QUARTZ INFRA AND ENGINEERING PRIVATE LIMITED,HYDERABAD vs. SHRI B. R. RAMESH DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE16-(1), HYDERABAD

It can be seen from the record that there is a delay in preferring this appeal and the reason for the delay in filing the appeal is attributed to the pandemic. As a matter of fact, though the learned DR does not concede to condone the delay, there is no denial of the fact that the Hon'ble Supreme Court in the Suo Motu proceedings in the case of M.A.No. 21/2022 in M.A.No. 665/2021 in SMW(C) No.3 of 2020 by order dated 10/01/2022 held that in cases, where the limitation would have expired during the period between 15/03/2020 and 28/02/2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01/03/2022 and in the event of actual balance period of limitation remaining with effect from 01/03/2022 is greater than 90 days, that longer period shall apply. The limitation period applicable to this appeal is covered by the above decision and, therefore, this appeal shall be treated as filed within the period of limitation. We, therefore, now shall proceed to hear the appeal.

The assessee is a company engaged in the business of engineering design and construction works. For the assessment year 2011-12, it filed its return of income on 24.11.2011, declaring an income of Rs.1,58,03,507/- and book profit of Rs.1,69,60,126/- under the provisions of section 115JB of the Act of the Income tax Act, 1961 (“the Act”), which was processed u/s 143(1) of the Act. Subsequently, pursuant to a search and seizure operation conducted in the case of M/s Jindal Group of cases and its promoters on 14.11.2011, it was found that M/s Jindal India Thermal Power Ltd. awarded a work contract for execution of certain work at Angul site in Orissa to M/s GSR Ventures P. Ltd, who in turn further subcontracted the same to the assessee. The learned Assessing Officer, therefore, reopened the assessment u/s 147 of the Act by recording reasons and issuance of notice u/s 148 of the Act. During the assessment

Page 2 of 10 proceedings, from the details furnished by the assessee, the learned Assessing Officer found that the assessee produced some part of books of accounts, vouchers, bills etc. for verification and such self-vouchers and vouchers do not contain supporting bills / invoices. Further according to the learned Assessing Officer, the assessee also failed to clarify as to why there was low percentage of profit shown from the gross receipts. The learned Assessing Officer accordingly estimated the net income of the assessee at 8% of the gross receipts and added a sum of Rs.1,69,25,891 to the income of the assessee.

Apart from this, the learned Assessing Officer further noted that the assessee failed to furnish certain details like copy of work order, copy of agreement, RA bills by Quality Control Division evidencing the completion of the work as per the work order and TDS made for the said expenditure relating to the sub-contractors was made and the assessee also failed to file the ledger accounts. The learned Assessing Officer noted that the assessee failed to furnish any details in respect of sub-contract expenses. In the circumstances, the learned Assessing Officer noted that such assessment proceedings were simultaneously reopened and concluded in the case of M/s Jindal Group of cases and an amount of Rs.7,53,85,508/- was added substantively in the case of M/s Jindal Group. An addition in the hands of the assessee is also made in respect of such amount on protective basis. Accordingly, the learned Assessing Officer concluded the assessment by order dated 31.03.2015 passed u/s 143(3) r.w.s. 147 of the Act.

Assessee preferred appeal and challenged both the estimation of income and the addition made on protective basis. The impugned order

Page 3 of 10 shows that the assessee furnished details / material such as copies of financial statements, income tax return, copies of work orders, 26AS and ledger copies of sub-contractors, which learned CIT(A) sent to the learned Assessing Officer calling for his remarks. The learned Assessing Officer submitted the remand report, stating that there are various discrepancies in the documents relating to the sub-contractors submitted by the assessee and the assessee failed to submit the copies of the RA bills evidencing the completion of the work orders. The learned Assessing Officer further contended that out of eight subcontractors, no payments were made to four sub-contractors and in respect of remaining four sub- contractors, very low payments were made.

Learned CIT(A) recorded that the assessee was called upon to give comments on remand report submitted by the learned Assessing Officer. The assessee failed to respond to the same. The learned CIT(A), therefore, read the remand report in the light of the material before him and reached a conclusion that the assessee failed to substantiate genuineness of expenditure, work contracts and therefore, confirmed the addition of Rs.7,53,85,508/- on protective basis, holding it to be bogus sub contract expense. In respect of estimate of net profit of the assessee at 8% of the gross receipts, learned CIT(A) held that during the course of the first appeal proceedings, sufficient opportunity was given to the assessee company, by way of notices, but the assessee failed to respond to the same and the silence of the assessee prompted learned CIT(A) to presume that the assessee does not have sufficient evidence to substantiate its claim as to expenses. On this count, learned CIT(A) justified the estimate of net profit

Hence, this appeal before us by the assessee. Though the assessee challenged both the additions, at the time of arguments, challenge against the estimate of net profit is given up and the main plank of argument of the assessee is in respect of the addition of Rs.7,53,85,508/- u/s 69C of the Act on protective basis, stating that when once the learned Assessing Officer resorts to estimation of the net profit of the assessee at 8% of the gross total receipts, there is no room for any addition by disallowing any expenses, because, the learned Assessing Officer cannot resort to rely on the rejected books of accounts. For this proposition, he placed reliance on the decision of the Hon'ble jurisdictional High Court in the case of Maddi Sudarsanam Oil Mills Co. Vs. CIT (1959) 37 ITR 369 and Indwell Constructions Vs. CIT (1998) 232 ITR 776, wherein, the proposition laid down in Maddi Sudarsanam Oil Mills Co. was relied upon.

The next argument of the Ld.AR is that no concluded assessment could be reopened for the purpose of making any addition on protective basis, because, the jurisdiction to reopen a concluded assessment has to be exercised only when the learned Assessing Officer has reason to believe that income has escaped assessment and it works anti thesis when the learned Assessing Officer entertains an opinion that a contingency may arise in future, resulting in escapement of income. For this proposition, he placed reliance on the decision of the Hon'ble Bombay High Court in the case of DHFL Venture Capital Fund Vs. Income Tax Officer (2013) 34 taxmann.com 300 (Bombay). This decision is followed by the Hon'ble

By way of additional ground, the assessee challenged reopening of the concluded assessment, stating that the learned Assessing Officer did not do anything more than reproducing the findings of the investigation Directorate and the learned Assessing Officer did not conduct any enquiry to reach an independent satisfaction to believe that there was escapement of income.

Per contra, the learned DR submitted that in this matter, pursuant to the search and seizure operations in the case of M/s JindaL Group and consequent assessment in the hands of M/s Jindal Group, protective addition was made, but as a matter of fact, the learned Assessing Officer, while rejecting the books of accounts, estimated the net profit of the assessee at 8% of the gross total receipts and therefore, it cannot be said that for the sole purpose of making the addition on protective basis the assessment was reopened. The substantive addition made by estimating the income at 8% justifies the reopening. Apart from that, it is the submission of the learned DR that at the stage of issuances of recording the reasons and issuing notice u/s 148 of the Act, the learned Assessing Officer cannot conduct roving enquiry and suffice if he has reason to believe that there is escapement of income. All the other things will be enquired into during the proceedings u/s 147 of the Act.

We have gone through the recording in the light of the submissions made on either side. As noted above, after reopening of the assessment, the learned Assessing Officer made an addition of Rs.1,69,25,891/- by Page 6 of 10 estimating the income of the assessee at 8% of the gross total receipts and it is a substantive addition. Since the assessee does not assail this addition and on the other hand pleads that when once the net profit is estimated by rejecting the books, no further disallowance is permissible by relying upon the rejected books, such an estimate goes unchallenged and we hereby confirm the same.

Learned Assessing Officer also made an addition of Rs.7,53,85,508/- on protective basis by disallowing the sub contract expense on the ground that relevant work orders, agreements, RA bills etc. are not produced by the assessee. Though the assessee challenged the rejection of books and estimation of net profit at 8% of the gross total receipts, as stated above, during the course of arguments, such challenge is given a go bye and the main plank of argument of the Ld.AR is in respect of the addition of Rs.7,53,85,508/- on protective basis. According to him, having rejected the books of accounts and resorting to the estimation, the learned Assessing Officer cannot rely on the same rejected books of accounts. To buttress the arguments, he placed reliance on the decision in the case of Hon'ble Jurisdictional High Court in the case of Maddi Sudarsanam Oil Mills (supra).

In Maddi Sudarsanam Oil Mills Co, (supra), the Hon'ble Jurisdictional High Court did not approve the act of the revenue, first adopting the flat rate to compute the proceeds by rejecting the books of accounts and next to rely on such books for the purpose of adding unexplained cash credits. For the sake of completeness, we deem it just and proper to extract relevant part of the order as under:

This decision in Maddi Sudarsanam Oil Mills was followed by the Hon'ble High Court in the case of Indwell Constructions supra, wherein, the Hon'ble High Court did not approve the action of the learned Assessing Officer, when he proposed to add back an exact item in the Profit & Loss account by relying on the rejected books.

This finding of the Hon'ble High Court is applicable to the facts of the case and binds this Tribunal. We, therefore, by respectfully following the same, hold that the addition of Rs.7,53,85,508/- on protective basis cannot be sustained.

In so far as the grounds taken by the assessee challenging the jurisdiction of the learned Assessing Officer to reopen the assessment are Page 8 of 10 concerned, since the assessee got the relief on merits, deciding such questions is only academic.

In the result appeal of the assessee is allowed in part.