A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. SHRI KESHARSINGH G. ROTELE, NAGPUR

Nos,]11 & 112/Nag/2016 Asstt. Yrs2O 11-12 & 2012-13 A9L addition of R5.4,60,100/- being petty contracts receipts without appreciating the fact that the assessee has failed to substantiate the claim with evidentiary proof Of having executed petty contracts ? (iv) On the facts ad in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the evidences found In the Incriminating diaries which conclusively proved that the cash withdrawals made from the bank accounts of the assessee were returned back and credited in the incriminating diaries maintained by Bhangdiya group: (v) On the facts and in the circumstances 0f the case, the Ld CITIA) erred in holding that sub contract work was executed by the assessee ignoring the fact that the contract amount received from the Bhangdiyas was returned to them 35 evident from the incriminating diaries arid no expenses were incurred for executing the contract (vi) On the facts ad in the circumstances of the Case, the Ld. CITIA) erred in thwarting the very purpose Of search and seizure provisions of the Act by ignoring seized incriminating documents. 2 Ground No. 1 & 2 in both the appeals are common except change in the figure; Both the parties have agreed that whatever view this Tribunal take in ITANo.lll/Nag/2016, same view may be taken in may IT.ANo.112/Nag/2016. Both these grounds In both the assessment years relate to the deletion of the protective addition made in the hands of the assessee in respect of cash being shown as received in the diary seized during the course of search in Bhangdiya Group: # 3 The facts of the case, in brief, are that a search & seizure action u/s 132 of the I.T, Act; 1961 was carried out In the Bhangdilya Group of cases On 19/07/2011. During the course Qf search conducted at residential and office premises of Shri Mitesh Bhangdiya, certain incriminating papers 432 .,A. Nos 11l & 112/Nag/zu16 Asstt, Yrs.20 11-12 & 2012-13 and documents belonging to the assessee Shri Kesharsingh Ganeshsingh Rotele were found and selzed: Therefore, notice dated 06/05/2013 U/s. 153C of the K.T, Act; 1961 was issued and served on the assessee on 17/07/2013 requesting him to file the return of income within 30 days from the receipt of notice. The assessee had filled the returns Of income in response to notice ujs 153C for all the years of the block period, 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 boked after by Shri Mitesh Bhangdiya and his twQ sons, The other key persons associated with the group are Shri Sanjay Rameshchandra Heda; husband of Mitesh Bhangdiya's sister , Smt; Pradnya, resident of Arravati and Smt; Manisha 0. Maniyar, widowed sister of Shri Mitesh Bhangdiya who lives with Bhangdiya family; The main business concerns 0f the group covered under the search action are a5 under: 1 Ms M.G: Bhangdiya (AERPB 2503 E) (Prop. MGB) converted into a company MJs M.K,S, Constro-venture Pvt; (AAHCM 0383 T) Ltd: from 01/04/2011 2 Mahendra Construction; Prop. Shri Sanjay Heda (MC) (AADPH 7109J) 3 Ms Mahendra Construction M.G. Bhangdiva (JV) (AANFMS6S8B) 4 Ms Kirtikumar M Bhangdiya (Prop. KMB); converted into a company Ms MRS Acme Buildcon Pvt. Ltd, (AAHCMOBBZR) from 01.04.2011. (AGYPB16S9G)

Ms RM. Bhangdiya & Mahendra Canstruction (JV) (AARFR1820C)

Ms Shrikant M Bhangdiya (Prop: SMB) (ATCPB1337]) Mitcon Infraproject Pvt: Ltd: (MIPL) (AAGCM1868H) 8 MITZ Infraproject Pvt: Ltd, (AAGCM3047A) 9_ Sakshi Gruh Nirman Pvt: Ltd. (SGNPL) (AAOCS7974G) 10 Balaji Stone Crusher & Infraventure Pvt, Ltd, (AADCB5273C) HI3 ITA. Nos, '111 & 112/N2g/2016, Asstt: Yrs:20 11-12& 2012-15' The Bhangdiva Group has also entered other civil into joint ventures with various contractors Some of them are a5 under: 1 Ms; M.G. Bhangdiya (AAOFM474SL) Hitbhav Engg- 2 (JV) Ms. 3, M.G Bhangdiva 8 S.s, Ms, Darshan Constri Patil Co. (JV) (ABIF53645L) Mjs MR DhoblenstRGtioB (JV) (AAHFDO654N) Bhangdiva (JV) (AAPFMO62ZB) The nature of the business of the civil Bhangdiya group primarily Is contracts, The group works executing mainly for Government Ms Vidarbha Irrigation departments like executing Development Corporation and has been engaged (r various contracts pertaining to the irrigation of Maharashtra. During projects in the state the caurse of search documents were found ad operations incriminating seized from the residential Mitesh Bhangdiva. Item premises of Shri no_ 1 to 65 of residence Annexure-B are the seized from diaries his containing books maintained ledgers; daily cash books and bank by the Bhangdiya group. 4 Bhangdiya was recorded statement of Shri Mitesh Reli On oath on 20.07.2011, In his 1 recorded during the Sworn statement course of search action; confronted with the Shri Mitesh Bhangdiya was entries borne out from the seized 1 to B-65 and to dlaries marked as B- explain the contents of these Bhangdiya in his statement diaries, Shri Mitesh diaries recorded has submitted that the and the ledger entries in the pertain to the business expenditure. The receipts Assessing and business Officer in the assessment finding that as per the item order has recorded a no_ 1 to 65 of the amounts withdrawn annexure-B, it is apparent that from the bank accounts of the credited to the daily cash balance subcontractors were of by Shri Mitesh Bhangdiya group which was confirmed 6. Bhangdiya in his statement Assessing Officer dated 14/09/2011, has The reproduced the statement of Shri Mitesh recorded on 14/09/2011 in para 6 of the Bhangdiya assessment order. The Assessing HIH 1.'T.A, Nos1ll & 112/Nag/2016 Asstt Yrs:Z0 11.12 & 2012-13 5 Officer in the assessment order has also recorded a finding that the seized documents being B-l to B-65 contain entries of all expenses incurred by the Bhangdiya group in cash from F.Y. 2006-07 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. Bhangdlya maintained for income-tax purpose do not refiect the true business affairs and are not at all reliable_ The Assessing Officer has also referred to the statement of Shri Kesharsingh Rotele; the assessee, recorded on 19/07/2011, 12/09/2011 ad 13/09/2011 during the course of survey. The Assessing Officer has reproduced the staterent of Shri Kesharsingh Rotele in the assessment order, The Assessing Officer, on the basis of the statement of Shri Kesharsingh Rotele, concluded that the bank accounts of the assessee were being handled by Shri M.G. Bhangdiya group The Assessing Officer has given a summary of all the bank accounts maintained by the assessee in the tabular form to show that the cheques deposited by the Bhangdiya group in the bank accounts of the assessee were subsequently withdrawn in cash which were found credited to daily cash book seized. On this basis the Assessing Officer made the protective addition In the hands of the assessee in each of the assessment year holding that there were no expenses incurred and no contract work was executed by the assessee who; according to the Assessing Officer, is merely a name lender to the Bhangdiya group. The assessee came In appeal before the CIT(A) challenging the notice issued U/s 153C as well as the addition for cash withdrawals from bank on protective basis, The CIT(A) deleted the said addition in both the years. 4L5 [ZA Nos.IlI & 112/Nag/2016_ Asstt; Yrs:Zu 11-12 &2012-13 6 We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below, We noted that the Assessing Officer has made the addition in each of the assessment year in the case of the assessee on protective basis in respect of the cash being shown a5 receipt in the diary seized during the course of search in Bhangdiya Group. When the matter went before the CIT(A), the CIT(A) deleted the said addition in all the assessment vears by observing a5 under: "9.1 Before adjudicating the issue in hand, it would relevant to briefly discuss be the background of additions made In the case of Shri Mitesh G. Bhangdiya & Group concerns on the basis of seized evidences a5 per Annexure-B-I Ld to 8-65 The AQ has made the total addition of Rs.182.52 Crs hands Of in the various concerns Of Bhangdiya group in assessment years various falling within the block period on basis for prorata want Of proper carrelation between the amounts credited to the seized diaries the and the withdrawals made from bank accounts_Of the sub-contractors Out of the total addition of Rs.182.52 crores; an addition Of Rs.54.40 been made Crs. has On account of entries bank of withdrawals from the account Df sub-contractors recorded in the seized diaries in proportion to the cheque payments made to the Sub- coritractors by Various entities of the Bhangdiya group: various The concerns of the Bhangdiya group had made the Tavments by account payee cheques to the sub-contractors: The Ld AO after analyzing the bank accounts of 21 contractors out of total sub- more than 100 sub-contractors has arrived at the conclusion that the cash withdrawn from the accounts of the subcontractors has been found deposited on the credit side of the seized diaries marked &5 Annexure 8-1 to 8-65 seized from Thus, the premises of Shri Mitesh G Bhangdiya the Ld. AO had inferred that the Bhangdiya adopting Such group by modus-operandi had inflated expenditure by the making cheque payments and withdrawing subsequently the cash from the bank accounts of the contractors who, sub- according to the AO; are merely name lendersi The contention Of Shri Mitesh Bhangdiya Was that te cash withdrawn from the account of the Subcontractors is found reflected which in the diaries waS kept with Late Shri m KS6 1.'[44. Nos.111 & 112/Nag/2016 Asstt Yrs:Zu11-12 & 2012-13 Gotulalji Bhangdiya , father of Shri Mitesh Bhangdiya by such sub-contractors which was being issued to various sites for the use of subcontractors 35 per the requirements at the site: Further that the money kept by sub-contractors was returned to them or through ay of the intermediaries in the course of handling of cash. The Assessing Officer however; declined to agree with the explanation filed by the appellant and has held that all the Zl sub-contractors examined by him are merely name lenders and the amounts paid to them under the head sub-contracts are bogus payments, therefore; the corresponding receipts by way f withdrawals from the bank accounts Of the subcontractors 15 liable to be added 35 unaccounted income in the hands Of various concerns Of Bhangdiya group in various assessment years Of the block period in proportion to the cheque payments made by such group concerns: 9.2 In the case of Bhangdiya group; the assessments under section 1534 Of IT Act 1961 have been framed for assessment years 2006-07 to assessment year 2012-13. The nature of activity being execution of government contracts was the same during all the assessment years: In a5sessment year 2006-07, the nature Of work executed for Vidarbha Irrigation Development Corporation remains the same a5 in the case Of assessee for subsequent assessment vears: The Sub contractors who have executed the works are also similar in the various assessment years. 9.3 The A.0. has Observed that the sub contractors in the case f Bhangdiya group are name lenders and bogus In this regard;, it is significant to mention that the sub contractors including the appellant have been assessed by the ACIT; Central Circle-2 (1), Nagpur who Is also the A.O. of Bhangdiya group: Notices under section 153C Of IT Act 1961 were issued to subcontractors and returns were submitted by such sub contractors pursuance to receipt of notice under section 153C of IT Act 1961. The assessments have been framed under section 153C of IT Act 1961 by the same A.O. wherein the income returned in respect of business income shown arising to such Sub-contractors out Of receipt received from the Bhangdiya group have been accepted. Thus; the AO. having accepted the business receipts in the hands of sub- contractors including the appellant for determining the income AF PEt , 0 437 LT.A. Nos.111 & 112/Nag/2016 Asstt; Yrs;2m} 11-12 & 2012-13 in the Cases Of sub-contractors could not have condluded that the payments made by Bhangdiya group to such Sub contractors are bogus. 9.4 In view Of the huge variance in the income assessed a5 percentage to receipts by the AO and various infirmities 35 emanated from the order of the AO, net profit has been estimated @ 169k of gross receipts In the hands of various concerns af the Bhangdiya group In View of the decision Of _ the Hon ble ITAT, Nagpur Bench Nagpur In the case Of the Bhangdiya group entities in ITA No.268, 269 & 285/Nag/2012 dated 03/04/2013. A survey action WaS conducted On 17/02/2009 In the Bhangdiya Group Of cases; wherein the similar situation 35 payments to sub-contractors was disputed and doubted by the AO, The sunvey action comprises AY 2006-07 tp AY 2008-09 which are also forming part of the block periods for the search action conducted on the assessee group On 19.07.2011. The Hon'ble ITAT Nagpur Bench; Nagpur after having considered the similar activity of business and deficiencies in subcontract payments found during the survey action conducted 07 17.02.2009 ha5 decided the appeals for AY 2006-07 to 2008-09. The Hon'ble ITAT, Nagpur Bench, Nagpur after considering the impounded material has directed the AO to adopt the net profit @ 1Z% a5 against net profit adopted by AO 14%. 9.5 In view pf the above facts and circumstances and keeping in view Of various infirmities and various judicial decisions relied upon by the appellant ad to meet ends of justice; to my considered opinion, it was considered fair a reasonable to adopt the net pront @ 16% On the gross receipts af Rs.579 Crs;; being the turnover or the various Bhangdiya group concerns fr the block period from AY 2007- 08 to AY 2012-13 in the respective vears Of the block and bring the same to the taxation O the guidelines determined by the Hon. ITAT, Nagpur Bench , Nagpur in ITA No. 268, 269 & 285/Nag/2012 vide order dated 07/03/2013 on the Similar activities of business under the similar circumstances; However; in order to cover up the undisclosed investment Of Rs. 26 Crores in immovable properties and the undisclosed investment in jewelltery to the tune Of Rs: 2,37 crores; enhanced net profit 16% of total turnover was estimated in the appellate orders dated 31/12/2015 in the Cases Of R48 1".4 Nos.]LL & 112/Nag/2016 Asstt: Yrs:20 11-12 & 2012-13 Boatdiyz Aroup as against net Profit of 12% estimated Hon'ble ITAT, as the Issue of undisclosed by was not there before investment in assets the Hon'ble ITAT in the survey appeais 10. Thus; I have considered the submissions appellant and evidence 0n made by the record {5 7 It iS Seen that the appellant sub-contractor ad executing entities belonging work for various business to Shri Mitesh Bhangdiya assessee has been regularly group. The prior to the assessed to income date of tax much search on Shri Mitesh 19/07/2011. Bhangdiya group On In_the Case of assessee ufs 153C of IT notice has been issued Act 1961 Mitesh after there being search Bhagdiya group 19/07/2011 on Shri been ad assessments have framed for assessment Years 2006-07 to 200en5& have 2012-13 in the month of March, 2014, 10.1 It is Seen from the reproduced the assessment order that the AO has statement recorded Uls 132(4) of Shri Mitesh Bhagdiya and has referred to seized Gocuments as 8-l to 65 inventorized In the case of Shri Mitesh has found that Bhagdiya , the the withdrawals AQ of assessee made from the bank account are matching with seized documents the credits appearing found in the at the Bhagdiya. premises of Shri Mitesh The A.O. has concluded that appellant lender of Shri Mitesh is only name Bhagdiya. The A.O, that Shri Mitesh accordingly observed Bhangdiya is the ultimate beneficiary %f vte bogus contract payment which laundered ad i5, disallowed and added in the through appellant framed in Bhangdiya respective assessments group, The A,o. the cash further observed that withdrawn from the bank i5 added 3sncne protective basis a5 there was no On wa5 really expenses as no contract work executed #ln 10.2 The appellant submitted return declaring income sub-contract work in his regular from submitted return a5 well as in the retum 1961. in response to notice issued U/s 153C of LT In the return Act of income assessee has arising shown income out of receipts being amount business entities Of Shri received from the various Of the Mitesh Bhagdiya group assessment The perusal order does observation not indicate ay adverse with regard to regular books basis of which income Of account on the It {5 Wzs deciared in the return of appellant: seen that the profit ad loss account and balance sheet 3 449 IT.A. Nos,]l & 112/Nag/2016 Asstt; Yrs;ZU 11-12 & 2012-13 10 submitted along with the return of income have not been discredited in the assessment framed in the Case of the appellant; The A.O. in fact has assessed income returned without inviting any adverse Observation a5 to income declared from sub-contract work: 10.3 It I5 seen that the withdrawals from the bank account are reflected in the books Of account on the basis of which income has been returned The withdrawals from the bank having already been considered for the Purpose Of determining income at the hands of appellant as shown in the return cannot separately constitute income liable to be assessed in the hands of appellant The addition made by A.O. is thus unjustified and unsustainable 10.4 It is further seen that the A.O. has made observation in the assessment order to the effect that in the case of Shri Mitesh Bhagdiya group disallowance has been made for various expenses claimed On account Of sub-contract expenses which includes payment to appellant It is settled proposition Of law that the substantive assessment must precede framing Of protective assessment: In the facts and circumstances of the case; it is difficult to rationalize how Withdrawals from the bank account can constitute assessable income much less On protective basis in the case of the appellant The A.O, has made disallowance Of sub-contract expenses being amount paid to appellant while determining the income of business entities of Shri Mitesh Bhagdiya group: Such payments are already considered for Income shown in the return and assessed as business receipt in the hands of the appellant Addition of such amount again on protective basis defies logic I do not find any rationale to make such protective assessment af the withdrawals made from bank account of assessee in the hands of assessee himself The income assessex on protective basis therefore;, i5 held to be unjustified and unsustainable on this count a5 well 10.5 The gross receipts in the case of the appellant &5 well a5 returned income along with the percentage of income has been tabulated by the appellant for various assessment years and the same is reproduced herein under: Shri Kesharsingh Ganeshsingh Rotele 500 [4'./.Nos,ll] & 112/N28/2016 Asstt Yrs.20 11-12 & 2012-13 11 TURNOVER, RETURNED INCOME AND ASSESSED INCOME AY ;2011-12 & 12013 ASSESSMENT YEAR Z011-12 GROSS RECEIPTS 26134618 RETURNED INCOME 1231360 % OF GROSS RECEIPTS 4.719 ADDITONS UNDER 2010g050 SECTTON 153C ASSESSED INCOME 21340410 % OF GROSS RECEIPTS 81.66% 10.6 It is seen from the above that the income retumed has been accepted in the Case %f appellant without inviting adverse inference and considering te addition madeng te hands of assessee, the income assessed 35 percentage of grass receipt clearly reflected absurdity in the action of the Id. Ao, while determining the income in the hands of assessee The addition made by Id A.O. thus, i5 unsustainable for te aforesaid reason also, Therefore; the protective addition made in the hands Of the appellant Is directed to be deleted in all the Years of the block period, 6.1 We noted that the CIT(A) has given the finding of fact. This is a fact that the substantive addition has been made in the hands of the assessee in respect of the income received by the assessee a5 sub-contractor in each of the assessment year: The withdrawal made by the assessee from his bank account in which the deposit of the Sub-contract receipts has been accepted arises out of the said deposit: Such withdrawal, in our opinion, by no stretch of imagination can constitute assessable income in the hands of the assessee, The Assessing Officer while determining the taxable income of the business entities of the Bhangdiya Group made the So} [TA Nos.Ill & 112/Nag/2016 Asste Yrs:20 11-12 & 2012-13 12 disallowance of sub-contract expenses being the amount paid to the assessee but these payments were already considered In income shown in the return and receipt a5 business receipt in the hands of the assessee_ Addition of such amount again on protective basis in the hands of the assessee does have any leg to stand. We, therefore; do not find any illegality Or infirmity in the order Qf the CIT(A) which warrants our interference; The CIT(A) has rightly deleted the addition in each of the assessment year, We accordingly confirm the order of CIT(A) Thus, both the grounds taken by the Revenue in both the assessment years stand dismissed. 7 Now coming to ground No. 3 in both the assessment years, We noted that the Revenue has taken the ground relating to the deletion of addition on account of petty contract receipt amounting to Rs.4,60,100/- in assessment year 2011-12 ad Rs.6,60,000/- in assessment year 2012-13. Both the parties agreed that this ground be decided on the basis of the facts for assessment year 2011-12. AP PE 6 8 After hearing both the parties, we noted that the Assessing Officer has made an addition of Rs.4,60,100/- in assessment vear 2011-12 and Rs.6,60,000]- in assessment year 2012-13 respectively on account of income from commission and brokerage. When the matter went befare the CIT(A), the CIT(A) deleted the Said addition a5 per his observations given under para 11.3 of its order for the assessment year 201i-12. Learned A.R reiterated the submissions made before the CIT(A) while learned DR relied on the order of the Assessing Officer. We noted from the finding given by CIT(A) that the CIT(A) has duly appreciated the facts ad found that the gross receipt of the assessee of Rs.2,61,34,618/- in the proft & loss account is inclusive of petty contract receipt amounting to 522 LEA. Nos.]{1 k 1I2/Nag/2016 Asstt. Yrs.20 11-12 2012-13 13 Rs.4,60,100/- In view of this factual finding; we do not find that the order of CIT(A) warrants our Interference 3s no contrary evidence was brought to our knowledge by learned DR We accordingly dismiss the said ground in both the assessment years, 9 In the result; both the appeals of the Revenue stand dismissed. (Order pronounced in theopen court on 27/06/2017 - Sd/_ (AMARJIT SINGH) Judicial Member Dated:27/06/2017 #Singh P.K; BANSAL ) Vice President Copy_of_theorder forwarded to 1. The Appellant 2 The Respondent 3 Concerned CIT 4 The CIT(A) 5 DR , Gul Rl_ ArctDegistrar S6@ 7 + incohE!AX NAG#UA pei #ca "bUnN ~Un;