2344, 234B and 234C of LT: Act 1961. Without prejudice, levy of interest under section 2344, 234B and 234C of IT Act 1961 is unjustified, unwarranted and excessive 3 Grounds No. 1 and 2 since not pressed therefore the same stand dismissed asnot pressed. 4_ In respect to the grounds no 3 and 4, the Ld. AR before US contended that the issue involved in this appeal is similar to the issue involved in assessee's appeal in the case of Mitesh Bhangdiya IT4 No. 261-26S/NAG/2016 and whatever view this Tribunal may take in the case of Mitesh Bhangdiya same max_ be taken in the case cfthe assessee. Ld. DR aiso agreed for the same: 5 We have heard the rival submission and carefully considered the same We have gone through the order of this Tribunal in the case of Mitesh Bhangdiya in [TA No 56 61/NAG/2016 and 261-265/NAC/2016, We noted in that case Tribunal has passed the consolidated order in the appeals filed both by the Ho7 3 Ixto 284/NAG/2016 MKS CONSTRO assessee aS well as by the Revenue by holding vide order dated 29.06.2017 as under: 12. We have heard the rival submissions, carefully considered the same along with the orders Of the tax authorities below. We noted that the facts and the issue involved in all the years under appeal in the case of the assessee are similar and identical The CIT(A} has passed & consolidated order: The undisputed fucts in the case of the assessee and the group concern are that a search and seizure action u/s 132 of the Act was carried out in the Bhangdiya Group Qf cases on 19/07/2011. Simultaneously; the business and residential premises of the assessee were alsa searched During the course of search conducted, incriminating papers and documents were found and seized. Shri Mitesh Gotumal Bhangdiya is the key person of the group. Shri Mitesh Bhangdiya has two sons namely Shri Kirtikumar M, Bhangdiya and Shri Srikant M. Bhangdiya and one daughter Neha; The business of the Bhangdiya group is being looked after by Shri Mitesh Bhangdiya and his two sons The other key persons associated with the group are Shri Sanjay Rameshchandra Heda, husband 0f Mitesh Bhangdiya'< sister; Smt Pradnya, resident of Amravati and Smt Manisha 0. Maniyar; widowed sister of Shri Mitesh Bhangdiya who lives with Bhangdiya family 12.1 The main business concerns of the graup (including those discovered OS & result of the search action} are 45 follows 1_ M/s MG. Bhangdiya (AERPBZSO3E} (Prop MGB}; converted into 0 company M/s MKS Constro-venture Pvt (AAHCMO383T} Ltd from 01.04.2011, 2 Mfs Mahendra Construction; Prop Shri Sanjay Heda (MC} (AADPH7109]} M/s Mahendra Constructiun 85 M.G Bhangdiya UVJ (AANFM56SBB} 3 M/s Kirtikumar M Bhangdiya (Prop KMBJ; converted into a company Mjs MKS Acme Buildcon Pvt Ltd. {AAHCMO38ZK} from 01.04.2011. (AGYPB1659G) M/s KM, Bhangdiya Mahendra Construction UV) (AAKFK1820C) Mfs Shrikant M. Bhangdiya (Prop SMBHATCPBI337)) Mitcon Infraproject Pvt Ltd. (MIPL) (AAGCM1B68H) 5 6 7, 284/NAG/2016 MKS CONSTRO 8, Lokshahi Publications Pvt Ltd. (LPPLH(AABCL6673L) 9 MITZ Infraproject Pvt: Ltd (AAGCM3047A)

Sakshi Gruh Nlrman Pvt Ltd {SGNPLJ(AAOCS7974G)

Balaji Stone Crusher & Infraventure Pvt: Ltd {AADCBS273C) 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 M.G Bhangdiya & Hitbhav Engg (JV) {AAOFM474SL} 2. Mfs M.G. Bhangdiya & $. $ Patil & Ca: (VHABIFS3645L) 3 Mfs Darshan Construction (JV) (AAHFDO6S4N} 4 Mjs M R Dhoble 8s K M Bhangdiya (JV)(AAPFMO6ZZB} 12.3 The nature of the business of the Bhangdiya group primarily Is executing civil contracts: The graup works mainly for Government departments Iike M/s Vidarbha Irrigation Development Corporation and has been engaged in executing various contracts pertaining to the irrigaticn projects in the state of Mahorashtra During the Course of search incriminating documents were found and seized from the operations residential premises of Shri Mitesh Bhangdlya, Item no 1 to 65 0f Annexure- B seized from his residence are the diaries containing ledgers daily cash 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 Gnd 27 diaries relate to the financiul year 2006-07 to 2010-11 whereds the remaining two diaries were maintained for house hold and miscellaneous expenses A statement of Shri Mitesh Bhangdiya was recorded 0n oath n 20.07.2011, In his sworn statement recorded during the course Of search action, Shri Mitesh Bhangdiya wdS 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 0 finding that a5 per the item na: 1 to 65 pf annexure-B, it is apparent that the amounts withdrawn from the bank accounts %f the sub- contractors were credited to the daily cash balance of Bhangdiya group which wdS confirmed by Shri Mitesh G Bhangdiya in his statement dated 14/09/2011. The Assessing Officer has reproduced the statement of Shri Mitesh Bhangdiya recorded on 14/09/2011 in para 6 of the assessment 5 284/NAG 2016 MKS CONSTRO He 1272 order: The Assessing Officer in the assessment order has ulso recorded & finding that the seized documents being B-1 to B-65 contain entries %f all expenses incurred by the Bhangdiya group in cash from RY 2006-07 onwurds and expenses incurred through the bank accounts frum FY: 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 M.G Bhangdiya maintained for income-tax purpose do not reflect the true business affairs and are not atall reliable The Assessing Officer analyzed the entries in the diaries and tpok the view that on receipt side various receipts including the withdrawal from the bank of the assessee group concerns were recorded and on payment side entries of expenses like interest payment repayment of loan, 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 diaries were found reflected in the bopks of account maintained by the Bhangdiya Group: Statement of Mitesh Bhangdiya W*s recorded pn 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 In reply to question No. 30 of his statement; Mitesh Bhangdiya submitted that the entries in the diaries and ledgers pertain to the business receipts and 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 0f account and same can be explained only after verification of the entries of the diaries with rhe regular books of account maintained by the Bhangdiya Group Shri Mitesh Bhangdiya, reply to question No 38, we noted voluntarily 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 $0 declared are summarized as under: @huGpIYasrQWE AY 06-07 Grond Tqrol AK 201z-3 [Rs;) Porticulor AY ZO07-0A AKz0p8-09 AYzm9 10 aY Z0fo-1f AXZUf-IZ Mbilti Bhanndtm Cantroct Incomg mF prr iglnal retum Additiorto} Jnconte declored during Survey Additloxtp} Income onered Durirly Seprch 130,90,275 22,01,540} 28,96131 [8,61,863 56,30,712 543,18322 714,02,707 66,46,018 23,97,361 139+,009 22,04,312 1,5u,36 864,27,788 5,09860 27,18,952 57G,01,670 255,17,293 Cnntroct Income DJeclred 23[4,64,076 45,97,90J 44on,0oD 45,66,175 B5,00DB 1+28,00,000 970,0,00 5 MKS Cnstxu Velitu Eitf Inmtrncf Wixnifas perdriy n} runm AddfI!Qxtu} {ncrmp drrlarcx during S4tveyy Addftioxini (ncome Offered Dxring Seorch Contrnct trtcomle Decored 284/NAG/2016 MKS CONSTRO 19275,473 JaZ,75,373 164,7+627 164,74,627 347,50,0o0 347,S0,0Wp MAs_Aahendrq Cqstrkcting Cortract Inrome m Peroriginsi retyn 36,77,656 135,Jn,05i 96,40,424 Z0,fnnfn 7338,074 7626,715 7,50,488 366,20,174 Aduitonn} Incomg declored during Svnvgy Additinal Incrme Offerrd (}rring Seorck 40.41,896 49,17,076 724117 1[,13zZ4 107,96,304 26,80,448 37,72873 1836,9n4 A.Z6tio 129,61,926 101,73,6R5 26,41,512 347,93,51B CuntrucT Inrwme Declored 104,Q0,Q00 Z12,D1,D00 S2,00,0m0 417,0O} nW 202,TO,NO5 78,0o, 02hd 34,} doo 822,00,ow Ws_#tuRondou Contt R*LE BRongdivo K Controct Incame D5 ner originol return Additionol {ncomg deciared during Srruoy Addltionai {#tcrwnle Ufferee} During Seorch 157,47,756 310,92,743 715,[4147 3s71,320 74,77,J30 1617,07,302 157,19,964 153,96,115 492,69,033 043,87,112 ZS7.16,BZ0 [9034,gan 172,72,664 619,64,164 Cantfoct Inoone Declprert J14,67,720 50+90,858 1465,00,00 549,00,000 247,0u,002 Jouu,54,578 WI_E M_Bhnnndimg Curtruct Incomg n5 Per origino} return Additknc} Income dclared duuring Suney #dditional [ncunte Ojjzred During Seorch 10,18,705 32,86,795 2720,40} 2I,08,306 61,06,678 33,94,234 186,00.111 14,12,344 25,22,55 19,09,360 7,54,6.53 65,94,712 E,90,850 10,70,234 20,4I,04l 58,83,330 33,04766 139,36,226 Contrort{ncomg Dclared 24,31,049 07,Q0,0w 57,0,0rm} 57,oW 120,,Ono 66,00-onp 391,31,049 MKSdcmu HulldE LI 9+ 7 284/NAG/Z016 (374 MKS CONSTRO Cortrict {rcome J5 rlxr Vrigrin] rFtim 34,70,653 34,70,653 Additiont] {tIcoxi derkrent during Sunvey Additionol Incom? Dffered During Seurch 16,24347 1628347 Controct Ixcn#te Deciared SI,DOQUD S[,0O,uoD MEL G_Rkattoliva nd Iitbhok EroJK Cuntruct Income 0S Peroriging} return 26.84,7z7 2,20,167 46.3,997 4603,994 38,37,905 Additiono} Income dectored during Sunkg Additichtl Income @ffFered Durtoy Seorch 5,63,5B3 30,34 5,93,927 2.49,464 [,JKDu6 3,80,475 Cantract Inccme Decrtared 32,48,310 S,o,f) 404,997 6,00,000 48,12_107 MIsM G Bhangri] anLSS PATILW Confrari Inuine &} per priginol retN Additionol Income declored during fxZg Additlonn} Incothe Qlfere QJurtog Seorch 4,65,923 477,544 9,43,407 601,929 R,38,586 1440,51, 40,000 400on Cont rc? Jncome Declored 10.67,852 1I,16[30 40,0o 24,21,982 MZiRM Ebpiggirq I% Coxntrect { lennie t pEr originol retyra 5,14,551 9,32,46] 1447,012 Additiongl {ncnm? rcclared dxring Subugy Additionol Income Ofered During Searck 5,05,449 11,67,539 17,52,939 Controct Incomg Derlared 11,DN,OW Z1,0O,NUD 3Z,DULOND hy1 1a75 284/NAG/2016 MKS CONSTRO Wtitzn Ing Frpiect Eltd Cortrod WutcorenF prr nrigurio} retwin 6n.39,WNo} 43,4K,429 53,20,051 1s7,57,+A0 Addihono} Inceme dec"ed du"itg Sarycy Antdlt fan.t{ Incomr Ofered During Senrrh 62,61,DW [2,0I,5z1 9,19,949 102,82,520 (XnIryic [nCOio Doclored IZICOQD 155,00,00} 62,00 340,4WTWNT Additigtgl lncome pteredixtrgsztf @ndundul Mitesh Bhahguiyd 74,7942 74,79442 Kirtlktrrzur Bhangdiyo 30,0W,DND 70,00,0d0 Shrflont Bhangdlyp 35,0,000 35,00,00 Keshnr Slngh Rotale 10,42,553 12,03,047 Bo,g3260 J03,36,910 Qd plidoted Eoal Controct Incomg 9R per Orinimn) return 60,56,J0I J49,00,656 414,80,202 815,34038 11n7,15934 950,85,470 278,24,565 3990,49,752 Additionol Jnznmg declared dtrring Survey Addtiti}tn} {ncurhe offered Dyring Seorch 70,5[,601 251,55,333 261,28,068 513,11,520 1I04,40,592 2680,440 51,73,50} 24,07,203 323,42,392 1022,48,067 686,{4,5524 216,65,435 2356,01,6+8 Controct Incqmno Doclurt 174,26,950 6.5x_35,522 705,21.#7} 1652,#0NUN Z1z9,63,997 1043,00,00 494,9n,DpQ 7451,79,397 Addititianol Inconje in Co.eX Qf Indivkdun} 1042,553 12,03,037 80,93,260 139,78,442 241,18352 12,4 From the statement of Shri Mitesh Bhangdiya, it is apparent that the diary found and seized belongs to the assessee group 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 Cotumal Bhangdiya. The Assessing Officer; we noted, has also abserved 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 k4 9 I276 284/NAG/2016 MKS CONSTRO has been paid by the assessee group for probable extraneous gratification We noted that the Assessing Officer made an exercise ta match the entries of the tax payment and receipt with the entries in the regular books of account of Bhangdiya Group The Asscssing Officer came to the conclusion that the receipts are predaminantly withdrawals from the bank account by way of creating bogus Sub-cantract expenditure The Assessing Officer found that the assessee group hasdeducted q sum of R.361 crores towards the sub- contract payment against the gross receipts aggregating to Rs 579 crores It wOS found by him after verifying from 21 contractors that a sum of Rs.5440 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 total amount s0 reflected in the diaries oh the receipt side was computed at Rs.182.52 crore The Assessing Officer added the Said unaccounted amount of Rs182.50 crore in the income 0f the aSsessee group concern: A sum %f Rs54.40 crore was added in proportion to the amount of cheque credited by respective group concern in the hands of the respective group concerns For the balance amount 0f Rs128.12 crore; the Assessing Officer added the sume in proportion to the contract receipt shown by the group concern in the respective assessment years to the tatal turnover of 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 0f search aS receipt being withdrawal from the bank account of the group concern aS well aS from the bank account of the sub-contractor can be regarded to be the unaccounted income of the ussessee: At the micro level, if we loak into the nature of the receipt; it is not denied by the Revenue that the receipt has came from the bank account of the assessee group concern and part 0f the receipt and has come out of the cash withdrawn by the sub-contractor to whom the assessee group concern hod made the payment The assessment has been made by the Assessing Officer u/s 153A in the case 0f the assessee 45 well u5 assessee's group concern Proceedings have also been initiated by the Assessing Officer in the case Of the sub-contractor ufs 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 has duly accepted while framing the assessment of the Sub contractor that the payment received by the sub-contractor from the assessee aS well as the assessee group concern were not bogus but were the payment received by performing the obligation for 4 consideration entrusted on them under the Sub-contract This denotes that the relationship of the assessee as well as assessee group concern with the sub-contractor; as 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 APF RZZ 1377 10 284/NAG/2016 MKS CONSTRO Revenue, in our view: the Revenue; 0n the basis 0f the same facts in the case 0f the assessee; cannot take the view that the payment made to the sub- contractor were bogus Further it is not the cuse Of the Revenue that the Revenue has disallowed the payment made to thg sub-contractor: It i5 0 case where the Revenue has added the impugned receipt from the sub-contractor entered into the diaries found and Seized during the course 0f the search From the analysis of these diaries, the Assessing Officer has categorically given the finding that the diaries consist of the receipt being the withdrawal made by the sub-contractor aS well as the withdrawal made by the assessee from the bank account of the group. The diary also consists of the payment some 0f which relate to the site expenses, expenses recorded in the books %f account investment in the immovable property, personal expenses, expenses for the jewellery 4S well as money transferred and the amount paid to various persons It is not the case 0f the Revenue that the assessee has debited the amgunt paid to various persons into his regular books of account and claimed the deduction s that these expenses can be disallowed by applying the explanation to section 37 0f the Act In fact the assessee has not claimed deduction 0f 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 of the sub contract receipt of the sub- contractor as well a5 assessee and group concerns, which has already been assessed t0 income tax by the Assessing Officer: The source of the receipt therefore; is apparent Where the nature and source 0f 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 dre 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 0f account So for the source of the receipt is concerned, it is not denied that the business 0f the assessee is executing the Government contract and all the receipts in the bank account of the assessee is generated only through the contract receipt fram the contract tuken from the State Government; No cogent material or evidence was brought to our knowledge which may prave that the State Government has made the payment to the assessee outside the books of account On this basis itself, we canfirm the order 0f CIT(A} that the addition cannot be sustained on the basis of cash receipt found recorded out of the cash withdrawal by the assessee or 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 of the diaries and found from the payment side that d sum 0f Rs24.0S crore has been invested 1xs 11 284/NAG/2016 Ixt8 MKS CONSTRQ in the immovable property outside the books of account und similarly, @ sum of Rs.8.47 crare has been utilized &S expenses outside the books 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 mterial evidence on recard for such conclusion: Fvven before us, no corrobarative evidence were referred to and brought 0n record Thus the outgoingfinvestment to the extent of Rs.32,52 crore can be regarded to have been incurred by the assessee outside the books of account but the same are spent aut 0f money withdrawn from bank the source thereof cannot be regarded to be unexplained We noted that in this case the assessee as well as assessee group concern during the course of search, surrendered a sum of Rs26 crore and accordingly, filed the return in response to the notice u/s 1534 At the most the Assessing Officer could have made the addition in respect 0f the unaccounted investment provided they are not covered by the amount surrendered by the assessee during the block period In fact; in our view; the source of the said expenditure shown in the diary is also coming out of the cash withdrawal from the banks 0f the group concern QS well a5 Qf sub- contractor which has already been disclosed to the Revenue and the receipt thereof hus already been assessed to income tax DRT 12.6 We noted 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 9.34m to 129.92% aS is apparent from the following chart: Particular AY2006-07 AK 2007-OR |AY20q8-09 AY 2009- AYz010- AY 201}-12 Ax 2012.13 10 11 M/s M,G Bhangdiya 11,7900 MKS Constro Venturg P Ltd 41,279 35,6084 18,.609 27.46%6 49.509 9,344 M{s Mhendro 10,789F Construction M/s, Muhendra Const & M, G, Bhrngdiyu }V 41130 25.44% 11.04% 21.795 33.054 127,730p 49,5390 73,441 17, 6996 41.8196 16.03% M/ 5 , K, M , Bhanguiya 11.978 23.39% 26,7645 26,269 15,229 13.949 MKS Acme Huild PLtd 10z8% M/SM G Bhangdiya &nd Hitbhav Engg JV 66..57%6 11.90% 27 839 D,opg Mjs M G Bhangdiyo ond 55 PATL JV 54,82% 129,320 13,18% 4Z MYS K M Bhangdiyo }V Mitentf Infra Project " Ltd Cunsolidated 12,360 284/NAG/2013 MKS CONSTRQ 25.28% 39,5290 10.87% Io.qo%p 10,0046 47.01% 74,69 18,5206 3425% 49.9790 44,5996 In the case of the assessee group the assessment u/s 1534 have been framed for assessment year 2006-07 to assessment year 2O1L-IZ while assessment for the assessment year 2012-13 u/s 14303} of the Act The nature 0f the activity being executian 0f government contract was the same during all the assessment years In assessment year 2006-07, the nature 0f the work executed for Vidarbho Irrigation Development Corporation remains the some as in the case ofthe 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 assessmentyeor 2006-07, has accepted the income QS shown by the Gssessee 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 senrch in the case of the ussessee The nature of the business 0f the assessee remains the same No other business activity ar the business were found from where the income is derived or generated In various noting in the seized documents Le. diaries are part 0f the gross receipt of 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 0n record to hold that the assessee has made payment 05 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 was 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 0f the assessment proceedings that the sub-contractors on the withdrawal gf the money gave to his father for safe custody, the amount which are found to be noted in the seized dacuments: In the statement recorded, the assessee has clearly explained that the notings made in the seized documents has nothing to do with the political leaders as much as political leaders have no business transactions with Bhangdiya group Even We noted that the Assessing Officer has not brought out on record any 13 284/NAG{2016 MKS CONSTRQ (288 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 assessee group: We noted that the Assessing Officer out of the sum of Rs. 182.52 crores; added Rs.54.40 crores on the basis of deposition of the sub-contractor for which when the ssessee has asked for the cross examination, the cross examination was not allowed to the assessee, which is contrary to the principles of natural justice Hon 'ble Supreme Court in the case of Andman Timber Industries VS Commissioner 0f Central Excise; Kolkata (Civil Appeal No. 4228 of 2006}, under the similar circumstances; when the adjudicating authority 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 as it amounted ta violation of principles of natural justice because of which the assessee waS adversely affected. In view of the above we are 0f the opinion that if the testimony of these two witness i5 discredited, there was no material with the Department on the basis Of which it could justify its action aS the statement of the aforesaid two witness was the only basis 0f issuing the Show Cause Notice 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 on Even otherwise also, we noted that no corroborative evidence being brought on record to 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 &nd the sub-contractor; which has duly been taxed t0 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 CIT(A} 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 &5 net profit percentage of receipts and which p37 & 1x81 14 284/NAG/2016 MKS CONSTRO were also upheld in appellate proceedings and have achieved finality The returns u/s 153A have also been filed 45 percentage of receipts in this group entities It will only appropriate to determine the income as percentage 0f receipts s the same are available on record which ure accepted by the assessee and the Revenue authorities without dispute: 12.7 We may mention that in the case %f the assessee group; survey action was conducted on 17/02/2009 wherein under the similar situation; the payment t0 sub-contractor was disputed and doubted by the Assessing Officer: The survey action relates to the ossessment year 2006-07 to 2008- 09, which are part 0f the block period far the search action conducted on 19/07/2011. The Assessing Officer while making the assessment applied a net profit @14% but:when the matter reached to the Tribunal, the Tribunal Nagpur Bench in LTANos: 268, 269 and 285/Nag/2012 vide order dated 03/04/2013, after considering the impounded material; directed the Assessing Officer to adopt the net profit @12% GS against the net profit adopted by the Assessing Officer @14%. There are also the similar type of defects found as have been found in the course of search: We noted the CITTA} has in the impugned assessmentyears made in consequence of search, directed the Assessing Officer to estimate the profit @16% und 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 additiunal income at RsIl crore and the Tribunal has directed the Assessing Officer t0 estimate the net profit @12%. The Tribunal in that order under para 4 observed as Liz under: 1 4 Brief facts of the case are that & survey u/s. 1334 of the Income Tax Act; 1961 waS carried out 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 purchoses; 'machine 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 133A and u/s 131 of the Act on behalf of the assesse In the statement dt24.02.200g 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 udditional income in group cases of Rs, I1 crore and praportionately were allocated between all the assessmentyears relating to these four assessee +3037 15 284/NAG/ 2016 1283 MKS CONSTRO For the yenr under consideratian i.e. for assessment year 2006- 07 in case 0f Sri Mithesh Bhangadiyd, the additiona} income was offered at Rs,23,97,361 /- besides the income shown originally at Rs.23,63,910/- Due tax was paid before the issuance of notice under Section 148 a5 admitted by the AO in parq 2 of his order; The important contents of submission recorded om 24-02-2009 and 13-3-2009 of Srt Mithesh Bhangadiya are incorporated in the order of the AO. In query of question No. Il, it wos answered that during the course %f survcy; it was noticed that there are certain discrepancies and omissions and to cover up oll 'such discrepancies we have made out mind to offer additional income over and abave the regular income We are under the process to determine such additional income to avoid litigation und, to buy peace of mind. Thereafter in response ta question Nos 18 & 19 0f the statement recorded on 13-3-2009, it was ahswered that the sub contractors were awarded the sub contract work by our firms Qs per contract notes and the nature of sub contractors has been that labour charges and machine hire charges The sub contractors by and large illiterate and therefore; their books of accounts found to be incomplete; without maintenance 0f any bills and vouchers The expenses incurred by Our firm has been on the basis of the So called vouchers raised by them and therefore; there appears the discrepancies in the expenses claimed It was further stated that the assessee has admitted in his previous statement recorded during the course of survey that there are certain discrepancies and anomalies in the Sub contract expenses in their books of accounts, non availability 0f bills and vauchers for the past three assessmentyears Accordingly, it was submitted that there were certain discrepancies and anomalies in the sub contract accounts; in books of accounts for assessment years 2006-07 to 2009-10. The assessee declared the additional income pf Rs Il crore in their firm and the five sister concerns in the assessment year 2006-07 to 200g-10. The working of the additional income of Rs 1I crares will be done accordingly and the same will be shown These part 0f the statements have been incorporated in the order of the AO as state above. Thereafter the AO started scrutiny of the case. The AQ noted thot the assessee has shown various expenses under the head labour wages, machine hire charges, site expenses and sub contract expenses etc; on very higher side, which ore not supported by valid vouchers Neither any further evidence was filed It was also observed by the AO that since there are various deficiencies in accaunts of sub contracts and the assessee has offered a sum of Rs 23,97,361/. on account of discrepancies in respect p387 1383 16 284/NAG/2016 MKS CONSTRO to sub contract therefore, he proceeded to make further addition on account of various deficiencies te. in absence of bills and vouchers; excess claim towards machinery hire charges, verification 0f applicability 0f provision of Section 194C and denial of alleged sub contractors regarding the sub contract given by the assessee AlI these discrepancies are noted by the AO in his order; Thereafter in para 7, the AO hO5 observed that after having rejected the books 0f account of the assessee under Section 14503} 0f the Act; the profit of the assessee has to be estimated reasonably The AO also observed thut the assessee has declared net profit ratio 0f 6% and 7% of the total turnover in assessment years 2006-07 & 2007-08. After offering additional income of Rs.23,97,360/- for assessment year 2006- 07, the results in revised net profit comes to 12.8796 of the contract receipts However; this net profit was found by the AO on Lower side The AQ noted that in one %f the group COSe namely, Mfs Muhendra Construction & M.G Bhangadia {JV} who had declared additional income 0f Rs, 1,57,47, 760/- in the Assessment Year 2007-08, which gives q net profit ratio of 13.84% of the net contract receipts In view of these facts the AO adopted 149 net profit Thereafter the AO completed the assessment and made uddition 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/- 1 Ell and ultimately under para 7 as reproduced hereunder, estimated net profit @129' "7, After considering the submissian and perusing the materiul on record, wefind that the assessee deserves to succeed in his appeal in part We noted for theyear under consideration ie. for assessmentyear 2006-07, the assessee's NP rate comes to 12,87%, for assessment year 2007-08, the assessee's NP rate comes to 10.539, respectively: We also noted that if the NP rate of all the concerns are taken into consideration; then it is Seen that al the assesses have shown government receipt nt Rs.258,55,37,850/- and income on these contracts' have been shown by these assessee Tt Rs.6,49,57,111/- which gives 0 NP rate of 6.38%. The assersee has offered additiona] income declared during the survey at Rs 11, 03,85,877 /- which gives a NP rate of 4.279 and the total NP rate in @ll these concerns comes to 10.6596. Of course; the additional income of Rs 11 crore or Odd wus segregated proportionately on the basis 0f 3 I28h 17 284/NAG/2016 MKS CONSTRO contract receipts in the hands of each concern; In case of M/s Muhendra Construction & M.G. Bhangadia (JV) the NP rate comes t 13.841 i.e. for assessment year 2007-08 and this rate has been udopted by the AO and has applied the MP rate 0f 140 in all the years in case Of all these assesses On whom d survey was conducted: In view, this approach of the AQ was not correct approach. In case of M.G Bhangadiya, the NP rate of three years come to 9.8796 whereds in case Of ather assesses i.e. Sanjay Heda, M/s Mahendra Construction & MG. Bhangadiya UV) _ the NP rate comes to 9.5006 und in case of Mfs Mahendra Construction & M.G. Bhangadiya (JV) the average NP rate of three years comes to 11.28% and in case of M/s KirtikumarBhangadiya, the NP rate comes to &.72% and in case of M.G, Bhangadiya and M/s Mahendra Construction & M.G Bhangadiya (JV) the NP rate comes to 6.12%. In case of M.G Bhangadiya and S.S Patil & MG Bhangadiya, the NP of three years cames to 11.55%. As stated above, the average NP rate of all the assesses for all the three years comes to 10.6596. Therefore; in our view, C rational approach should have been adopted by the AO 0r by the learned CIT (A} For one case ie Mfs Mahendra Construction & MG Bhangadia (JV} the NP rate was 13,8416 and if this rate is applied in all pther cases; which in our view, is not justified. However, there is also no dispute that there were SO many discrepancies in maintaining vouchers, bills; sub contracts accounts and other heads; which were not verifiable; therefore; the assessee and his group came forward to offer an additional income of Rs 11 crore and the same has also offered and due tax has been puid Since a5 stated above, there are certain discrepancies; we are Df the view, that ff NP rate of 129 is adopted instead of 149, that will meet the end of justice We made it cleor 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 years where NP rate shown by the assessee is lower than 129, then 129 NP rate has to be taken. The AO will recomputed the income accordingly: For the sake of clarification in case of assessee for assessment year 2006-07, the NP rate comes to 12.87% after showing the additional income; therefore; the income shown by the assessee ha5 to be accepted, However; for assessmentyears 2007-08 & 2008-09, the NP rate shawn by the assessee after additional income comes to 10.69% and 10.53% The AQ will adopt the rate of 129 and will compute the income accordingly: 2 6 18 284/MAGI2016 MKS CONSTRO 1385 12.8 We noted that the CIT(A) even though followed the order of thg Tribunal in the case 0f the assessee for the assessmentyear 2006-07 ta 2009- 10 but directed the Assessing Officer to estimate the net profit during the block period @l6% and for that he has given the reasons that there is material difference in the years under appeal ie search action has also resulted into detection of the unaccounted assets to the tune of Rs,26 crores and unaccounted jewellery of Rs.2.37 crores which has not been disclosed by the assessee group in their respective returns filed nor the source %f such acquisition of such assets could be explained satisfactorily: We do not agree with such finding of CITIA} a5 we noted that during the block period, the assessee has surrendered Rs.Il crore during the course Of survey for the assessment year 2006-07 to 2008-09 and further during search 0 sum of Rs.26 crore was surrendered Thus; & sum Of Rs.37 crore 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 Rs28.37 crore, which is much less and is duly covered by the disclusure of Rs.37 crore during the block period made by the assessee, Rs.1l crore during the survey and Rs26 crore during the block period Even otherwise also, the Assessing Officer; we noted, has gathered the information of 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 ha received by WAY Qf withdrawal from the bank account of the group cancern Q5' well 0s from the bank account of the sub-contractor which cannot be regarded to be undisclosed We, therefore; do not agree with the reasoning of the CIT(A} in adopting the net profit @16% of the gross receipts In our opinion, no addition on account of unaccounted assets to the extent of Rs,26 crores and unaccounted jewellery of Rs.2.37 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 0f the view that the estimation of the income by the CIT(A} is at a higher side and is not justified Therefore; we set aside the order of CIT(A) 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 on the gross receipt @12% as has been estimated and returned by the assessee group in their respective returns filed in response to the notice issued u/s 153A4 and u/s 139 0f the Income Tax Act " 6 Respectfully following the said decision, we set aside the order of the CIT(A) to the extent of directing the AO to estimate the net profit at the rate of 16' of the gross receipt and direct thc AO to estimate the net profit on the gross receipts at the rate of 12% as has been estimated and returned in the return filed OMi 833 19 1386 284/NAG/Z016 MKS CONSTRO 7 Now there remains ground nos. 5 and 6 for our adjudication: 8_ We heard the rival submission carefully considered the same alongwith the orders ofthe tax authorities below. We noted that the only issue invalved in these grounds is enhancement of the income by the CITCA) to the tune of Rs: 11519489/- This income has been enhanced due to the fact that CITTAJ has given the direction to the AO to estimate the income by applying net profit rate of 169 on the contract receipt by thc assessee: The income in this manner came to Rs. 46269489/ The AQ has estimatcd the income from the contract activities at Rs. 34750000/- therefore; the income of th assessec has been enhanced by the amount of Rs 11519489/- We noted that during the impugned Assessment Year; the assessee has shown the contract income of Rs 34750000, The Ld; AR before us has taken the plea that the facts involved and the issue involved the case of the assessee is identical to the issue involved in the case of Mites_ Bhangdiya, This Tribunal in the preceding paragraph in the case of Mitesh Bhangdiya has dirccted the A0 to estimate the net profit 0f the assessee at the rate of 129 of the gross receipt; therefore, which in the case of the assessee 129 of the contract receipt amounting tq Rs. 289184309/- comes to Rs.34702117/-therefore; the income enhanced by the CIT(A) got reduced to nil from Rs, 11519489/- Since assessed income cannot be Jese thae returned therefore, we direct the AO to take the returned income from contracts receipts, thus; these grounds are partly allowed; PPE 9 The last ground in assessee's appeal relates to the charging of interest u/s 2344, 234B and 234C. Learned counsel for the assessee was fair enough tQ concede that these grounds are consequential 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 im all the appeals; #24 138+ 20 284/NAG/ 2016 MKS CONSTRQ 10, In the result, the appea] filed by the assessee is partly allowed; Order pronounced in thc open court on 30.06,2017 Sd;- (AMARJIT SINGH) JUDICIAL MEMBER (P.K. BANSAL) VICE PRESIDENT Nagpur Date; 3Oth June; 2017 R Dhoke, PS Copy tox 1} The Appellant: 2} The Respondent; 3) The CITCAJ; 4) The CIT, Nagpur City Concerned; 5 The DR, ITAT, Nagpur; 6} Guard File By Order (Dy_!Akstt Registrar) 7ian,#2 Aasistant Reglstrar MTGR aiiri &e+re, Incom? Tax Appallabt Trlbun:] TJJ 7i4ria / Naqpue Boneh