ACIT CC 25, MUMBAI vs. SUPREME INFRASTRUCTURE INDIA LTD, MUMBAI

Since, the grounds raised

Briefly stated relevant facts of the case are that the assessee is engaged in the business of infrastructure products such as road, bridge, airport, inland rail system etc. There was an action u/s 132 of the Act on Supreme Group of companies on 24.09.2009. Assessee filed the return of income declaring the total income of Rs. 23.50 Crs (rounded of). Assessee reiterated the same in response to the notice u/s 153A of the Act. Assessment was completed u/s 143(3) r.w.s 153A of the Act and the assessed income was determined at Rs. 67.07 Crs (rounded of). In the assessment, AO made addition of Rs. 36,22,86,395/- on account of „amount not claimed as revenue expenses „capitalised‟. AO also made other additions too. In connection with the said addition of Rs. 36.22 Crs (rounded of), relevant facts are that the assessee owns land which was developed for various purposes. Assessee constructed a fence, retaining wall, barricades, water reservoir, Ready Mix Concrete Plant, foundation and land enforcement for the purpose of asphalt plant etc. Assessee was found engaged in quarrying activities also. During the search action, the claim of expenses amounting to Rs. 162.51 Crs (page 5 of the Assessment Order) was the subject matter of investigation. It involves 38 suppliers, the list of which are given in para 1 of the order of the AO. The purchases amounting to Rs. 60.25 Crs was put to scrutiny by the investigation wing that spread over FY 2208-09 to 2009-10. During the proceedings u/s 132(4) of the Act, on 25.9.2009, assessee made disclosure on oath as confirmed by the Directors of the company viz Shri Vikram Sharma, Mr. Bhavanishankar Sharma and Mr. Vikas Sharma. In response to Q.No.17, the assessee confessed that few of the parties are not available at the given addresses ie they are non-genuine purchases. The total of such purchases for the AY 2009-2010 and 2010-11 works out to Rs. 60.25 Crs. They further went on to say that “I am voluntarily offering these expenses of Rs. 60.25 Crs as additional income for the various projects being under taken by the company M/s. Supreme Infrastructure India Ltd. I agree to pay the taxes on the basis of method of accounting being followed by our company. The amounts standing to the credit of these parties shall be written back by us in the current year and in the year ended 31.3.2009. Inventories for the sites shall stand revised to the extent for the year ended 31.3.2009 and the current year ended 31.3.2010” . Eventually, AO extracted various supplementary evidences gathered during the action u/s 132 of the Act and statement of other suppliers and relied on various papers ( para 4 of the Assessment Order) and for cementing the above said disclosed amount of Rs. 60.52 Crs for two assessment years. On finding that the assessee debited the said expenses to the P & L Account and found manipulated the disclosure through the computation of income to the extent of Rs. 36.23 Crs (rounded of), AO proceeded to make addition of the said amount for the AY 2009-2010. A sum of Rs. 10.67 Crs was the addition for the AY 2010-11. Coming to the computation of income, assessee added Rs. 49.57 Crs (rounded of) to the profits as per the P & L Account and then subtracted Rs. 36.23 Crs “on account of amount not claimed as capitalization of expenses”. Thereby assessee effectively offered a sum of Rs. 13.37 Crs (Rs. 49.57 Crs – Rs. 36.23 Crs) of the above Rs. 60.52 Crs in this year. Considering the assessee‟s confession and offer of the additional income as well as bogus nature of the expenses, Assessing Officer rejected the said computation of income, which has the effect of the benefit of deduction of Rs. 36.23 Crs and added the same in the assessments. In effect, as per the AO, assessee did not comply with the disclosure given u/s 132(4) of the Act. AO took objection to the way certain bogus expenses which were offered u/s 132(4), were capitalized instead of complete write off in the inventories entirely. Effect of capitalization is not similar to the write off in the inventories. The party accounts shall not be written off by his methods. By inference, the bogus expenses / purchases means, they were never purchased, materials were never delivered to the assessee, no delivery challans, payments made are non-genuine and they are mere case of accommodation entries etc.

To start with, Ld DR for the Revenue explained the above facts of the case and submitted that the assessee did not comply with the disclosure made by the Directors of the company on 25.9.2009. A sum of Rs. 60.25 Crs was required to be offered to tax in the AYs 2009-2010 and 2010-11 and the same was not done. The amount offered for the AY 2009-10 is only Rs. 13.37 Crs and for the later year, the amount offered is NIL. To that extent, the disclosure was down sized using the route involving the computation of income. There are no write off in the inventories. Capitalization was newly invented process for the assessee and thereby, the statement u/s 132(4) is vitiated. Assessee is under obligation to write back the amount standing to the credit of the suspecting parties, who accommodated the bogus purchases amounting to the said sum of Rs. 60.25 Crs. Assessee has not done the same in true spirit. Assessee is also under obligation to revise the inventories for sites and the same was not demonstrated. Ld DR brought our attention to various seized papers cited in para 4 of the assessment order to demonstrate the above. Ld DR also brought our attention to the statements given by the suppliers who constitutes bogus / non-genuine. Therefore, Ld DR submitted that the order of the CIT (A) does not constitute „speaking order‟. CIT (A) merely relied on the non-debiting of the expenditure to the P & L Account and has not spoken a word about the statement given on oath by the Directors of the company as well as the other suppliers regarding the bogus purchases.

In reply, Ld Counsel for the assessee heavily relied on the order of the CIT (A) and the submissions made by the assessee before the lower authorities.

We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us for both the assessment years. On hearing both the parties, we find, there is no dispute on facts of the case. The undisputed facts include that the assessee adjusted the disclosed amount through the computation of income in both the years. For the AY 2009-10 assessee added Rs. 49.57 Crs and reduced the above by Rs. 36.23 Crs, thereby the offer of additional income for this year is only 13.37 Crs. For the AY 2010-11, assessee added Rs. 10.63 Crs in the computation of income and reduced the said figure before arriving at a taxable income thereby assessee offered NIL for the AY 2010-11. Prima facie, in our view, this is not in tune with the offer of additional income of rs. 60.25 Crs made by the Directors of company on 25.9.2009. Further, there is no clarity on whether the said bogus expenses / purchases from the bogus suppliers are written off in the party account and the relevant inventories were written off as promised by the assessee during the proceedings u/s 132 of the Act. Unfortunately, Ld CIT (A) did not examine the above issues. She merely ignored the manipulations done by the assessee in the computation of income. The fact the assessee was under obligation to write off in the supplies account / inventories were completely ignored. The fact the assessee failed to comply with the terms and manner of disclosure ignored by the CIT (A). Considering the same, we are of the opinion that the relief granted by the CIT (A) to the assessee in both the appeals constitutes premature one and the orders of the CIT (A) cannot constitute „speaking order‟. Therefore, we are of the considered opinion that the matter is required to be remanded to the file of the CIT (A) for fresh adjudication and for want of speaking order as per the provisions of section 250(6) of the Act. The CIT (A) ought not to be content with non-debiting of the said Rs. 60.25 Crs and it should be ensured that the newly found way of capitalization is not permitted for future benefits, if any. All the bogus supplies accounts should be completely squirred up /closed in the books of accounts of the assessee. CIT (A) shall grant a reasonable opportunity of being heard to the