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

Ms Shrikant M Bhangdiya (Prop. SMB) (ATCPB1337]) 7 Mitcon Infraproject Pvt: Ltd. (MIPL) (AAGCM1868H)

MITZ Infraproject Pvt: Ltd: (AAGCM304ZA) 9 Sakshi Gruh Nirman Pvt. Ltd, (SGNPL) (AAOCS7974G) 10, Balaji Stone Crusher & Infraventure Pvt. Ltd, (AADCB5273C) The Bhangdiya Group has also entered into joint ventures with various other civil contractors. Some of them are as under; 1 Mjs: M.G. Bhangdiya & Hitbhav Engg; (JV) (AAOFM4745L) Ms. M.G. Bhangdiva & 5,5, Patil & Co. (JV) (ABIFS3645L) Ms. Darshan Construction (JV) (AAHFDO6SAN) Ms, M,R. Dhoble & R.M; Bhangdiya (JV) (AAPFMO6ZZB) 2 3_ 4 # The nature of the business of the Bhangdiya group primarily is executing civil contracts. The group works mainly for Government departments like Ms Vidarbha Irrigation Development Corparation ad has been engaged in executing varlous contracts pertaining to the irrigation projects in the state of Maharashtra During the course of search operations incriminating documents were found and seized from the residential premises of Shri Mitesh Bhangdiya: Item no. 1 to 65 Of Annexure-B seized from his residence are the diaries containing ledgers, daily cash books and bank books maintained by the Bhangdiya group. A statement 0f Shri Mitesh Bhangdiya was recorded on oath on 20.07.2011. In hls sworn statement recorded during the course of search action, Shri Mitesh Bhangdlya was confronted with the entries borne out from the seized diaries marked as B- # 3 TLE.ANc75/Nag/2016 1T'A311/Nag/28*1 [0 Assessmenl year;200g-10 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 Oficer in the assessment arder has recorded a finding that as per the item no; 1 to 65 of annexure-B; it is apparent that the amounts withdrawn from the bank accounts Of the subcontractors were credited to the daily cash balance of Bhangdiya group which was confirmed by Shri Mitesh G. Bhangdiya in his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 order; The Assessing Officer in the assessment order has also recorded 3 finding that the seized documents being B-l to 8-65 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 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 at all reliable The Assessing Officer has also referred to the statement of Shri Kesharsingh G. Rotele, the assessee, recorded On 19/07/2011, 12/09/2011 and 13/09/2011 during the course of sunvey proceedings: The Assessing Officer has reproduced the statement of Shri Kesharsingh G. Rotele in the assessment order: The Assessing Officer , 0n the basis of the statement of Shri Kesharsingh G Rotele, concluded that the bank accounts of the assessee were being handled by Shri MG; 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 5/3 [T',A No.75/Nag/2016 L.TA.3II/Nag/2017 Assessment year:2009-10 11; 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 ad no contract work was executed by the assessee who, according to the Assessing Officer, is merely a name lender to the Bhangdiva group. The assessee came In appeal before the CIT(A) challenging the notice issued u/s 153C as well a5 the addition for cash withdrawals from bank on protective basis. The CIT(A) deleted the said addition; 9_ 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 25 receipt in the diary seized during the course of search in Bhangdiva Group. When the matter went before the CIT(A); the CIT(A) deleted the Said addition in all the assessment years by observing as under: "9.1 Before adjudicating the issue in hand, it would be relevant to briefly discuss the background of additions made in the case Of Shri Mitesh G Bhangdiya & Group concemns on the basis of seized evidences a5 per Annexure-B-1 to B-65. The Ld AO has made the total addition of Rs.182.52 Crs in the hands of various concerns of Bhangdiya group in various assessment years falling within the block period on prorata basis for want Of proper correlatian between the amounts credited to the seized diaries ad the withdrawals made from the bank accounts of the sub-contractors: Out &F the total addition of Rs. 182.52 crores, an addition of Rs.54.40 Crs. has been made On account of entries of withdrawals from the bank account of sub-contractors recorded in the seized diaries in proportion to the cheque payments made to the sub- contractors by various entities of the Bhangdiya group. The various concerns of the Bhangdiya group had made the payments by account payee cheques to the sub-contractors, The Ld AO after analyzing the bank accounts of 21 Sub- contractors out of total more than 100 sub-contractors has M Qari 514 L;T',A. No.7S/Nag/2Q16 1.T3ll/Nag/zo: Assessment year:2o0g-10 1i 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 as Annexure B-1 to 8-65 seized from the premises of Shri Mitesh G Bhangdiya. Thus, the Ld, AO had inferred that the Bhangdiya group by adopting such modus-operandi had inflated the expenditure by making cheque payments ad subsequently withdrawing the cash from the bank accounts of the sub- contractors who, according to the AO; are merely name lenders: The contention Of Shri Mitesh Bhangdiya was that tte cash withdrawn from the account af the subcontractors which is found rellected in the diaries was kept with Late Shri Gotulalji Bhangdiya father of Shri Mitesh Bhangdiya by such sub-contractors which was being Issued to various sites for the use Of subcontractors a5 per the requirements at the site; Further that the money kept by sub-contractors was returned to them or through any of the intermediaries in the course of handling of cash. The Assessing Officer however, declined to egree with the explanation filed by the appellant and has held that all the 2I 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 Of withdrawals from the bank accounts of the subcontractors i5 liable to be added a5 unaccounted income in the hands of various concerns Of Bhangdiya group in various assessment vears of the block period in proportion to the cheque payments made by such group concerns; AFFE? = 3 % 3 9.2 In the case Of Bhangdiya group, the assessments under section 153A 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 ali the assessment years In assessment year 2006-07, the nature of work executed for Vidarbha Irrigation Development Corporation remains the same as in the case of assessee for subsequent assessment years, The sub contractors who have executed the works are also similar in the various assessment years, 9.3 The A.O. has observed that the sub contractors in the case Of Bhangdiya group are name lenders and bogus. In this regard;, it is significant to mention that the sub contractors J15 LTANo75/N4g/2016 1.7.4311/Na,/2017 13 Assessment year;2009-10 including the appellant have been assessed by the ACIT Grourai Gocicez (0 eagpur who s also the AO Yf Bhangdia group: Notices under section 153C of IT; Act 1961 issued to subcontractors and returns were Sub contractors were submitted by such pursuance to receipt of notice under section 153C of LT: Act 1961. The assessments under section 153C of IT, Act 1961 have been framed the income by the same A.O. wherein returned in_ respect of business income arising to such sub-contractors out Of shown the Bhangdiya receipt received from group have been accepted Thus, the Ao. tavirectoccepted te business receipts iethe handstto $ub- coneactors including the appellant for determiningnte Cncorte In the cases Of sub-contractors could not have the Payments concluded that made by Bhangdiya contractors group to are Such bogus. sub 9.4 In view Of the huge variance In the percentage to receipts by the AO and income assessed as emanated from various infirmities &5 the order of the AQ; estimated net pronit has been @+16% Of gross receipts in the hands of various concerns of the Bhangdiya group in view of the decision of the Hon ble ITAT, Nagpur Bench, Nagpur Bhangdiya in the case of the group entities in ITA No.268, 269 & dated 03/04/2013. 285/Nag/2012 A survey action 17/02/2009 was in conducted the Bhangdiya On Group similar of cases, wherein the situation a5 payments to sub-contractors ad doubted by the AO. was disputed The survey action 2006-07 to AY 2008-09 comprises AY block Which are al5o forming part of the periods for the search action conducted group On 19.07.2011. On the assessee The Nagpur after Hon 'ble ITAT, Nagpur Bench, having and deficiencies considered the similar activity of business survey in dsubcontract payments found during action conducted the On 17.02.2009 has decided appeals for AY 2006-07 to 2008-09 the The Bench, Nagpur after considering Hon 'ble ITAT, Nagpur the impounded material has directed the AO to adopt the net profit @ 12% 35 against net profit adopted by AO 14%. TPPJ 0 9.5 In view Qf the above facts and keeping circumstances in view Of and various infirmities and decisions relied various judicial upon by the appellant and to meet ends of justice, to my considered opinion, it was considered reasonable fair and to adopt the net profit @ 1696 On the gross JvnC 516 IT.A. Nio,75/Nag/2016 [TA311/Nag/2 ,7 |14 Assessmentyear:200g-10 receipts of Rs.579 Crs:; being the turnover of the various Bhangdiva group concerns for the block period from AY 2O0ZS 08 to AY 2012-13 in the respective vears Of the block and bring the Same to the taxation on the guidelines determined by the Hon; ITAT, Nagpur Bench, Nagpur in ITA No. 268, 269 & 285/Nag/201Z vide order dated 07/03/2013 on the similar activities Of business under the similar circumstances; However, In order to cover Up thee undisclosed investment Of Rs: 26 crores In immovable properties and the undisclosed investment in jewellery ta the tune Of Rs; 2.37 enhanced net profit crores; 16% of total turnover was estimated in the appellate orders dated 31/12/2015 in the Bhangdiya group cases of 35 against net profit of 12% estimated by Hon'ble ITAT, a5 the issue of undisclosed investment in assets was not there before the Hon'ble ITAT in the Survey appeals. 10, Thus, I have Considered the submissions made by the appellant and evidence %n record It i5 seen that the appellant is a sub-contractor ad executing work for entities various business belonging to Shri Mitesh Bhangdiya group. The assessee has been regularly assessed to income tax much Prorztotthe date of search On Shri Mitesh Bhangdiya 19/07/2011. group On In the case Of assessee notice has been issued us 153C of IT Act 1961 after there being search on Shri Mitesh Bhagdiya group 19/07/2011 and assessments have been framed for assessment years 2006-07 to 2010-11 & Ave 2012-13 in the month of March, 2014, TAX APRe 3 10.1 It is Seen from the assessment order that the A.O, has reproduced the statement recorded ufs 132/4) Of Shri Mitesh Bhagdiva and has referred to Seized documents inventorized as B-J to 65. In the case of Shri Mitesh has found that Bhagdiya, the AQ the withdrawals made from the bank account of assessee are matching with the credits appearing seized in the documents found at the premises of Shri Mitesh Bhagdiya: The AO. has condluded that appellant is only name tendeshof Shti Mitesh Bhagdiya: The A.0 accordingly observed that Shri Mitesh Bhangdiya is the ultimate benericiary of the bogus contract payment which laundered through appellant ad i5, disallowed ad added in the respective framed in Bhangdiya group. The A.O. "snenev Obseeved enas the cash withdrawn from the bank is added as income On Si7 LTA No.75/Nag/2016 [ein S74 LT,A,3II/Nag/2017 IES Assessnlent year.20g-10 protective basis as there was no expenses a5 nO contract work was really executed 10.2 The appellant submitted return declaring income from sub-contract work in his regular return as well a5 in the return submitted in response to notice Issued u/s 153C of IT Act 1961, In the return of income assessee has shown income arising out of receipts being amount received from the Various business entities of Shri Mitesh Bhagdiya group: The perusal Of the assessment order does not indicate any adverse observation with regard t0 regular books of account on the basis of which income was declared in the return of appellant: It is seen that the profit ad loss account ad balance sheet submitted along with the return Of income have not been discredited In the assessment framed in the case of the appellant The AO. In fact has assessed income returned without inviting any adverse observation a5 to income declared from sub-contract work 10.3 It is 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 a5 shown in the return cannot separately constitute income liable ta be assessed in the hands Of_ appellant The addition made by A.O i5 thus unjustified and unsustainable 7 NPi 10.4 It iIs 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 Iaw 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 ase Of the appellant; The Ao. has made disallowance Of sub-contract expenses being amount paid to apellant 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 a5 business receipt in the hands of 512 IT.A, No.75/Nag/2016 [TA3T/Nag/2017 Assessmentyear:ZOOg_ the appellant Addition of such amount again On protective basis defies logic [ do not find ay rationale to make such protective a5sessment Of the withdrawals made from bank account of assessee In the hands of assessee himself The income assessed on protective basis therefare, is held to be unjustified ad unsustainable on this count a5 well 6 10.5 The gross receipts In the case of the appellant as 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 G, Rotele TURNOVER RETURNED INCOME AND ASSESSED INCOME AY 2009-10 ASSESSMENT YEAR 2009-10 GROSS RECEIPTS 21710576 RETURNED INCOME 1733640 % OF GROSS RECEIPTS 7,9996 ADDIIONS UNDER 12880000 SECTTON 153C ASSESSED INCOME 14613640 % OF GROSS RECEIPTS 67,319 10.6 It is seen from the above that the Income returned has been accepted in the case Of appellant without inviting adverse inference ad considering the addition madeng te hands of assessee; the income assessed a5 percentage Of gross 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 the aforesaid reason also. Therefore; the protective addition made in the hands of the appellant is directed to be deleted in al1 the years Of the block period. 514 1.T:A, Na,75/Na5/2016 1.T,.311/Nag/2017 Assessment yeat:ZQ09-10 1z 9.1 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 Qf the Bhangdiya Group made the disallowance Qf sub-contract expenses being the amount paid to the assessee but these payments were already considered in income shown in the return ad receipt as 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 of the CIT(A) which warrants our interference. The CIT(A) has rightly deleted the addition; We accordingly confirm the order of CIT(A): Thus; ground NO. 1 & 2 stand dismissed: AFPe 10. Ground Nos, 3 & 4 of Revenue's appeal relate to the relief granted by the CIT(A) deleting the addition of Rs.4,00,000/- ignoring the provisions of section 40A(3) of the IT, Act.

We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below; We noted that the said addition has been made by the Assessing Officer 0n the basis of the scanned copy of item No. 9 of Annexure-Bl relating to the noting about the income and expenditure When the matter went before the CIT(A); the CIT(A) deleted the said addition; From the scanned copy of the documents available at page No. 13 of the paper book; we noted that Rs.4,00,000/- 530 [7,A, Nop,75/Nag/zm16 L.T,,311/Nagzz7 Assessmcnt ycar;2009-10 has been shawn In the said scanned cOpy of the document both on receipt as well as payment side: If the document Is to be accepted a5 such, the document has to be accepted in toto. This document has some rough noting: Since prior to the outflow of the sum of Rs,4,00,000/-, there is inflow of Rs.4,00,000/- appearing in the said scanned copy at page No: 13 of the assessment order therefore, in our Qpinion, even If the plea Of learned D.R. is accepted that the assessee has incurred these expenses and the sum of Rs.4,00,000/- represents the expenditure outside the books Qf account; the source of these expenses itself stands proved. Even otherwise also, since the diary does not belong to the assessee and the diary belong to the third party on the basis of noting of the third party, the addition cannot be made in the hands of the assessee_ We, therefore, confirm the crder of CIT(A) deleting the said addition; Thus, these grounds APEl/_ of the Revenue also stand dismissed. { 11. In the result; the appeal of the Revenue Is dismissed and the appeal 4 of the assessee is allowed, IVNO" (Order pronounced in the open court on 27/06/2017 , Sd] . (AMARJIT SINGH} Judicial Member P.K: BANSAL ) Vice President Dated:.2-74/06/2017 #Singh Copx of_ theorder forwarded to 1 The Appellant 2. The Respondent 3, Concerned CIT 4. The CIT(A) 5 D.R, Gud Tle Asstt;Registrar 54 be% INCOXETfX i4'J'4xt NASc Vrl Jeutett, #4_unf 48