THE ACIT, CIRCLE 2(1), INDORE vs. M/S SURYA INFRA VENTURE PVT. LTD., INDORE

Per contra, Ld. Counsel for the assessee supported the findings of Ld. CIT(A).

we have gone through the materials available on record. It is the case of the

assessee that disallowance of various expenses made by the Ld. AO was on

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the basis of presumption without any concrete basis/reasoning even when the

books of accounts of the assessee were duly audited by an independent

Chartered Accountant. The Ld. Counsel further submitted that various

documentary evidences were also filed before the lower authorities so as to

substantiate the genuineness of various expenses incurred and debited in the

profit and loss account. It was also submitted that no disallowance was justified

under Section 40A(3) and Section 40(a)(ia) of the Act since the assessee did

not make payment in cash to a single person on a single day in excess of

Rs.20,000/- and that the assessee did not deduct TDS in respect of various

other payments since those payments were not liable for deduction of TDS as

per the provisions of the Act. The Ld. Counsel heavily emphasized on the fact

that assessment in the case of the assessee was completed for the A.Y. 2009-

10 as well wherein the Ld. AO rejected the books of accounts of the assessee

and estimated the net profit of the assessee at the rate of 6% which was later

on reduced to 5% by the Ld. CIT(A) and the net profit rate of 5% was

subsequently approved by the Hon’ble ITAT Indore Bench vide order dated

10.11.2014. Accordingly, it was argued by the Ld. Counsel that since the

assessee itself declared net profit at the rate of 5.88% for the A.Y. 2010-11,

there was no justification for making further addition to the total income of the

assessee in the A.Y. 2010-11 on account of disallowance of various expenses

in light of the decision of the Hon’ble ITAT, Indore Bench in the case of the

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assessee itself for the A.Y. 2009-10. We find that the Ld. CIT(A) while allowing

the most of the grounds of appeal raised by the assessee observed as follows:

“4.1 Ground No 1:- Through this ground of appeal, the appellant has challenged addition of Rs.19,30,429/- made on account of non genuine expenditure. The AO during the course of assessment proceedings found that assessee has made payment of Rs. 19,30,429/- to Shri Rakesh Joshi for labour expenses and the said party has not shown the said amount in his return of income, therefore, the AO treating the same as non-genuine expenditure made addition to the income of the assessee. The appellant has made the payment of Rs. 19,30,429/- to Shri Rakesh Joshi and deducted the TDS of Rs.19,304/- while making the payment. The deducted tax has been deposited on 29.09.2010. The payment has been made through banking channel. The appellant has also furnished the bill for sub contract work i.e. laying of murram. The appellant filed the TDS certificate and the recipient Shri Rakesh Joshi is also assessed to tax and filed the return of income showing the business income. Therefore, the addition made by the AO amounting to Rs.19,30,429/- is Deleted. Therefore, the appeal on this ground is Allowed.

4.2 Ground No 2:- Through this ground of appeal, the appellant has challenged addition of Rs.13,39,555/- on account of bogus blasting expenses. The AO during the course of assessment proceedings found that assessee has claimed blasting expenses of Rs. 13,39,555/- , however, has submitted details of Rs. 1,01,330/- only which has also been reproduced by the AO on page no 3 of the impunged assessment order. The AO further observed that payments were made to M/s Sai Drilling for which no bills or license was produced for verification. Further, the AO held that blasting activities are strictly monitored activities and cannot be done without approval of government authorities and therefore, assessee has claimed expenses to suppress profit. The appellant has paid the blasting expense to the following persons:-

Name of the person Amount Govind Maheshwari Rs.12,38,225/- Shri Sai Drilling Rs.82,970/-

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Chandmal Suvalka Rs.18,360/-

Blasting is necessary for construction and the person to whom the blasting payment has been made were having the blasting license. All the payments were made by account payee cheques. The appellant has also deducted the TDS on the above payment made. Therefore, the addition made by the Assessing Officer amounting to Rs. 13,39,555/- is Deleted. Therefore, the appeal on this ground is Allowed.

4.3 Ground No 3:- Through this ground of appeal, the appellant has challenged addition of Rs. 75,23,136/- on account of disallowance of site expenses. The Assessing Officer during the course of assessment proceedings observed that the site expenses have increased from Rs.28,20,853/- in the earlier year to Rs.1,09,92,329/- during the year under consideration. The appellant submitted that during the year under consideration, the contract receipt has been increased from Rs.19,15,31,078/- to Rs.23,55,53,052/- i.e. by Rs.4,40,21,344/-. The Assessing Officer during the course of assessment proceedings has not pointed out any defect in the books of accounts. Most of the expenses were incurred through account payee cheque. The appellant has deducted the TDS payable wherever applicable. Therefore, the addition made by the Assessing Officer amounting to Rs. 75,23,136/- is Deleted. Therefore, the appeal on this ground is Allowed.

4.4 Ground No 4:- Through this ground of appeal, the appellant has challenged addition of Rs. 8,12,755/- on account of disallowance of expenses u/s 40A(3) of the Act. The Assessing Officer made disallowance on the ground that appellant has made the payment in excess of Rs.20,000/- in contravention to the provision of section 40A(3) of the I.T. Act. The appellant submitted the details of payment made. No individual payment has been made in cash to single person in excess of Rs.20,000/-. Therefore, the addition made by the Assessing Officer amounting to Rs. 8,12,755/- is Deleted. Therefore, the appeal on this ground is Allowed.

4.5 Ground No 5:- Through this ground of appeal, the appellant has challenged addition of Rs.18,91,316/- on account of disallowance of employees remuneration and benefits. The Assessing Officer during the course of assessment proceedings observed that the

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remuneration has increased from Rs.32,09,189/- in the earlier year to Rs.58,38,100/- during the year under consideration. The appellant submitted that during the year under consideration, the contract receipt has been increased from Rs.19,15,31,078/- to Rs.23,55,53,052/- i.e. by Rs.4,40,21,344/-. The Assessing Officer during the course of assessment proceedings has not pointed out any defect in the books of accounts. Most of the remuneration were incurred through account payee cheque. The appellant has deducted the TDS payable wherever applicable. Therefore, the addition made by the Assessing Officer amounting to Rs. 18,91,316/- is Deleted. Therefore, the appeal on this ground is Allowed.

4.6 Ground No 6:- Through this ground of appeal, the appellant has challenged addition of Rs.16,01,614/- on account of disallowance of expenses for non deduction of TDS. The appellant submitted the details of expenses made. While going through the nature and payment of the expenditure, none of the expenses was falling in the category where the appellant need to deduct the TDS. The nature of expenses are such that the appellant need not to deduct the TDS. Therefore, the addition made by the Assessing Officer amounting to Rs. 16,01,614/- is Deleted. Therefore, the appeal on this ground is Allowed.

4.10 Ground No 10:- Through this ground of appeal, the appellant has challenged addition of Rs. 12,37,512/-/- on account of disallowance of artificial estimation of expenses of company. The Assessing Officer made the disallowance out of communication, conveyance, water & electricity, office running & maintenance expense, printing & accessory and travelling expenses. The above expenses are integral part of the business and appellant have to make the expenditure on this account. Therefore, the Assessing Officer is not justified in making the disallowance out of above expenses. Therefore, the addition made by the Assessing Officer amounting to Rs. 12,37,512/- is Deleted. Therefore, the appeal on this ground is Allowed.”

squarely reveal that the Ld. AO did not point out any defects in the books of

accounts of the assessee. It is also an undisputed fact that payment towards

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most of these expenses was made by the assessee through banking channels

after deduction of TDS, wherever applicable. Further, all the expenses have

been incurred by the assessee for the purpose of business. Merely because

increase in turnover from 19.15 crores in the preceding year to 23.55 crores

during the year, such expenses could not have been doubted. We noticed that

the turnover of the assessee increased resulting into increase in expenses

during the year. However, the Ld. AO allowed credit of increase in expenses

only to the extent of percentage increase in turnover which was not correct

since the turnover of the assessee was in crores whereas the various

expenses incurred by the assessee were in thousands or lacs only.

Documentary evidences in support of its contention that all the expenses

incurred and debited in the profit and loss account were genuine and incurred

exclusively for the purpose of business were duly filed by the assessee. The

assessee further demonstrated that it did not make any payment in cash to a

single person in a single day in excess of Rs.20,000/- so as to warrant the

invoking of the provisions of Section 40A(3) of the Act. The assessee also

explained that it was not liable to deduct TDS on several other payments made

during the year and consequently, no disallowance was called for under

Section 40(a)(ia) of the Act.

9.1 We further find that the Co-ordinate Bench in the case of the assessee

itself for the A.Y. 2009-10 vide order dated 10.11.2014 approved the net profit

rate of 5% in the business carried on by the assessee whereas the net profit

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rate declared by the assessee for the A.Y. 2010-11 was 5.88% which was

higher than the accepted net profit rate of 5%. Accordingly, additions made by

the Ld. AO on account of disallowance of various expenses were not justified

even on this count. Thus, considering the entire aspect of the matter, we are of

the considered opinion that there was no justification for making additions on

account of disallowance of various expenses and also on account of

disallowance under Section 40A(3) and Section 40(a)(ia) of the Act. The

additions made by the Ld. AO on account of disallowance of various expenses

and also on account of disallowance under Section 40A(3) and Section

40(a)(ia) of the Act cannot be said to be justified in view of the observations

made hereinabove. Further, we find that the findings recorded by the Ld.

CIT(A) have not been controverted by the Ld.CIT-DR by bringing any contrary

material on record. Hence, we do not find any infirmity in the findings of the Ld.

CIT(A). Accordingly, we hereby confirm the findings of the Ld. CIT(A) in

deleting the additions made by the Ld. AO on account of disallowance of

various expenses. Thus, all the seven grounds of appeal preferred by Revenue

are found to be devoid of any merits and, thus, dismissed.

Assessee’s Cross objection No. 17/Ind/2022:

in respect of the addition of Rs. 1,55,000/- confirmed by the Ld. CIT(A) on

account of amount deducted by PWD for delay in completion of work.

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10.1 The brief facts leading to the case is this that there was delay in

completion of site work allotted to the assessee by the PWD. Accordingly,

PWD deducted an amount of Rs. 1,55,000/- on account of time extension for

delay in completion of such work and the said amount of Rs. 1,55,000/- was

debited in the books of accounts under the head ‘Penalty’ as a result of which

the Ld. AO made addition and the Ld. CIT(A) confirmed the addition of Rs.

1,55,000/- made to the total income of the assessee by considering such

payment to be penal in nature. Being aggrieved, the assessee is before this

Tribunal in the instant cross objection.

Per contra Ld. Counsel for the assessee submitted that amount of Rs.

1,55,000/- was deducted by PWD as compensation for delay in completion of

work. The Ld. Counsel submitted that though such amount was debited under

the head ‘penalty’, yet, such amount was compensatory in nature and not

penal in nature so as to warrant any disallowance. The Ld. Counsel also took

us through the bills raised and correspondence made between the assessee

and PWD wherein it was categorically stated that compensation amount shall

be deducted at the rate of 4.06% for any delay in completion of work. It was

further submitted that case of the assessee was reopened for the A.Y. 2015-16

for examination of the very similar issue regarding disallowance of amount

deducted by PWD for time extension but the then Assessing Officer after

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examination of all the relevant material placed on record reached to a

conclusion that the amount deducted by PWD for delay in completion of work

was compensatory in nature and not penal in nature and accordingly, no

addition was made to the total income of the assessee in A.Y. 2015-16 on

identical ground. The Ld. Counsel also placed reliance on various judicial

precedents in support of his contention.

we have gone through the materials available on record. We find that it is an

undisputed fact that the Ld. AO made addition and the Ld. CIT(A) confirmed

addition on account of amount deducted by PWD merely for the reason that the

assessee itself debited such payment in its books of accounts under the head

‘Penalty’. However, it is well settled that substance of a transaction should

prevail over its form. In the case in hand, though the assessee itself debited the

amount deducted by PWD under the head ‘Penalty’, yet, it shall be necessary

to ascertain the exact nature of such amount as deducted by PWD based on

the documentary evidences furnished so as to arrive at the correct conclusion.

We have gone through the bills raised by the assessee to PWD and also

through the correspondence made between the assessee and PWD which was

filed on Page No. 318-348 of the Paper Book filed before us. On perusal of

such bills and correspondence made, it is clear that amount deducted by PWD

was towards compensation for delay in completion of work and that such

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amount as deducted was not penal in nature. We have also gone through the

assessment order dated 26.08.2021 passed under Section 147 of the Act in

the case of the assessee for the A.Y. 2015-16 which is placed on Page No.

349-357 of the Paper Book wherein the then Assessing Officer did not make

any addition to the total income of the assessee and duly accepted the fact that

amount deducted by PWD was compensatory in nature and not penal in

nature. Thus, considering the entire aspect of the matter, we find no

justification for sustaining addition of Rs. 1,55,000/- on account of amount

deducted by PWD for delay in completion of work particularly for the reason

that the assessee has categorically explained with the help of ample

documentary evidences that such deduction of amount was compensatory in

nature and not penal in nature. Hence, in our considered opinion, addition of

Rs. 1,55,000/- made to the total income of the assessee on account of

disallowance of the amount deducted by PWD is not sustainable and, thus,

deleted. We thus set aside the findings of Ld. CIT(A) on this count. Hence,

assessee’s cross objection is allowed. Accordingly, the appeal filed by the

Revenue is dismissed whereas cross objection filed by the assessee is

allowed.

ITA No.217/Ind/2021 A.Y. 2011-12

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16.08.2021 passed by the Ld. CIT(A)-3, Bhopal (hereinafter referred to as ‘Ld.

CIT(A)’) arising out of the order dated 12.03.2014 passed by the DCIT, Circle

2(1), Indore (hereinafter referred to as ‘Ld. AO’) under Section 143(3) of the

Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year

(hereinafter referred to as ‘A.Y.’) 2011-12 with the following grounds:

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,04,60,184/- made on account of Net Profit estimated at 6% on contract receipts and has overlooked the findings of the AO mentioned in the assessment order.

private limited company engaged in the business of government works contract

for construction of roads. The income-tax return of the assessee for the A.Y.

2011-12 was filed on 30.09.2011 claiming loss of Rs. 67,64,838/-. The case of

the assessee was selected for scrutiny manually as per the statutory

prescribed guidelines. The Ld. AO during the course of assessment

proceedings made addition of Rs. 2,04,60,184/- and Rs. 1,10,00,000/- to the

total income of the assessee on account of estimation of net profit at the rate of

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6% and on account of share application money received from M/s SKS Ispat

and Power Limited respectively. Being aggrieved by the order of the Ld. AO,

the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A)

deleted both the additions made by the Ld. AO. Hence, the instant appeal has

been filed before this Tribunal.

Ground No. 1:-

account of estimation of net profit at the rate of 6% is under challenge before

us. The brief facts leading to the ground are that the Ld. AO during the course

of assessment proceedings observed that the assessee did not produce its

books of accounts and that some of the expenses could not be fully vouched

and were open to verification. Accordingly, the Ld. AO adopted the net profit

rate at 6% as was adopted in the A.Y. 2009-10 and made addition of Rs.

2,04,60,184/- to the total income of the assessee.

Per contra Ld. Counsel for the assessee supported the findings of Ld. CIT(A)

and submitted that the Ld. AO estimated the net profit rate for the year to be

6% merely on the basis of net profit rate of 6% as was estimated for the A.Y.

2009-10 without pointing out any defects in the books of accounts and without

even rejecting the books of accounts of the assessee which were duly audited

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in terms of Statutory Provisions. The Ld. Counsel further submitted that the

findings of the Ld. AO in the assessment order were self-contradictory as the

Ld. AO estimated the net profit of the assessee by stating that the books of

accounts of the assessee were not produced whereas the Ld. AO himself in

other paragraphs of the assessment order specifically mentioned the fact that

the assessee produced its books of accounts together with bills/ vouchers. The

Ld. Counsel thereafter explained that the assessee declared loss during the

year mainly for the reason that it made huge investment in plant and machinery

out of the amount financed which resulted in increased burden of depreciation

and finance charges debited in the profit and loss account for the year. It was

for the said reason that loss was declared in the profit and loss account of the assessee for the year ended 31st March, 2011. The Ld. Counsel submitted that

percentage of net profit declared by the assessee during the year after ignoring

the effect of increase in depreciation and finance charges came to 4.83%

which was approximately equal to the net profit rate of 5% approved by the

Hon’ble ITAT Indore Bench vide order dated 10.11.2014 in the case of the

assessee itself for the A.Y. 2009-10. The Ld. Counsel also submitted that the

Assessing Officer himself accepted the loss declared by the assessee in its

books of accounts during the course of assessment proceedings for the A.Y.

2012-13.

16.1 We have further considered inter alia the following submission made by

the assessee in the synopsis submitted before us:

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“1.6.1] The department has challenged the deletion of estimation of income at 6% by the Ld CIT(A).

1.6.2] The assessing officer during the course of assessment proceeding in Para 4 observed certain discrepancies which was contradictory with the finding of Para 3 of the assessment order. The finding of Para 3 is reproduced in Para 1.3 of this Synopsis.

1.6.3] The assessing officer in Para 5 simply on the basis of observation of the Asst Year 2009-10 estimated the net profit of the respondent assessee at 6% even when books of account was duly audited and requisite details have also been filed before the Assessing officer. The assessing officer grossly erred in estimating the net profit without rejecting the books of account. It is settled position of law that without rejecting the books of account, no estimation can be made. Hence, the assessing officer grossly erred in estimating the net income of the assessee.

1.7.1] That on perusal of the Audited final account, your Honóur will find that in the year under consideration, the respondent assessee company had purchased Plant & Machinery to the tune of Rs 11,97,36,203/- in addition to Skoda Car for Rs 18,50,000/- , Bitumen Sprayer for Rs 6,46,910 and Site Equipment for Rs 7,24,947/-.

1.7.2] That Plant & machinery was financed by M/s SREI Equipment Finance P Limited and loan of Rs 9,50,66,771/- was shown as payable in the books of account of the respondent assessee as on 31.03.2011.

1.7.3] The amount of finance charges as paid in this year and the amount of depreciation as allowable on the cost of assets increased in this year as compared the same with last year is as under:-

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S.No Nature of For the Period ended on Increased in Expenses this year 31.03.2010 31.03.2011 1 Finance 3,15,245 1,51,31,945 1,48,16,700 Charges 2 Depreciation 14,96,344 1,17,69,466 1,02,73,122 2,50,89,822

1.7.4] That if the effect of the increase in the amount of increase in the finance cost and Depreciation is ignored the revised amount of net Profit and percentage of Net profit is calculated as under:-

S.No Description Amount[Rs] 1 Income from Operation 34,41,03,054

2.1 Net Profit as declared in the books of account [-] 84,77,805 2.2 Increase in the amount of Finance Exp and 2,50,89,822 Depreciation Net Profit after ignoring the effect of Dep & 1,66,12,017 Finance Cost

3 % of Net Profit after ignoring the effect of Dep & 4.83% finance Cost

1.8.1] The amount of Finance Cost as increased in this year is verifiable from the copy of account of SREI Equipment Finance P Limited in the book of the respondent assessee is enclosed on Page No 121 of the Compilation.

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1.8.2] The interest amount was increased due to increase in the finance for purchase of Plant & machinery. Hence, increase in the amount of Finance Expenses is duly verifiable and justified

1.9] The amount of depreciation increased in this year is duly verifiable from the cost of new plant & Machinery as purchased by the respondent assessee through the finance of SREI Equipment Finance P Limited.

1.10] That loss was incurred by the respondent assessee was due to increase in the amount of Depreciation and Finance Charges which are independently verifiable and therefore the assessing officer was not right in estimating the income of the assessee at Rs 2,04,60,184/- as against loss of Rs 67,64,838/- as claimed by the respondent assessee in its return of total income.

1.12.1] That in remand report, the assessing officer simply on the basis of finding as recorded in the Asst Year 2009-10 try to justify its stand for estimation of total income at 6%. The assessing officer failed to appreciate the following facts as pointed out: - S.No Facts of the case 1.1 The assessee in this year purchased new Plant & Machinery to the tune of Rs 11,97,36,203/-, Skoda Car of Rs 18,50,000/-, Bitumen Sprayer of Rs 6,46,910/- and Site Equipment of Rs 7,24,947/- 1.2 That due to additions to the Plant & Machinery, the amount of depreciation increased in this year to Rs 1,17,69,466/- as against Depreciation as claimed in the last year was of Rs 14,96,344/- 2.1 The amount of loan as taken for purchase of Plant & Machinery as due as on 31-03-2011 was of Rs 9,50,66,771/-

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2.2 The consequent to the increase in the amount of loan, the amount of finance charges increased from Rs 3,15,245/- to Rs 1,51,31,945/- 3 Legal & Professional Expenses increased from Rs 38100/- to Rs 10,53,004/- in this year 4 Insurance expenses increased from Rs 2,08,083 to Rs 10,84,486/-. Since, due to addition to the value of Plant & Machinery and vehicle, the consequential amount of insurance was also increased 5 That due to new contract and time limit for completion of the contract, machineries were taken on hire for which Rent was paid to the tune of Rs 2,03,09,678/- as against rent of Rs 6,20,485/- paid in last year

1.12.2] The assessee had produced its books of account with supporting vouchers before the assessing officer and in these books of account, no defects were pin- point by the assessing officer. Hence, there was no justification for estimating the total income of the assessee.

1.14] That in view of the above, the assessing officer was not justified in estimating the net income of the assessee at Rs 2,04,60,184/- as against loss of Rs 67,64,838/- declared in the return of total income even without rejecting the books of account as maintained by the respondent assessee.”

assessee observed as follows:

“4.1 Ground No. 1:- Through this ground of appeal the appellant has challenged the addition of Rs.2,04,60,184/- being net profit @6% of

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the total operational receipts. The AO during the course of assessment proceedings observed that AO has adopted NP @ 6% at Rs. 2,04,60,184/- against operation receipts of Rs. 34,41,03,054/-. The appellant has claimed deprecation equal to net profit amount, however, the AO denied the deprecation on plant and machinery stating the same has not been put to use during the year under consideration. Therefore, the AO relying to the NP adoption in AY 2009-10 @ 6% made addition to the year under consideration. 4.1.1 I have considered the facts of the case, plea raised by the appellant and findings of the AO. On perusal of evidences filed by the appellant it was observed that assessee has purchased plant and machinery to the tune of Rs. 11,97,36,203/-, Skoda car for Rs. 18,50,000/-, Bitumen Sprayer for Rs. 6,46,910/- and site equipments for Rs. 7,24,947/-. The loan of Rs. 9,50,66,771/- was financed by M/s SREI Equipments Pvt Ltd. The appellant has also filed comparison chart of finance charges paid and amount of deprecation allowed on the cost of assets increased during the year under consideration and the same with last year. The same is reproduced as under:- S.No Nature of For the Period ended on Increased Expenses in this year 31.03.2010 31.03.2011 1 Finance 3,15,245 1,51,31,945 1,48,16,700 Charges 2 Depreciaiton 14,96,344 1,17,69,466 1,02,73,122 2,50,89,822

The increase in finance charges is due to purchase of plant and machinery and other site equipments purchased by appellant and is verifiable from ledger account of M/s SREI Equipments Pvt Ltd in the

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books of appellant. Further, the appellant has purchased P/L machinery and therefore, has claimed deprecation on these plant and machinery. However, the AO has alleged that the entire plant and machinery was not put to use as stated by assessee in its submission dated 06.03.2014 point 1(b). The appellant before me has also filed copy of the said reply dated 06.03.2014. On perusal of the reply it was observed that the assessee has stated that for execution of work contract the appellant has purchased plant and machinery worth Rs. 8 crores which were delivered on time but the machinery being technically operated, the appellant has also hired Indian machinery on rent and has paid rent of Rs. 3 crores. Further, the machinery has been purchased throughout the years and has claimed deprecation. In support appellant has filed copies of bills along with ledger account of fixed assets purchased by appellant. On perusal of the same it was found that majority of plant and machinery were purchased before 30th September 2010 and only four equipments were purchased during later half of the year. The AO on the other hand has only placed reliance on written submission dated 06.03.2014 which no where states that the plant and machinery was not put to use, the appellant has only stated that being automatic machinery, the Indian operator find it difficult to operate and for smooth function and execution of work contract in time machinery in addition to purchased machinery were hired on rent. Thus, the appellant has used both purchased and hired machinery for execution of work contract. Further, the AO has not brought on record any instance which could prove that neither of the purchased machinery was put to use during the entire year. As a matter of fact the majority of machinery was purchased in June 2010 and no prudent businessman would purchase machinery and made them rest in warehouse or at its business premises. There could be

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possibility that the machinery may have not worked for a short period of time till the operator was trained partly or fully but it cannot be said that the same was not used foe entire year. 4.1.2 Nonetheless, the AO has also adopted NP @ 5% for which the AO has stated that a NP @ 6% was adopted in Ay 2009-10 which has been reduced to 5% by Ld CIT(A) and therefore, the NP was estimated @ 5%. The NP after applying rate @ 5% was calculated at Rs. 2,04,60,184/-. The appellant for which has stated that it has already shown NP @ 4.83% when the effect of increase in finance cost and deprecation are ignored. The brief detail of NP shown by appellant after ignoring increase in finance cost and deprecation is as under:- S.No Description Amount[Rs] 1 Income from Operation 34,41,03,054 2.1 Net Profit as declared in the books of account [-] 84,77,805 2.2 Increase in the amount of Finance Exp and 2,50,89,822 Depreciation Net Profit after ignoring the effect of Dep & 1,66,12,017 Finance Cost 3 % of Net Profit after ignoring the effect of Dep 4.83% & finance Cost

Clearly, the appellant has already shown NP @ 4.83%, however, the AO has adopted NP @5% keeping in view the adoption of NP in AY 2009-10. The Hon’ble Supreme Court in its several decisions have held that the principle of res judicata is inapplicable in tax matters and the general rule is not to apply this doctrine. In Installment Supply P Ltd. AIR 1962 SC 53, Hon’ble Apex Court held that in the tax matters,

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there is no question of res judicata because each year’s assessment is final only for that year and does not govern later years. In Radhaswami Satsang 193 ITR 321, the Hon’ble Supreme Court observed that each assessment is a separate unit. Decision in one year may not carry forward and held for a subsequent year. An issue which is significant only for a particular year once decided cannot be held res judicata for a subsequent year. Thus, the view taken by Ld CIT(A) in one year cannot be implied to other assessment years.

4.1.3 In view of the above discussion, the AO firstly was not justified in disallowing entire deprecation claimed by appellant and secondly not justified in estimating NP @ 5%. Thus, addition made by the AO amounting to Rs. 2,04,60,184/- is Deleted. Therefore, appeal on this ground is Allowed.”

available on record. We find that the facts discussed above squarely establish

that the Ld. AO neither pointed out any defects in the books of accounts nor did

he reject the books of accounts maintained by the assessee. The sole reason

for estimating the net profit rate of the assessee to be 6% was that the same

rate of net profit was estimated for the A.Y. 2009-10. We find that the Ld. AO

utterly failed to appreciate the fact that the assessee made huge investment of

11.97 crores in plant and machinery during the year out of the amount financed

by M/s SREI Equipment Finance Pvt. Ltd. which resulted in huge increase in

the amount of depreciation and finance charges during the year as compared

27 Surya Infraventure ITA 216 of 2021 and others

to the preceding year. The amount of depreciation increased from Rs. 14,96,344/- during the year ended 31st March, 2010 to Rs. 1,17,69,466/- during the year ended 31st March, 2011. Similarly, the amount of finance charges increased from Rs. 3,15,245/- during the year ended 31st March, 2010 to Rs. 1,51,31,945/- during the year ended 31st March, 2011. Hence, there was additional burden of Rs. 2,50,89,822/- on account of depreciation and finance charges which was debited in the profit and loss account of the assessee which resulted in the figure of loss being declared by the assessee. The Ld. AO failed to appreciate the aforesaid factual position and he simply estimated the net profit rate to be 6% as was estimated during the A.Y. 2009-10 which in our considered opinion, was not correct. The percentage of net profit declared by the assessee for the year after ignoring the effect of additional amount of depreciation and finance charges totalling to Rs. 2,50,89,822/- debited in the profit and loss account came to 4.83% which approximated the net profit rate of 5% approved by the Hon’ble Co-ordinate Bench itself in the case of the assessee for the A.Y. 2009-10. It is also an uncontroverted finding of fact that the Ld. AO himself accepted the amount of loss declared by the assessee in the subsequent year i.e. A.Y. 2012-13 which further strengthens the contentions of the assessee that its book results ought to be accepted for the year under consideration as well. In light of the factual matrix of the case, we are inclined to accept the book results declared by the assessee and we are in

28 Surya Infraventure ITA 216 of 2021 and others

agreement with the findings of the Ld. CIT(A) in deleting the addition made by

the Ld. AO on account of estimation of net profit.

Thus, considering the entire aspect of the matter, we are of the considered

opinion that there was no justification for making addition of Rs. 2,04,60,184/-

on account of estimation of net profit. The addition made by the Ld. AO on

account of estimation of net profit cannot be said to be justified in view of the

observations made hereinabove. Further, we find that the above findings of the

Ld. CIT(A) have not been controverted by the Ld. CIT-DR by bringing any

contrary material on record. Hence, we do not find any infirmity in the findings

of the Ld. CIT(A) and accordingly, the deletion of addition of Rs. 2,04,60,184/-

made by the Ld. CIT(A) is confirmed. Hence, Ground No. 1 of the appeal

preferred by Revenue is found to be devoid of any merit and, thus, dismissed.

Ground No. 2:-

of addition of Rs. 1,10,00,000/- made by the Ld. AO under Section 68 of the

Act on account of share application money received from M/s SKS Ispat and

Power Limited.

19.1 The brief facts leading to the issue are that the assessee received share

application money of Rs. 1,10,00,000/- from M/s SKS Ispat and Power Limited

during the year. The assessee furnished copies of confirmation of accounts,

29 Surya Infraventure ITA 216 of 2021 and others

PAN, bank statement and audited financial statements of the investor. The Ld.

AO observed that the assessee did not furnish copy of ITR and bank account

of the company inspite of specific query being raised during assessment

proceedings. Accordingly, the Ld. AO observed that genuineness of the

transaction could not be proved and he made addition of Rs. 1,10,00,000/- to

the total income of the assessee under Section 68 of the Act. The assessee

filed all the documentary evidences before the Ld. CIT(A) during the course of

appellate proceedings including the documentary evidences such as copy of

ITR and bank account of the company which could not be filed before the Ld.

AO. The Ld. CIT(A) forwarded the said documents to the Ld. AO for his

comments after which the Ld. AO submitted the remand report wherein he

simply challenged the applicability of Rule 46A and failed to controvert the

documents furnished by the assessee on merits. The Ld. CIT(A) observed that

the assessee filed ample documentary evidences and discharged the primary

onus cast upon it under section 68 of the Act. Accordingly, the Ld. CIT(A)

deleted the addition of Rs. 1,10,00,000/- made by the Ld. AO under Section 68

of the Act on account of share application money received from M/s SKS Ispat

and Power Limited. Being aggrieved, the Revenue filed the appeal before this

Tribunal.

contra Ld. Counsel for the assessee supported the findings of Ld. CIT(A). The

Ld. Counsel for the assessee submitted that the assessee filed ample

30 Surya Infraventure ITA 216 of 2021 and others

documentary evidences before the lower authorities such as share application

form, confirmation of accounts, acknowledgement of income-tax return, audited

financial statements and bank statement of M/s SKS Ispat and Power Limited

so as to substantiate the identity and creditworthiness of the investor company

and genuineness of the amount of share application money of Rs.

1,10,00,000/- received during the year. The Ld. Counsel further submitted the

investor company showed net profit before taxes of 32.95 crores in its audited

financial statements and total income of 6.19 crores in its income-tax return

which proved the identity and creditworthiness of the investor company beyond

any doubt. It was further submitted that the amount of investment made by the

investor company in the share capital of the assessee was duly reflected in

‘Schedule 6 – Investments – Long Term’ in its audited financial statements.

The Ld. Counsel submitted that the Ld. AO did not conduct any independent

enquiry during the course of assessment proceedings and that the Ld. AO

doubted the genuineness of the transaction simply for the reason that the

assessee could not furnish copy of ITR and bank statement during the course

of assessment proceedings which was not justified. It was further submitted

that all the documentary evidences were filed before the Ld. CIT(A) who called

for the comments of the Ld. AO on the same but the Ld. AO failed to disprove

any of the documentary evidences furnished by the assessee in the remand

report submitted by him. The Ld. Counsel also submitted that an amount of Rs.

95,00,000/- was received from the same investor company during the A.Y.

31 Surya Infraventure ITA 216 of 2021 and others

2010-11 wherein also the case of the assessee was selected for scrutiny but

no addition was made to the total income of the assessee on this count and

accordingly, there remained no justification for doubting the genuineness of the

amount of share application money of Rs. 1,10,00,000/- received from the

investor company during the year. We have further considered inter alia the

following submission made by the assessee in the synopsis submitted before

us:

“2.1] The department in this ground of appeal has challenged the deletion of addition as made by the assessing officer in respect of share application money of Rs 1,10,00,000/-

2.2] The respondent assessee company received share application money of Rs 1,10,00,000/- in this year from M/s SKS Ispat and Power Limited. That M/s SKS Ispat and Power Limited is one of the promoter and major shareholder of the assessee company.

2.3] That as to justify the Identity, genuineness and capacity of the share applicant, in respect of an amount of Rs 1,10,00,000/- as received by the respondent assessee, following documents are enclosed: -

S.No Nature of papers Page No 1 Copy of account of M/s SKS Ispat and Power 121 - Limited in the book of the assessee duly 123 confirmed 2.1 Copy of Balance sheet of M/s SKS Ispat and 127 - Power Limited for the year ended on 31.03.2011 142

32 Surya Infraventure ITA 216 of 2021 and others

2.2 On perusal of the Balance sheet, your Honóur will 127 find that the share applicant having share capital to the tune of Rs 46.57 crores as on 31.03.2011 and Reserve & Surplus to the tune of Rs 559.25 crores 2.3 On perusal of the Profit & Loss account, your 129 Honóur will find that the share applicant declared net Profit to the tune of Rs 32.95 crores 2.4 In Schedule -6 of the Balance sheet the amount 134 of share capital as invested in the assessee company was duly reflected on face of the Balance sheet 2.5 The assessing officer himself in the Assessment 122 Year 2010-11 has accepted an amount of Rs 95,00,000/- as received was genuine

2.4] The amount of share application money and loans were received from the share applicant having major shareholding in the respondent assessee company. The amount of share application / capital is duly reflected in the face of the balance sheet of the share applicant. The capacity of the share applicant is also proved. Hence, there is no reason for having any doubt about the identity, genuineness and capacity of the share applicant.

2.5] That from the copy of confirmation letter it seems that an amount of Rs 95,00,000/- were received during the previous year relevant to the Asst Year 2010-11. The case of the respondent assessee was scrutinized in the Asst year 2010-11 also in scrutiny but the said amount of Rs 95,00,000/- as received from M/s SKS Ispat and Power

33 Surya Infraventure ITA 216 of 2021 and others

Limited was accepted as genuine. Hence, there was no justification for adding the amount of Rs 1,10,00,000/- as received in this Asst Year.

2.6.1] That in the present case, the respondent assessee had filed sufficient documents as to justify the identity of the shareholders and genuineness of the transactions. That, if for any reason the assessing officer’s is not satisfied with the source of amount invested by these share-holders in that case, necessary addition if any be made in the case of the share-holders but in no case any addition is justified in the case of the respondent assessee company.

2.6.2] The respondent assessee has proved the Identity and genuineness of the shareholder regarding share application money received by it. The amounts of share application money/ share capital were received through account payee cheques. The respondent assessee had filed complete details as to justify the amount of share application money received by it. Once, the respondent assessee had filed documents as to justify the identity of the shareholder in that case if the assessing officer has any doubt about the source of share application money in that case the assessing officer is free to take action against the persons who have contributed the same but in no case the same is to be added to the income of the assessee.”

assessee observed as follows:

“4.2 Ground No. 2 and 3:- Through these grounds of appeal the appellant has challenged the addition of Rs.1,10,00,000/- being share application money u/s 68 of the Act. During the course of assessment proceedings, the AO observed that the assessee has introduced share application money from M/s SKS Ispat and Power Limited. As per the AO the assessee failed to furnish copy of ITR and bank account and therefore, genuineness of the transaction was not proved.

34 Surya Infraventure ITA 216 of 2021 and others

4.2.1 I have considered the facts of the case, material evidences on record & written submissions filed by the ld AR of the appellant. I have also given my thoughtful consideration to the facts and findings of the AO inter alia material brought on record. At the outset there is no denying of the fact that appellant has introduced share capital from M/s SKS Ispat and Power Limited. Appellant before the AO as well as before me has filed copies of PAN, bank account statement of investors, audited balance sheet, profit and loss statement and confirmations of investors. All the documentary evidences were furnished before the AO except bank account statement and ITR. The appellant during appellate proceedings has also furnished the desired details were also provided from comments/remand report. The brief details of these investor company are as under :- • M/s SKS Ispat and Power Limited (PAN-AAECS3299N):- The identity of the investor company has been fully explained by the appellant and the same has been accepted by the AO. Regarding the genuineness of the transaction the appellant submitted copies of ledger account of appellant in the books of the investor company, bank account statement. The investor company has made all the transaction through banking channel and no cash was found deposited prior to fund transfer to appellants bank account. Further, copy of ledger account of the appellant in the books of the investor company and copy of confirmation has also been filed. The appellant had duly issued shares against funds received from the investor company. The appellant company has received total sum sum of Rs. 1,35,00,000/- against which 1,35,000 shares were allotted. All the transactions are recorded in books of accounts. Thus, the appellant has proven genuineness of the transaction beyond any doubt.

In order to prove creditworthiness of the investor, the appellant has filed copies of audited financial statements of the investor company and ITR of the investor company. On perusal of evidences on record it is seen that the investor company has shown income of Rs. 6,54,74,660/- in AY 2011-12 in its ITR filed on 29.03.2013. Also, on perusal of audited balance sheet it was observed that the investor company was having funds by way of share capital/premium and reserves and surplus of Rs. 605,81,91,000/-. Thus, in nutshell the investor company has surplus funds to be invested in appellant company.

35 Surya Infraventure ITA 216 of 2021 and others

The investor companies has furnished the confirmation, copy of bank account, audited balance sheet having sufficient funds and proof of filing of the return. By filing the above documents the appellant is able to establish the – i. Identity of the Investor - the Investor is income tax payer and filed the confirmations.

ii. Genuineness of the transaction- the appellant has taken the share application money through banking channel. The appellant is in the receipt all amounts by cheque. Copies of bank statement of Investor Company is placed on record and perused. From perusing the bank statements of the Investor companies as furnished in the paper book, it is found that no cash was deposited in the bank account prior to issuance of cheque to the appellant for the said investment.

iii. Creditworthiness of the investor - the investor company is income tax payer and filing the income tax return. The company has not only made investment in appellant company but also in other companies.

From the above it is clear that the appellant has satisfied all the three conditions required for genuineness of the transaction. The same view has been upheld by the Hon’ble Apex Court, various High Courts and tribunals in the following cases:-

(i) In the case of Goodview Trading (P) Ltd (2016) (Del-Trib), which has also been affirmed by Hon’ble Delhi high Court Goodview Trading (P) Ltd (2017) 77 taxmann.com 204 (Del HC) dt.21-11-16, wherein it has been held that:

“3. The CIT(A) noticed that the details of the share applicants such as their IT returns as well as the ‘net worth’ were available on the file of the assessment record. Based upon analysis and the submissions, the CIT(A) concluded that the share applicants had sufficient net worth and finances to invest in the assessee’s offerings with the premium of Rs.23 crores. The CIT(A) recorded inter alia as follows: “In the present case the appellant had duly discharged its onus by submitting necessary evidence available to establish the bona fide of the transactions. Thereafter, the onus shifted on the revenue to prove that the claim of the appellant was factually incorrect. Simply by pointing out that the claim of the appellant was factually incorrect. Simply by pointing out that the applicant companies did not have sufficient income or that the bank accounts indicated credits and

36 Surya Infraventure ITA 216 of 2021 and others

debits in rapid succession leaving little balance does not discharge the burden cast upon the revenue to take an adverse view in the matter. Further, if there was statement of a person or any other material indicating tax evasion by the appellant, or persons in control of its management, the material relied upon should have been made available to the appellant in its entirety. From the records, it appears that this was not done. It has been held by the Hon’ble Apex Court that taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from the assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. It is impossible to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed to have exercised it in a proper and judicious manner- Simon Carves Ltd (1976) (SC). In the present facts of the case, the addition is not legally sustainable and is deleted. Appellant gets relief of Rs.25,00,96,500.” 4. The ITAT concurred with this view. 5. The revenue urges that the CIT(A) and the ITAT both grievously erred in cancelling the additions made. It is submitted that the genuineness of the transactions and the credit worthiness is suspect in the circumstances of the case. Ld counsel relied upon a tabular chart prepared by the AO to submit that most of the share applicants had paid little or no IT and that analysis of the bank statements furnished by such investors revealed that the amounts were deposited in cash and also routed through different entities. It was submitted that whereas the identity of the investors was no doubt established, neither the genuineness nor credit worthiness could be said to have been satisfied to pass the test of bona fide transactions. It is submitted that in these circumstances, the CIT(A)’s decision- as endorsed by the ITAT- is required to be set aside in this appeal. 6. This Court has considered the materials on record. 7. As against the AO’s tabular appreciation of the facts, the CIT(A) also framed another chart which interestingly reveals the ‘net worth’ of the companies that had invested in the course of the share offerings, of the applicant. The chart extracted in para-4.2 of the CIT(A)’s order is reproduced below:

37 Surya Infraventure ITA 216 of 2021 and others

S. Name of Party PAN No. Amount of Net worth No. investment as on 31-3- in shares 06

Golden 1 Suppliers P AADCG0724F 57,23,250 Ltd

Web Tech 2 International AAACW4551F 42,31,500 99,36,107 Ltd

Well Plan Corp 3 Management AAACW2580N 5,70,000 1,25,51,638 PL

4 Triveni Tower AABCT0558Q 1,34,94,000 1,00,79,080 P Ltd

Allworth 5 Commodities AACCA5809Q 1,28,98,500 5,00,43,177 PL

Gunjan 6 Agencies P AABCG2363E 23,43,750 5,498,065 Ltd

Simphony 7 Trade Comm AAECS0612B 41,61,750 5,112,447 PL

Texila 8 Commerce P AABCT0569P 76,27,500 51,10,307 Ltd

Kajal 9 Merchandise P AABCK4093R 1,25,91,750 3,00,19,461 Ltd

10 Majestic Deal AABCM9098G 37,40,250

38 Surya Infraventure ITA 216 of 2021 and others

Com PL 11 Cherry Tie Up AABCC9327N 1,74,66,000 3,56,88,065 P Ltd 12 Marino Fresh AABCM2781N 2,81,250 4,35,99,164 Food Indu Ltd Dev Lok 13 Marketing P AAACD9682L 12,36,000 Ltd. 14 Surya Shakti AAECS0505K 9,55,500 4,06,97,791 Marketing PL 15 Super Deal AAECS2143K 1,79,58,750 25,00,46,932 Sales P Ltd 16 Quicker Impex AAACQ0433E 1,07,69,250 3,27,11,907 & Credit PL 17 Satyam Credit AADCS6627H 65,39,250 99,88,429 P Ltd 18 Mudrika Fiscal AABCM7362B 1,69,42,500 15,04,12,130 Services PL 19 Graceful AABCG7432L 1,52,26,500 3,00,05,878 Traders P Ltd 20 Goodward AABCG7433M 1,73,29,500 1,50,42,806 Agency P Ltd 21 Vishnupriya AAACV8829P 46,48,500 38,92,620 Prop. P Ltd. 22 Zenith Goods AAACZ0908P 1,43,87,250 2,00,27,787 & Services PL 23 Concert AABCC9445K 1,40,70,000 9,99,93,410 Tradelink P

39 Surya Infraventure ITA 216 of 2021 and others

Ltd

(ii) Umesh Electricals v/s Asst. CIT(2011) 18 ITJ 635 (Trib.-Agra): (2011) 131 ITD 127 : (2011) 141 TTJ Establishment of identity and credit-worthiness proved- Assessee produced the bank account of creditor in his bank account on the same day on which loan was given- Assessee furnished the cash flow statement of creditor-Based on inquiry, AO noted that creditor was engaged in providing accommodation entries-HELD- In group cases, it has been held that there was no evidence against the creditor to prove that he was providing accommodation entries-Further, mere deposit of money by the creditor on the same day, does not establish that the loan is not genuine-Assessee has proved the source of credit and also the source of source -Addition cannot be made. (iii) Aseem Singh v/s Asst. CIT (2012) 19 ITJ 52 (Trib.-Indore) Identity and credit-worthiness proved-Assessee took loan of Rs.1,00,000/- confirmation of creditor was filed-Lower authorities made addition u/s 68 holding that amount was deposited in cash in the bank account of lender immediately prior to date of loan – HELD- Assessee has established the identity- The party has confirmed the transaction-If AO doubted the transaction, AO should have called creditor u/s 131-Addition cannot be made.

40 Surya Infraventure ITA 216 of 2021 and others

Thus, appellant has furnished all the required details in order to prove identity of investor, genuineness of the transaction and creditworthiness of the investor.

4.2.2 Therefore, in view of the above discussion and keeping in view facts of the case, the documentary evidences filed by the appellant and the case laws cited above, the addition made by the AO amounting to Rs. 1,10,00,000/- is Deleted. Therefore, appeal on these grounds is Allowed.”

we have perused the materials available on record. We find that the facts

discussed above squarely reveal that the assessee received share application

money of Rs. 1,10,00,000/- from the investor company during the year and the

assessee filed the following documentary evidences during the course of

assessment/first appellate proceedings to establish the identity and

creditworthiness of the investor company, M/s SKS Ispat and Power Limited

and genuineness of the transaction:

S. Page Brief description of documents No No. Copy of ledger account of M/s SKS Inpat and Power 6.1 121 Limited in the books of accounts of the respondent Copy of confirmation of accounts of M/s SKS Inpat and 6.2 122-123 Power Limited duly signed and stamped Copy of application dated 24-08-2010 for allotment of 6.3 124 equity shares as issued to the respondent from M/s

41 Surya Infraventure ITA 216 of 2021 and others

SKS Inpat and Power Limited Copy of acknowledgement of income-tax return along 6.4 with computation of income of M/s SKS Inpat and 125-126 Power Limited for the Assessment Year 2011-12 Copy of the Audited financial statement of M/s SKS Inpat and Power Limited for the year ended 31st March 6.5 127-142 2011 Copy of ledger account of the respondent in the books 6.6 of accounts of M/s SKS Inpat and Power Limited for the 143 Financial Year 2010-11 Copy of relevant extract of bank statement of M/s SKS 6.7 Inpat and Power Limited duly reflecting the amount of 144-153 share application money received by the respondent

SKS Ispat and Power Limited was not a mere paper company but was a

company engaged in active business operations. The said observation finds

force from the fact that the investor company showed Revenue from

Operations of 978.32 crores and Profit Before Tax of 32.95 crores in its profit and loss account for the year ended 31st March, 2011. Further, name of the

assessee was duly reflected in ‘Schedule 6 – Investments – Long Term’ in the

audited financial statements of the investor company. The investor company

also showed total income of 6.19 crores in its income-tax return for the A.Y.

2011-12. The above-stated factual matrix has not been controverted by the Ld.

42 Surya Infraventure ITA 216 of 2021 and others

DR. Hence, it can be seen that the assessee filed ample corroborative

documentary evidences and satisfactorily discharged the primary onus cast

upon it under section 68 of the Act to establish the identity and creditworthiness

of the investor company and genuineness of the transaction. Further, the

contention of the assessee that there was clear lack of enquiry on the part of

the Ld. AO also has strong force because once the assessee had furnished all

the material as mentioned above, in such eventuality, no addition can be made

under Section 68 of the Act. It is also well settled that the AO cannot be

permitted to blow hot and cold at the same time. In the case in hand, the Ld.

AO accepted the amount of Rs. 95,00,000/- received from the same investor

company during the A.Y. 2010-11 as genuine and no addition was made to the

total income of the assessee on this count. Hence, in our considered opinion,

there was no justification for doubting the genuineness of the amount of share

application money received from the same investor company during the A.Y.

2011-12. We also find that in the instant case by producing various documents,

the assessee had proved that balance of convenience was in its favour. Thus,

considering the entire aspect of the matter, we are of the considered opinion

that there was no rationale for making addition of Rs. 1,10,00,000/- to the total

income of the assessee on account of share application money received from

M/s SKS Ispat and Power Limited more so when the assessee by filing ample

documentary evidences has satisfactorily discharged the primary onus cast

upon it under Section 68 of the Act to justify the identity and creditworthiness of

43 Surya Infraventure ITA 216 of 2021 and others

the investor company and genuineness of the transactions entered into with

the said company. Further, the findings of the Ld. CIT(A) have not been

controverted by the Ld. CIT-DR by bringing any contrary material on record.

Hence, we do not find any infirmity in the findings of the Ld. CIT(A) and

accordingly, the deletion of addition of Rs. 1,10,00,000/- made by the Ld.

CIT(A) is confirmed. Thus, ground No. 2 of the appeal preferred by Revenue is

found to be devoid of any merit and, thus, dismissed. Accordingly, the appeal

filed by the Revenue for the Assessment Year 2011-12 is dismissed.

ITA No.232/Ind/2021 (A.Y. 2012-13)

16.08.2021 passed by the Ld. CIT(A)-3, Bhopal (hereinafter referred to as ‘Ld.

CIT(A)’) arising out of the order dated 28.09.2018 passed by the ACIT (Central)-

1, Indore (hereinafter referred to as ‘Ld. AO’) under Section 143(3) r.w.s. 147 of

the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment

Year (hereinafter referred to as ‘A.Y.’) 2012-13. Upon receipt of the notice on

Revenue’s appeal, the assessee also filed the aforesaid Cross Objection. Both

are disposed of by this common order. The Revenue has raised the following

grounds of appeal bearing ITA 232/Ind/2021:

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in law in deleting the addition amounting to Rs. 3,75,50,000/- made

44 Surya Infraventure ITA 216 of 2021 and others

by the Assessing Officer on account of receipts not disclosed in income shown by the assessee.

The assessee has raised the following grounds in cross objection CO

15/Ind/2022:

“1. That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in upholding the action of the Ld Assessing Officer in reopening the completed case of the respondent based on similar set of facts which tantamounted to change of opinion as held by the Hon’ble Supreme Court of India in the case of CIT Vs Kelvinator of India as reported in 320 ITR 561.

45 Surya Infraventure ITA 216 of 2021 and others

respondent to disclose fully and truly all the material facts necessary for the purpose of assessment.

private limited company engaged in the business of government works contract

for construction of roads. The income-tax return of the assessee for the A.Y.

2012-13 was filed on 29.09.2012 claiming total loss of Rs. 1,79,88,391/-. The

case of the assessee was selected for scrutiny through CASS. The then

Assessing Officer examined all the relevant material placed on record and

passed assessment order under Section 143(3) of the Act on 25.03.2015

wherein loss of Rs. 1,79,88,391/- claimed by the assessee was duly accepted.

Subsequently, it was noticed on verification of the documents available on

record that the assessee had shown lesser amount of interest and contract

receipts as compared to the amount reflected in Form 26AS. Accordingly, case

46 Surya Infraventure ITA 216 of 2021 and others

of the assessee was reopened and notice under Section 148 of the Act was

issued on 18.12.2017 and served on the assessee. The assessee filed its

income-tax return on 20.01.2018 in response to the notice issued under

Section 148 of the Act claiming total loss of Rs. 1,79,56,045/-. The Ld. AO

during the course of reassessment proceedings made additions of Rs.

3,75,50,000/- and Rs. 7,42,880/- to the total income of the assessee on

account of amount received from M/s Guna Sheopur Pathways Private Limited

(hereinafter referred to as ‘GSPPL’) by treating it as income of the assessee

and on account of difference between gross receipts and receipts actually

accounted for as income from M/s SCC Projects Private Limited (hereinafter

referred to as ‘SCCPPL’) respectively. Being aggrieved by the order of the Ld.

AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A)

deleted both the additions made by the Ld. AO. Hence, the instant appeal has

been filed before this Tribunal.

Assessee’s cross objection in CO No.15/Ind/2022 (A.Y. 2012-13):

proceeding under Section 143(3) r.w.s. 147 of the Act on multiple grounds.

Since issue of maintainability of the reassessment proceeding has been raised

by the assessee, at the threshold of the matter, we would like to address the

same. The grounds raised by the assessee mainly challenge the

maintainability of reassessment proceeding on account of change of opinion

47 Surya Infraventure ITA 216 of 2021 and others

and on account of initiation of reassessment proceedings after the expiry of

four years from the end of the relevant assessment year.

originally selected for scrutiny assessment and the then Assessing Officer

passed assessment order under Section 143(3) of the Act on 25.03.2015. The

then Assessing Officer during the course of original assessment proceedings

raised specific queries to the assessee to reconcile the receipts shown in the

profit and loss account with the receipts shown in Form 26AS. The assessee

categorically explained the reasons for difference in receipts shown in profit

and loss account and as reflected in Form 26AS with respect to GSPPL and

SCCPPL. The then Assessing Officer accepted the contentions of the

assessee after going through the relevant material placed on record.

Subsequently, on verification of the case records, it was noticed that the

assessee had shown lesser amount of interest and contract receipts as

compared to the amount reflected in Form 26AS. Accordingly, case of the

assessee was reopened and notice under Section 148 of the Act was issued

on 18.12.2017 i.e. after the expiry of four years from the end of the relevant

assessment year. The assessee therefore challenged the maintainability of the

reassessment proceedings before the Ld. CIT(A). However, the Ld. CIT(A)

dismissed all the legal grounds raised by the assessee superficially without

48 Surya Infraventure ITA 216 of 2021 and others

going into the detail of each of those grounds. Hence, the instant cross

objection has been filed before this Tribunal.

Per contra Ld. Counsel for the assessee submitted that case of the assessee

was reopened on account of mere change of opinion which was impermissible

within the garb of Section 147 of the Act. The Ld. Counsel submitted that the

then Assessing Officer raised specific query at the time of original assessment

proceedings to reconcile the receipts shown in profit and loss account with the

receipts reflected in Form 26AS in response to which the assessee

categorically explained the reasons for such difference. The then Assessing

Officer accepted the contentions of the assessee after going through all the

relevant material placed on record. The Ld. Counsel thereafter submitted that

the case of the assessee as reopened on verification of the documents which

were already placed on record amounted to change of opinion which was

impermissible in light of the judgments of the Hon’ble Supreme Court of India in

the case of CIT vs Kelvinator of India Limited 320 ITR 561 and in the case of

ITO vs Tech Span India (P) Ltd [2018] 92 taxmann.com 361 (SC). He also

relied upon the following judgments in support of his contentions:-

(i) Debashis Moulik v. ACIT [2015] 62 taxmann.com 16 (Calcutta) (ii) Asiatic Oxygen Ltd. v. DCIT [2015] 60 taxmann.com 265 (Calcutta) (iii) Anil Kumar Bhandari v. JCIT [2008] 171 Taxman 428 (Calcutta)

49 Surya Infraventure ITA 216 of 2021 and others

(iv) Badal Choudhary v. ITO [2001] 119 Taxman 952 (CAL.) (v) Bhagirathbhai Manubhai Baldha v. DCIT [2018] 94 taxmann.com 94 (Gujarat) (vi) Allied Strips Limited v. ACIT (2016) 96 CCH 0004 Del HC

assessee after the expiry of four years from the end of the relevant assessment

year in light of the first proviso to section 147 of the Act which specifically

provided that no action shall be taken under Section 147 of the Act after the

expiry of four years from the end of the relevant assessment year where

assessment had been made under section 143(3) or section 147 of the Act and

there was no failure on the part of the assessee to make a return of income

under section 139/142(1)/148 of the Act or to disclose fully and truly all the

material facts necessary for assessment. In the case in hand, assessment was

originally completed and assessment order was passed under Section 143(3)

of the Act on 25.03.2015. The case of the assessee was thereafter reopened

vide issue of notice under Section 148 of the Act on 18.12.2017 i.e. after the

expiry of four years from the end of the relevant assessment year. Hence, the

Ld. Counsel submitted that the case of the assessee was squarely covered by

the first proviso to Section 147 of the Act and in order to assume valid

jurisdiction under Section 147 of the Act, it was mandatory for the Assessing

Officer to show that there was failure on the part of the assessee either to

furnish his return of income or to disclose fully and truly all the material facts

50 Surya Infraventure ITA 216 of 2021 and others

necessary for assessment. The Ld. Counsel submitted that all the relevant

facts were placed before the then Assessing Officer during the course of

original assessment proceedings itself and that there was no failure on the part

of the assessee either to furnish its return of income or to disclose any fact,

much less any material fact necessary for the purpose of assessment. Hence,

the Ld. Counsel submitted that reassessment proceedings initiated in the case

of the assessee after the expiry of four years from the end of the relevant

assessment year suffered from legal infirmity and were bad in law. He also

relied upon the following judgments in support of his contentions:-

(i) ACIT v. Lambda Therapeutic Research Ltd. [2018] 100 taxmann.com 81 (SC) (ii) CIT v. M.G. Motors [2011] 9 taxmann.com 290 (Delhi) (iii) Gujarat Eco Textile Park Ltd. v. ACIT [2015] 60 taxmann.com 296 (Gujarat) (iv) Oracle India (P.) Ltd. v. DCIT [2015] 53 taxmann.com 514 (Delhi) (v) SKY Diamonds v. ACIT [2015] 55 taxmann.com 77 (Gujarat) (vi) Swarovski India (P.) Ltd. v. DCIT [2014] 50 taxmann.com 57 (Delhi) (vii) Wel Intertrade (P.) Ltd. v. ITO [2009] 178 Taxman 27 (Delhi) (viii) Noida Power Company Limited v. CIT 99 CCH 0010 (ix) Akshar Developers v. ACIT, Central Circle [2018] 95 taxmann.com 104 (Bombay) (x) Sabh Infrastructure Ltd. v. ACIT (2017) 100 CCH 0028 DelHC (xi) CIT v. Multiplex Trading & Industrial Co. Ltd. (2015) 378 ITR 0351 (Delhi)

51 Surya Infraventure ITA 216 of 2021 and others

expiry of four years from the end of the relevant assessment year as there was

not even a whisper of allegation in the reasons recorded by the Ld. AO that

escapement of income was due to failure on the part of the assessee to

disclose fully and truly all the material facts necessary for assessment. The Ld.

Counsel relied upon the following judgments in support of his contentions:-

(i) Kanak Fabrics v. ITO [2014] 49 taxmann.com 108 (Gujarat) (ii) Aayojan Developers v. ITO [2011] 10 taxmann.com 226 (Gujarat) (iii) Shree Chalthan Vibhag Khand v. DCIT [2015] 60 taxmann.com 450 (Gujarat) (iv) Ashokjyot Oxygen (P.) Ltd. v. ITO as reported in [2013] 33 taxmann.com 538 (Gujarat) (v) Haryana Acrylic Manufacturing Co. v. CIT [2008] 175 Taxman 262 (Delhi) (vi) Balasubramanian Ramachandran v. ITO [2015] 57 taxmann.com 36 (Delhi) (vii) Rural Electrification Corpn. Ltd. v. CIT [2013] 34 taxmann.com 131 (Delhi) (viii) CIT v. Viniyas Finance & Investment (P.) Ltd. [2013] 33 taxmann.com 86 (Delhi) (ix) CIT v. Suren International (P.) Ltd. [2013] 35 taxmann.com 398 (Delhi) (x) General Motors India (P.) Ltd. v. DCIT [2014] 46 taxmann.com 399 (Gujarat)

52 Surya Infraventure ITA 216 of 2021 and others

the objections raised by the assessee during the course of reassessment

proceedings by way of a speaking order which undermined the legality/ validity

of the entire reassessment proceedings. The Ld. Counsel relied upon the

following judgments in support of his contentions:-

(i) GKN Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963 (SC) (ii) Arvind Mills Ltd. v. Assistant Commissioner of Wealth-tax [2004] 141 TAXMAN 210 (GUJ.) (iii) Deepak Extrusions (P.) Ltd. v. DCIT [2017] 80 taxmann.com 77 (Karnataka) (iv) Goa State Co-operative Bank Ltd. v. ACIT [2017] 88 taxmann.com 690 (Bombay) (v) Gujarat Eco Textile Park Ltd. v. ACIT [2015] 60 taxmann.com 296 (Gujarat) (vi) Martech Peripherals (P.) Ltd. v. DCIT [2017] 81 taxmann.com 73 (Madras) (vii) Mgm Exports v. DCIT [2010] 323 ITR 331 (Gujarat) (viii) Rabo India Finance Ltd. v. DCIT [2012] 27 taxmann.com 163 (Bombay) (ix) Vishwanath Engineers v. ACIT [2012] 21 taxmann.com 5 (Gujarat)

Accordingly, the Ld. Counsel contended that reassessment proceedings

initiated in the case of the assessee were not maintainable on multiple grounds

as discussed hereinabove.

53 Surya Infraventure ITA 216 of 2021 and others

perused the relevant materials available on record and case laws relied upon

by the Ld. Counsel for the assessee. We would like to deal with the legal

ground before proceeding further in the matter. Firstly, as regards the

contention of the Ld. Counsel that case of the assessee was reopened on

account of mere change of opinion, we observe that the then Assessing Officer

during the course of assessment proceedings raised a specific query requiring

the assessee to reconcile the difference in receipts shown in the profit and loss

account as compared to receipts reflected in Form 26AS. We have also gone

through the submissions of the assessee filed during the course of original

assessment proceedings which have been placed on Page No. 134-142 of the

Paper Book. On perusal of these submissions, it is evident that the assessee

duly explained the reason for difference in receipts shown in the profit and loss

account as compared to receipts reflected in Form 26AS at the time of original

assessment proceedings itself. Hence, in our considered opinion, case of the

assessee reopened subsequently for examination of the same issue

tantamounted to change of opinion which is impermissible as per Section 147

of the Act. The AO has the ‘power to reassess’ but not the ‘power to review’

under Section 147 of the Act since otherwise in the garb of reopening the

assessment, review would take place. In this regard, we have considered the

judgment of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India

Ltd. [2010] 187 Taxman 312 (SC) wherein it was held as under: -

54 Surya Infraventure ITA 216 of 2021 and others

“4. On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word

55 Surya Infraventure ITA 216 of 2021 and others

"opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. We quote herein below the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as follows:

"7.2 Amendment made by the Amending Act, 1989, to re-introduce the expression. reason to believe in s. 147.A number of representations were received against the omission of the words .reason to believe. from s. 147 and their substitution by the opinion of the AO. It was pointed out that the meaning of the expression, reason to believe had been explained in a number of Court rulings in the past and was well settled and its omission from s. 147 would give arbitrary powers to the AO to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression has reason to believe in place of the words .for reasons to be recorded by him in writing, is of the opinion. Other provisions of the new s. 147, however, remain the same."

the Hon’ble Supreme Court cited supra, we are of the considered opinion that

reassessment proceedings initiated in the case of the assessee were not

maintainable since case of the assessee was reopened on account of mere

change of opinion.

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“147. If the 13[Assessing] Officer 14[has reason to believe15] that any income chargeable to tax has escaped assessment15 for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess15 such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings15 under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure16 on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts16 necessary for his assessment, for that assessment year:”

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bar on issue of notice under Section 148 of the Act after the expiry of four

years from the end of the relevant assessment year in cases wherein

assessment was originally completed under section 143(3)/ 147 of the Act and

the assessee filed its return of income and disclosed all the material facts at

the time of original assessment proceedings itself. In the case in hand, we

observe that the Ld. AO reopened the case of the assessee on the basis of

same set of facts which were available at the time of original assessment

proceedings and in respect of which the assessee had furnished due

explanation at that time itself. There was no failure on the part of the assessee

to disclose any fact, much less any material fact, at the time of original

assessment proceedings itself. Hence, in our considered opinion, there was no

failure on the part of the assessee either to furnish its return of income or to

disclose fully and truly all the material facts necessary for assessment so as to

warrant the initiation of reassessment proceedings after the expiry of four years

from the end of the relevant assessment year. We also observe that there was

not even a whisper of allegation in the reasons recorded by the Ld. AO himself

that failure on the part of the assessee to disclose material facts necessitated

the initiation of reassessment proceedings.

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High Court in the case of Wel Intertrade (P.) Ltd. v. ITO [2009] 178 Taxman 27

(Delhi) wherein it was held as under: -

“9……………..A plain reading of the said proviso makes it more than clear that where the provisions of section 147 are being invoked after the period of four years from the end of the relevant assessment year, in addition to the Assessing Officer having reason to believe that any income chargeable to tax has escaped assessment, it must also be established as a fact that such escapement of assessment has been occasioned by either the assessee falling to make a return under section 139 etc., or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. In the present case, the question of making of a return is not in issue and the only question is with regard to the second portion of the proviso, which relates to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Insofar as this pre-condition is concerned, there is not a whisper of it in the reasons recorded by the Assessing Officer. In fact, as indicated above, the Assessing Officer could not have made this a ground because the Assessing Officer had required the petitioner to furnish details with regard to loss occasioned by foreign exchange fluctuation which the petitioner did by virtue of the reply dated 5-2-2002. Since the petitioner had fully and truly disclosed all the material facts necessary for the assessment, the pre-condition for invoking the proviso to section 147 of the said. Act had not been satisfied.

59 Surya Infraventure ITA 216 of 2021 and others

Court in the case of Haryana Acrylic Manufacturing Co. v. CIT [2008] 175

Taxman 262 (Delhi) relied upon by the Ld. Counsel. While discussing the issue

the Hon’ble Court has been pleased to observe as follows:-

“20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment

60 Surya Infraventure ITA 216 of 2021 and others

and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade (P.) Ltd.'s (supra) we had agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Singhania (supra) that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing Officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated 29-3-2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 2-3-2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above.”

of the Hon’ble High Courts cited supra, we are of the considered opinion that

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reassessment proceedings initiated in the case of the assessee suffer from

legal infirmity and deserve to be quashed on this count also since case of the

assessee was reopened after the expiry of four years from the end of the

relevant assessment year even though original assessment was completed

under Section 143(3) of the Act and there was no failure on the part of the

assessee either to furnish his return of income or to disclose fully and truly all

the material facts necessary for his assessment.

completed the reassessment proceedings without disposing off the objections

raised by the assessee by passing a speaking order, we observe that the

assessee filed detailed objections dated 18.09.2018 before the Ld. AO

challenging the legality/ validity of reassessment proceedings. However, it

seems that the Ld. AO completed the proceedings without disposing off the

objections raised by the assessee which again is bad in law. The Hon’ble

Supreme Court in its landmark judgment in the case of GKN Driveshafts (India)

Ltd. v. ITO [2002] 125 Taxman 963 categorically laid down the law that the

Assessing Officer is bound to dispose off the objections raised by the assessee

by passing a speaking order before proceeding further. While discussing the

issue the Hon’ble Supreme Court has been pleased to observe as follows:-

“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148

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of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years. Insofar as the appeals filed against the order of assessment before the Commissioner (Appeals), we direct the appellate authority to dispose of the same, expeditiously.”

Court in the case of Deepak Extrusions (P.) Ltd. v. DCIT [2017] 80

taxmann.com 77 (Karnataka) relied upon by the Ld. Counsel. While discussing

the issue the Hon’ble High Court has been pleased to observe as follows:-

“9. The aforesaid shows that if the assessee desires to seek the reasons for issuing the notice, the Assessing Officer is bound to furnish the reasons and upon the receipt of such reasons, the assessee is entitled to file the objections to the issuing of the notice and the Assessing Officer thereafter is bound to dispose of the same by passing a speaking order. It is only thereafter the assessment may proceed in accordance with law unless there is any prohibitory order of the competent forum.

63 Surya Infraventure ITA 216 of 2021 and others

of the Hon’ble Supreme Court and High Court cited supra, we are of the

considered opinion that order passed by the Ld. AO under Section 143(3)

r.w.s. 147 of the Act cannot be sustained since the Ld. AO proceeded with the

reassessment proceedings without following the mandatory procedure of

disposing off the objections raised by the assessee by passing a speaking

order.

considered opinion that reassessment proceedings initiated in the case of the

assessee were illegal, bad in law and void-ab-initio for the reasons discussed

hereinabove and accordingly, order passed by the Ld. AO under Section

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143(3) r.w.s. 147 of the Act cannot be sustained and is hereby quashed and

set aside. We thus set aside the findings of Ld. CIT(A) on this count. Hence, all

the grounds raised in assessee’s cross objection are allowed.

Revenue’s appeal in ITA 232/Ind/2021:

the fact that the cross objections filed by the assessee have been allowed and

it has been held that reassessment proceedings initiated in the case of the

assessee were not maintainable, we are also adjudicating the grounds raised

by the Revenue on merits of the case as the Ld. CIT(A) had also decided the

said grounds of appeal on merits during the course of first appellate

proceedings.

Ground No. 1:-

of addition of Rs. 3,75,50,000/- made by the Ld. AO on account of amount

received from GSPPL not shown as income during the year. The brief facts

leading to the case are that the assessee received mobilization advance of Rs.

3,75,50,000/- from GSPPL during the year for shifting of its plants to the site of

GSPPL. The assessee did not carry out any work during the year but merely

received the amount of advance from GSPPL. However, the Ld. AO observed

that the assessee received payment towards completion of specified work as

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per the Milestone schedule of payment and therefore such payment could not

have been termed as advance. The Ld. AO further observed that the payment

of Rs. 3,75,50,000/- had already accrued to the assessee as per the terms of

contract with GSPPL and the assessee ought to have accounted for the

payment as income which had not been done. Accordingly, the Ld. AO treated

the amount of Rs. 3,75,50,000/- received by the assessee from GSPPL as

income of the assessee and made addition of Rs. 3,75,50,000/- to the total

income of the assessee. Being aggrieved, the Revenue is in appeal before this

Tribunal.

Counsel for the assessee supported the findings of Ld. CIT(A). The Ld.

Counsel for the assessee submitted that the assessee merely received the

amount of mobilization advance from GSPPL during the year for shifting of its

plants to the site of GSPPL. The Ld. Counsel further submitted that no work

was actually undertaken during the year as a result of which the amount of

advance received from GSPPL was shown as liability in the books of the

assessee. The Ld. Counsel also submitted that the amount of advance

received from GSPPL was offered as income in the subsequent year itself i.e.

in the A.Y. 2013-14 when the work was actually executed by the assessee.

The Ld. Counsel relied on the ‘real income’ theory and argued that only real

income could have been subject to tax and notional income could not have

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been taxed. Reliance was also placed on the judgment of the Hon’ble Supreme

Court in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC)

wherein the Hon’ble Court categorically held that ‘income accrues when it

becomes due but it must also be accompanied by a corresponding liability of

the other party to pay the amount.” The Ld. Counsel further drew our attention

to a table produced on Page No. 296 of the synopsis containing the year-wise

comparison of the amount of income and TDS accounted for in the books of

accounts and as reflected in Form 26AS to substantiate the fact that the

amount of advance received by the assessee during the year had already been

offered for tax in the subsequent year i.e. A.Y. 2013-14. The Ld. Counsel also

made us go through the various supporting documentary evidences annexed

on Page No. 242-272 of the Paper Book in support of his contentions. The Ld.

Counsel also relied upon a few judicial precedents to substantiate his

arguments that the entire exercise undertaken by the Ld. AO was tax-neutral

since the amount of advance in dispute during the year had already been

offered for tax in the subsequent year. Accordingly, the Ld. Counsel argued

that there was no justification for treating the amount of advance received by

the assessee from GSPPL during the year as income of the assessee.

available on record. We find that the Ld. CIT(A) gave detailed factual finding

while allowing the appeal preferred by the assessee and observed as follows:

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“4.2 Ground No 7 & 8:- Through these grounds of appeal the appellant has challenged the addition of Rs.3,75,50,000/- on account of advance payment received from M/s Guna Sheopur Pathways Pvt Ltd. The AO during the course of assessment proceedings observed that the assessee company has received contract receipts of Rs. 20,13,76,532/-, however, in the return of income the contract receipts were shown at Rs. 14,67,79,360/- which was short by Rs. 5,45,97,172/-. Therefore, the AO required the assessee to explain the reason for showing short contract receipts. The assessee in reply through its Ld AR submitted that a contract receipts of Rs. 1,80,44,785/- was wrongly shown as contract receipts of assessee by PWD department which was rectified lateron. Further, an advance of Rs. 3,75,50,000/- was received from Guna Sheopur Pathways Pvt Ltd was received for contract work for road construction on which TDS was deducted by the payer. The assessee has accounted the same as advance for contract work in books of accounts. The AO after considering reply of the assessee did not find the same acceptable and stated that the payments were received after completion of work as per Milestone schedule of payment and were received after completion of each work. Therefore, the income ought to have been accounted for in AY 2012-13 and made addition to the income of the appellant.

4.2.1 I have considered the facts of the case, plea raised by the appellant and findings of the AO. The appellant during the course of reassessment proceedings as well as before me has taken a plea that no work was actually undertaken by the appellant in the year under consideration and the amount of advance received from M/s Guna Sheopur Pathways Private Limited was received for shifting of its plants to the site of M/s Guna Sheopur Pathways Private Limited. The appellant received an advance of Rs. 3,75,50,000/- from M/s Guna Sheopur Pathways Private Limited on which TDS of Rs. 7,51,000/- was deducted, as per provisions of section 194C of the Act, at the time of payment of advance. Since, the advance amount was received merely for mobilization of plants to the site of M/s Guna Sheopur Pathways Private Limited, therefore, the advance amount was shown as liability in the audited financial statements for the year ended 31st March 2012 and the income earned from the entire contract was shown in AYs 2013-14 to 2015-16. As per AO there was a shortfall in contract receipts by Rs. 3,75,50,000/-, however, the AO has failed to consider the excess contract receipts with approx same amount in

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immediate net assessment year. The brief details relating to the impunged contract receipts shown by appellant in books of accounts are as under:-

S.N Assessm As per books of As per Form No. Differenc o ent Year accounts 26AS e [in Rs] Income TDS Income[in TDS [in [in Rs] [in Rs] Rs] Rs] 1 2012-13 NIL 7,51,00 3,75,50,0 7,51,00 [3,75,50,0 0 00 0 00] 2 2013-14 26,12,00,0 44,73,0 22,36,50, 44,73,0 3,75,49,97 00 01 028 01 2 3 2014-15 16,31,00,0 32,62,0 16,30,99, 32,62,0 25 00 00 975 00 4 2015-16 4,14,00,00 8,28,00 4,14,00,0 8,28,00 NIL 0 0 00 0 Total 46,57,00,0 93,14,0 46,57,00, 93,14,0 00 01 003 01

Clearly there is a difference in contract receipts as per books of accounts and as per Form No 26AS which is nothing but an advance amount received by appellant from M/s Guna Sheopur Pathways Private Limited. The appellant before me as well as before AO has filed copies of EPC Contract. The AO observed that 13 payments aggregating to Rs. 3,7550,000/- were made as per Milestone Schedule of payments an were made after completion of work for each milestone. On perusal of EPC Contract it was observed that the payments shall be made as per clause 5.2 ‘terms of payment’ which as per sub clause 5.2.1 reads as under;

“The contract price shall be paid by the Concessionaire to the Contractor as per the milestone payment Schedule specified in Annexure I part III, along with format of item wise work executed as prescribed and certified by the lenders Engineer.”

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The above mentioned sub clause 5.2.1 clearly mentions schedule of payment as per ‘Annexure 1 Part III’ which has also been filed by the appellant. For better understanding of alleged work executed by the appellant I find it important to reproduce the relevant extract of ‘Annexure 1 Part III’ :-

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As a matter of fact the appellant has received only sum of Rs. 3,75,50,000/- which as per ‘Mile stone Payment Schedule’ does not even constitutes total preliminaries expenses. The advance amount was given for all preliminary expenses which includes preliminary investigation, carrying out surveys (Geotechnical and Topographical surveys), design, installation of camps, key plants & equipments, utility shifting, coordinating with employer/concession authority, installation of crusher & quarries, HMP and concrete batch mix plant installation. The total payments towards preliminaries were 9% of total contract receipts of Rs. 49.12 crores amounting at Rs. 4.42 crores, therefore, it is evident that amount received by appellant was advance amount for shifting of plant and machinery and not for construction of road for which EPC was executed. Furthermore, the entire amount received as an advance is fully recorded in books of accounts in the payer as well

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as of the appellant as an advance. The appellant has shown the said advance as contract receipt in AY 2013-14 and has paid due taxes when the same were accrued as per Milestone payment Schedule. It is now a settled law that even under mercantile system of accounting; it is only the accrual of real income which is chargeable to tax and not the hypothetical income. Furthermore, income accrues when it becomes due but it must be accompanied by a corresponding liability entry by the other party to pay the amount as held by Hon’ble Apex Court in the case of CIT vs Excel Industries Ltd (2013) 358 ITR 295/219. In the instant case, the concessionaire has not shown the impunged amount as liability in its books of accounts and the same was shown as advance against EPC Contract. Thus, there was no liability in the books of accounts of the Concessionaire and therefore, the impunged amount cannot be treated as accrued contract receipts, which actually accrued in AY 2013-14 and are duly accounted for.

4.2.2 In view of the above discussion, the AO was not justified in treating advance receipts as accrued contract receipts. Thus, addition made by the AO amounting to Rs. 3,75,50,000/- is Deleted. Therefore, appeal on these grounds is Allowed.”

available on record. The facts discussed above squarely reveal that the

assessee received an amount of Rs. 3,75,50,000/- from GSPPL as

mobilization advance which was not shown as income during the year since

the assessee did not perform any work but merely received the amount of

advance for shifting its plants to the site of GSPPL. The said amount of

73 Surya Infraventure ITA 216 of 2021 and others

advance of Rs. 3,75,50,000/- received by the assessee during the year was shown as liability in the audited financial statements of the assessee as on 31st

March, 2012. Further, it is an uncontroverted finding of fact that the assessee

duly offered the amount of advance received during the year as income in the

subsequent year itself i.e. in A.Y. 2013-14. The assessee also produced a

table containing the year-wise break-up of the amount of income and TDS

accounted for in the books of accounts and as reflected in Form 26AS with

respect to GSPPL which is as under:-

S. Assessme As per books of As per Form No. 26AS Difference N nt Year accounts [in Rs] o Income TDS Income TDS [in Rs] [in Rs] [in Rs] [in Rs] 1 2012-13 NIL 7,51,000 3,75,50,000 7,51,000 [3,75,50,000 ] 2 2013-14 26,12,00,000 44,73,001 22,36,50,028 44,73,001 3,75,49,972 3 2014-15 16,31,00,000 32,62,000 16,30,99,975 32,62,000 25 4 2015-16 4,14,00,000 8,28,000 4,14,00,000 8,28,000 NIL Total 46,57,00,000 93,14,001 46,57,00,003 93,14,001

assessee accounted for the amount of advance of Rs. 3,75,50,000/- received

during the year as income in the subsequent year itself i.e. in A.Y. 2013-14

when the work was actually undertaken by the assessee. The Ld. Counsel also

relied upon the following documentary evidences in support of his contentions:-

74 Surya Infraventure ITA 216 of 2021 and others

S. Particulars No 1 Copy of Form No. 26AS of the respondent assessee for the Assessment Years 2012-13 to 2015-16 2.1 Copy of account of M/s Guna Sheopur Pathways Private Limited in the books of the respondent assessee for the period from 01-04- 2012 to 31-03-2015 2.2 Copy of account of the respondent assessee in the books of M/s Guna Sheopur Pathways Private Limited for the period from 01-04- 2012 to 31-03-2015 3 Copy of relevant pages of EPC Contract as executed between the respondent assessee and M/s Guna Sheopur Pathways Private Limited duly containing the details with respect to total contract amount and payment schedule which includes advance payments 4 Copy of audited financial statement of the respondent assessee for the year ended 31st March, 2012 wherein the amount of advance received from M/s Guna Sheopur Pathways Private Limited was shown as a liability and was included in the figure of Trade Payables in Note No. 6 of the audited financial statement

No. 242-272 of the Paper Book and listed hereinabove, it is clear that the

amount of advance received by the assessee from GSPPL which was shown

as liability in its books of accounts was also shown as advance in the books of

GSPPL and no expense was booked in the books of GSPPL during the year in

respect of advance given to the assessee. Hence, we are of the considered

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opinion that there was no justification for making addition of Rs. 3,75,50,000/-

to the total income of the assessee on account of amount received from

GSPPL.

that it is only the accrual of real income which is chargeable to tax and not the

hypothetical/ notional income.

Court in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) relied

upon by the Ld. Counsel in support of his case relevant portion whereof is as

follows:-

"20.It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee.

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materialise and its money value is therefore, not the income of the assessee."

entire exercise undertaken by the Ld. AO was futile and tax-neutral as the

assessee had already offered the amount of advance received during the year

as income in subsequent year i.e. in A.Y. 2013-14. In this regard, we would

again like to refer the judgment of the Hon’ble Supreme Court in the case of

CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) relied upon by the Ld.

Counsel in support of his case relevant portion whereof is as follows:-

“32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.

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iterated above and the findings in the judgments cited supra, we are of the

considered opinion that there was no justification for making addition of Rs.

3,75,50,000/- to the total income of the assessee on account of amount

received from GSPPL not shown as income more so when the assessee

categorically explained that the said amount of advance of Rs. 3,75,50,000/-

was duly offered as income in the subsequent year i.e. in A.Y. 2013-14 when

the work was actually performed by the assessee. The addition of Rs.

3,75,50,000/- made by the Ld. AO cannot be said to be justified in view of the

observations made hereinabove. Further, the findings of the Ld. CIT(A) have

not been controverted by the Ld. CIT-DR.. Hence, we do not find any infirmity

in the findings of the Ld. CIT(A) and accordingly, the deletion of addition of Rs.

3,75,50,000/- made by the Ld. CIT(A) is confirmed. Hence, Ground No. 1 of the

appeal preferred by Revenue is found to be devoid of any merit and, thus,

dismissed.

Ground No. 2:-

of addition of Rs. 7,42,880/- made by the Ld. AO on account of difference

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between gross receipts and receipts actually accounted for as income from

SCCPPL. The brief facts leading to the case are that the assessee received

contract receipts from SCCPPL during the year. SCCPPL deducted TDS on

the gross amount of bill of Rs. 7,12,71,805/- which included the component of

labour cess of Rs. 7,42,880/-. However, SCCPPL deposited the amount of

labour cess of Rs. 7,42,880/- itself and remitted only the net amount of Rs.

7,05,28,925/- (Rs. 7,12,71,805/- less Rs. 7,42,880/-) to the assessee which

was offered as income. However, the Ld. AO was of the opinion that the

assessee should have offered the gross receipts of Rs. 7,12,71,805/- as

income against which the assessee could have claimed deduction on account

of payment of labour cess of Rs. 7,42,880/-. Accordingly, the Ld. AO made

addition of Rs. 7,42,880/- to the total income of the assessee on account of

difference between gross receipts and receipts actually accounted for as

income from SCCPPL. Thus, the Revenue is in appeal before this Tribunal.

Counsel for the assessee supported the findings of Ld. CIT(A). The Ld.

Counsel for the assessee submitted that the assessee correctly offered the net

amount of Rs. 7,05,28,925/- received from SCCPPL as its income since the

amount of labour cess of Rs. 7,42,880/- was deposited directly by SCCPPL

and only the balance amount was thereafter remitted to the assessee. The Ld.

Counsel further submitted that the assessee duly offered the amount actually

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received by it from SCCPPL as its income and the assessee could not have

been expected to offer the gross amount which was never received by it. The

ledger account of SCCPPL in the books of the assessee along with the copy of

various other ledger accounts in respect of bills raised by the assessee were

filed and relied upon by the Ld. Counsel. The Ld. Counsel also explained that

the sole grievance of the Ld. AO was that the assessee should have offered

the gross receipts of Rs. 7,12,71,805/- as income against which the assessee

could have claimed deduction on account of payment of labour cess of Rs.

7,42,880/- which ultimately would have made no difference in the amount of

income offered by the assessee. We have further considered inter alia the

following submission made by the assessee in the synopsis submitted before

us:

“2.1] The department in this ground of appeal has challenged the deletion of addition of Rs 7,42,880/-

2.2] The Assessing officer in Para 4 on inner Page Nos 5 & 6 of the assessment order observed that the respondent assessee has erred in offering net receipt from SCC Projects P Limited as its income in place of gross receipt. The assessing officer further observed that the respondent assessee should first offered gross amount as its income and then claimed deduction on account of labour cess. The difference in respect of amount as reflected in Form 26AS and as actually offered by the assessee was added to the total income of the respondent assessee.

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2.3] That M/s SCC Projects Private Limited has deducted TDS on the gross amount of bill of Rs. 7,12,71,800/- which also included labour cess of Rs. 7,42,875/-. However, M/s SCC Projects Private Limited itself deposited the amount of labour cess and therefore net amount of Rs. 7,05,28,925/- as received was rightly offered for tax by the appellant.

2.4] Copy of ledger account of M/s SCC Projects Private Limited in the books of the respondent assessee along with copy of income account in respect of bills as raised by the respondent assessee is enclosed for your ready reference. On perusal of the income account, it is clear that labour cess was deducted by M/s SCC Projects Private Limited. However, TDS was deducted by M/s SCC Projects Private Limited on the gross amount of bill of Rs. 7,12,71,800/- which included the amount of labour cess of Rs. 7,42,875/-. Hence, the respondent assessee was required to offer only net amount of bill of Rs. 7,05,28,925/- as its income which was rightly offered as income by the appellant.

2.5] The assessing officer was of the view that the respondent assessee first offered gross receipt and then claimed deduction on account of labour cess. This is the issue of mere presentation in books of account. That in both the cases, the amount of net income remains same.

2.6] The respondent assessee in its books of account offered receipts from M/s SCC Projects (P) Limited was to the tune of Rs 7,05,28,925/- whereas as per the contention of the assessing officer, first gross receipt of Rs 7,12,71,805/- was offered as income and then deduction was claimed on account of labour cess of Rs 7,42,880/- which ultimate result same.

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2.7] The Ld CIT(A) vide his order dated 16-08-2021 in Para 4.3 to 4.3.1 on inner page Nos 70 to 71 has discussed the said issue in detail and deleted the addition as made by the assessing officer.

2.8] That in view of the above, addition of Rs. 7,42,880/- as made to the total income of the respondent assessee on account of difference in gross receipts and receipts actually accounted for as income from M/s SCC Projects Private Limited was rightly deleted by the Ld CIT(A). Hon’ble bench is hereby requested to approved the order as passed by the Ld CIT(A).”

assessee observed as follows:

“4.3 Ground No 9:- Through this ground of appeal the appellant has challenged the addition of Rs.7,42,880/- on account of difference between gross receipts and actual receipts from SSC Projects Pvt Ltd (SCCPPL). The AO during the course of assessment proceedings observed a difference in gross receipts and actual receipts from M/s SCC Projects Pvt Ltd. Therefore, the AO required the assessee to explain the reason for difference in gross and actual receipts. The assessee in reply submitted that the payer has deducted TDS on entire amount which includes labour cess. The AO did not find any merit in the contentions raised by the assessee and stated that assessee is a contractor and has executed work contract of SCCPPL, therefore, the gross payments made by SCCPL is revenue receipts and made addition to the income of the appellant.

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4.3.1 I have considered the facts of the case, plea raised by the appellant and findings of the AO. The appellant has raised bills of Rs. 7,12,71,800/- which includes labour cess of Rs. 7,42,875/-. The appellant before AO as well as before me has contended that the contract work was executed by appellant, however, all the labour were hired by M/s SCC Projects Pvt Ltd and therefore, the liability to deduct labour cess is on M/s SCC Projects Pvt Ltd which has been deducted and remitted to government. The appellant in its books of accounts has claimed gross bill raised, however, amount was received after deducting labour cess, therefore, deduction of the said amount was claimed. The appellant has not received gross amount as per bill raised, then how the amount gross amount can be brought to tax. Once, it has been established that appellant has received less amount and appellant has claimed revenue receipts on the basis of amount actually received, the AO was not justified in making addition on this account. Thus, addition made by the AO amounting to Rs. 7,42,880/- is Deleted. Therefore, appeal on this ground is Allowed.”

we have gone through the materials available on record. We find that the facts

discussed above squarely reveal that the assessee had correctly offered the

net amount of Rs. 7,05,28,925/- received from SCCPPL as its income during

the year. It is an undisputed fact that the amount of labour cess of Rs.

7,42,880/- was directly deposited by SCCPPL and only the balance amount of

Rs. 7,05,28,925/- was remitted to the assessee. Hence, the assessee could

not have been expected to offer the gross amount mentioned in the bill of Rs.

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7,12,71,805/- as its income since the actual amount received by the assessee

after deducting the amount of labour cess was of Rs. 7,05,28,925/- (Gross

amount of Rs. 7,12,71,805/- less amount of labour cess of Rs. 7,42,880/-) only

which had already been offered for tax by the assessee. We further find that

the observation of the Ld. AO that the assessee should have offered the gross

receipts of Rs. 7,12,71,805/- as income against which the assessee could have

claimed deduction on account of payment of labour cess of Rs. 7,42,880/-

would have made absolutely no difference in the amount of income that would

have been offered by the assessee and it was merely an issue of presentation

in the books of accounts. Thus, considering the entire aspect of the matter, we

are of the considered opinion that there was no justification for making addition

of Rs. 7,42,880/- to the total income of the assessee on account of difference

between gross receipts and receipts actually accounted for as income from

SCCPPL. The addition made by the Ld. AO on account of difference between

gross receipts and receipts actually accounted for as income from SCCPPL

cannot be said to be justified in view of the observations made hereinabove.

We find that the findings of the Ld. CIT(A) have not been controverted by the

Ld. DR by bringing any contrary material on record. Hence, we do not find any

infirmity in the findings of the Ld. CIT(A) and accordingly, the deletion of

addition of Rs. 7,42,880/- made by the Ld. CIT(A) is confirmed. Accordingly,

ground No. 2 of the appeal preferred by Revenue is found to be devoid of any

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merit and, thus, dismissed. Thus, the appeal filed by the Revenue is dismissed

and grounds raised in the cross objection filed by the assessee are allowed.

are dismissed whereas Cross-objection Nos.17 & 15/Ind/2022 filed by the

assessee are allowed.

The Order pronounced on 24.11.2022.

Sd/- Sd/- (BHAGIRATH MAL BIYANI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore: Dated 24.11.2022

आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. DR, ITAT, Indore 6. गाड� फाइल / Guard file. By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore

85 Surya Infraventure ITA 216 of 2021 and others