ACIT, CC-3(1), HYDERABAD vs. LEPL PROJECTS LIMITED, VIJAYAWADA

ई की तारीखरीख/Date of hearing: 10.01.2024 सुनवाई की तारीखरीख/Pronouncement on: 22.02.2024 घोषणा O R D E R PER LALIET KUMAR, J.M.

The captioned appeal is filed by the Revenue feeling aggrieved by the order of Commissioner of Income Tax (Appeals) – 11, Hyderabad invoking proceedings under section 143(3) of the Income Tax Act, 1961 (in short, “the Act”) for the A.Y 2017-18.

by the Revenue read as under : “1. The learned Commissioner of Income Tax (Appeals) erred in both in law and on the facts of the case in granting relief to the assessee.

2. In the facts and circumstances of the case, whether the ld.CIT(A) is correct in deleting the addition made under excess receipts from contract works, without appreciating the fact that the assessee has designed the contract receipts to bring the unaccounted money into the books of accounts.

3. In the facts and circumstances of the case, whether the ld.CIT(A) is correct in deleting the addition towards STCG without appreciating the fact that if the value of the shares deserves such a huge price, it is not clear why the earlier company has sold these shares at a meagre price of Rs.10/-.”

4. Feeling aggrieved by the order of Assessing Officer, assessee has filed the appeal before the ld.CIT(A) and the ld.CIT(A) had deleted the addition vide pages 69 to 77 of his order (Pages 227 to 234 of the paper book), which is to the following effect :

“Addition of Rs.116,04,55,413/- made u/s 68 of the Act on account of excess receipts from contract works: During the course of assessment proceedings, the appellant was asked to submit the nature of real estate and construction activities and details of revenue generated from and related expenditure incurred on such real estate activities. In response, the appellant submitted that the nature of real estate projects carried out was excavation of hard rock for laying of pipe line and closer of the opened stretch with suitable soil and construction of culverts in different irrigation projects on subcontract basis. The appellant had earned a total revenue of Rs.131,97,66,135/- from construction activities out of which Rs.130,33,46,635/- was earned from M/S. Megha Engineering & Infrastructures Ltd for construction activities and Rs.1,64,19,500/- was earned from real estate activities. The appellant had debited the direct construction work related expenditure of Rs.14,65,65,865/-. Apart from this direct expenditure, other expenses such as salaries, travelling, transport and fuel charges etc. were also incurred and TDS of 2% was deducted by the Contractor M/S. Megha Engineering & Infrastructures Limited, Hyderabad on the income. The appellant has also furnished details of other expenses of Rs.214,00,72,362/- for which the Assessing Officer has observed that the entire expenditure was related to Aircraft and Solar Project and not to the construction income. Further, the appellant was asked to furnish segment wise P&L account of real estate construction, Solar power and Airlines, which the appellant could not furnish before the AO. During the course of assessment proceedings, the main contractor M/S. Megha Engineering & Infrastructures Limited (MEIL) was also asked to furnish the details of work done by the appellant, relevant contract agreement and ledger extracts of the appellant vide a letter dated 24.12.2019. In response, M/S. Megha Engineering & Infrastructures limited furnished the details of works allotted to the appellant and the works contract agreements but the ledger extracts of the appellant in its books were not submitted before the AO. After verification of the submissions made by the appellant, the Assessing Officer considered the explanation furnished by the appellant as not satisfactory and without any documentary evidences and considered the actual work done to the extent of Rs.14,65,65,865/- only and worked out the estimated profit at 8% on the work of Rs.14,65,65,865/- which came at Rs.1,27,44,857/-. Hence, the Assessing Officer anticipated that the appellant should have received an amount of Rs.15,93,10,722/- (Rs 14,65,65,865/- + Rs. 1,27,44,857/-) only instead of Rs.131,97,66,135/- and accordingly, treated the excess receipt of Rs.116,04,55,413/- (Rs.131,97,66,135/- less Rs.15,93,10,722/-) as unexplained cash credits u/s 68 of the Act.

The first issue and the primary issue is to consider the amount received by M/ so MEIL under section 68 of the Income Tax Act, 1961. It is seen that while passing the assessment order, everything has been considered u/s 68 by the Assessing Officer with regard to the additions made. In all the three cases of addition, the appellant has offered the whole quantum in the books of account. and the same has been included in computing the total income of the appellant and none. of the receipts have been offered at any concessional rate. The additions regarding the other two issues are discussed in prior paragraphs on the. basis of additional evidence and no element of these receipts to be unexplained has been found. The Assessing Officer has invoked the said section 68 in all the issues of addition. The receipt from the parties is not in dispute and the same was confirmed before the Assessing Officer and the Assessing Officer has also not denied the receipt of the same from the said parties, therefore invoking the section 68 appears to be primarily harsh incorrect.

During the course of appellate proceedings, the AR of the appellant submitted that the sum of Rs.14,65,65,865/- represents only the recoveries made by M/S. MEIL, the main contractor, towards the cost of material supplied by them to the appellant for use in the performance of the contract and such recovery is not the total cost of the work given to the appellant. The appellant also incurred nearly 45% of the cost of the contract towards labour wages only and such expenditure was accounted under the head "Employee Benefits and Expenses". Further, hire charges for the equipment such as proclainers, bulldozers and tractors were accounted under the head "Lease rentals paid" and borrowing money from banks to meet the working capital needs of the contract was booked under the head "Finance cost". Also, there were several miscellaneous expenses including rents for offices maintained at work locations, travel expenses, office expenses, administrative expenses, etc. form part of the account under the head "Other Expenditure" debited to the P&L account. The appellant further submitted the details of work orders given to the appellant by M/s. MEIL, TDS deducted from M/s. MEIL on payments to the appellant, form 16A, segment wise allocation of total expenditure of Rs.486.76 crores, ledger account of the appellant in the books of M/s. MEIL, ledger account of M/s. MEIL in books of the appellant and bank account statements as additional evidence, which were forwarded to the Assessing Officer who sent the remand report. The comments of the Assessing Officer on "Income from Contract Receipts” are reproduced as under: “4.1. In the reply submitted by M/s. MEIL, the details of the primary work order received by MEIL, and also the details of the work orders given to LEPL projects limited out of the primary work order received by it, are mentioned. The details of Tax deducted by Megha Engineering are also furnished.

4.2. As seen from the information filed by the assessee, though it appears to be the assessee proved the identity, creditworthiness and genuineness of the transaction, alternatively, the discussion made by the AO at the last para of Page No. 7 and first para of page No.8 in the Assessment Order towards the addition of unexplained expenditure u/s.69C of the IT Act may also be considered." The Assessing Officer has agreed that the appellant has proved the identity, creditworthiness and genuineness of the transactions with M/s MEIL. Since the Assessing Officer found the contention of the appellant that the addition of Rs.116,04,55,413/- cannot be made u/s 68 of the Act, to be genuine in the remand report, no further comments on the said addition u/s 68 of the Act are required to be made. Therefore, the said addition cannot be sustained u/ s 68 of the Act. The next issue raised in the remand report is regarding the observation of the AO regarding the addition to be made u/ s. 69C implying that the appellant has done and executed the work with regard to the contract given by M/S. MDIL through means which were not recorded in books of accounts. The AO has made this observation on account of the fact that the expenses pertaining to the contract work have not been accounted but for direct expenses only and the other expenses pertain to the other activities of the appellant. It is important. to note that during the remand proceedings, the appellant had submitted the bifurcation segmental wise for the activities conducted which is reproduced as under:

LEPL PROJECT LIMITED Annexure of Allocation of Expenditure for the year ended on 31.03.2017 (Amount in Cr.s) Sl.No. Head of Air Costa Solar Contract Total Account Power Works 1 Contract work 0 0 14.65 14.65 recoveries 2 Salaries and 34.15 1.25 16.81 52.21 wages 3 Fuel expenses 84.48 0 28.62 113.1 4 Lease & Hire 38.12 0 16.86 54.98 Charges 5 Finance 0 1.28 12.77 14.05 Charges 6 Depreciation 18.26 5.33 0.17 23.76 7 Other expenses 192.87 1.91 19.23 214.01 Total 367.88 9.77 109.11 486.76

It is seen that the total contract receipt recorded is of Rs.130.3 crores for the current FY 2016-17 and Rs.6 crores for the next FY 2017-18. The total expenses pertaining to the above contract receipts accounted are Rs.109.11 crores during this year which leaves a net profit of Rs.21.19 crores, giving a net profit of 16.26% which is fairly reasonable to doubt the booking of inflated expenses. Thus the issue raised is, whether the amount of can be charged u/ s 69C as unexplained expenditure of the Act as mentioned by the Assessing Officer in the last para of page no. 7 and first para of page no.8 of the assessment order or not, which was on the basis that only a sum of Rs.14,65,65,865/- was incurred for the contract work with M/s. MEIL and no other expenditure was incurred. However, it was submitted in the remand proceedings that the amount of Rs. 14,65,65,865/- was clarified as direct cost for contract work recoveries and the balance were, part of P&L account. The said breakup of expenditure forms part of the remand report and the appellant's submissions and has been reproduced above. As the appellant has given the breakup during re-mend proceedings as additional evidence and there is no adverse inference drawn by the AO with regard to the above and also the same forms the part of the remand report as enclosures to the same. It seems that the AO in the assessment order had made a passing remark without any proper findings and has made a sweeping remark that they don't pertain to this construction business in a single line without any basis and while in the remand report the veracity of the segment wise breakup of expenditure was not doubted. Thus, as the AO has not doubted or objected to the bifurcation of expenses submitted by the appellant during remand proceedings in principle, there is no basis to presume the idea of unexplained expenditure. It is also important to note that the percentage of net profit is almost close to 16%, than what adopted by the AO of 8% in the assessment order. The AO in the assessment proceedings had only considered direct expenditure without considering the other expenses in the P&L account and further, has connoted that the work has been done but the sum of Rs.106,76,18,980/- has been incurred outside the books of accounts to complete the said contract to the extent of Rs. 116,04,55,413/-. Thus, the AO considered that the work has been done and executed and further has now stated that to complete the work done after considering profit margin arrived at an expenditure which is unexplained to the extent. or Rs.106,76,18,980/- and after that discussion, has considered the whole receipt of Rs.116,04,55,413/- as unexplained and suggested the addition to be made u/ s 69C of the Act.

The relevant section 69C of the Act is reproduced as under: "Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year: Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. " As per above section where an assessee has incurred any expenditure for which the assessee offers no explanation about the nature and source, or the explanation offered by him is not satisfactory then such expenditure may be charged to income lax as income of the assessee. Applying it to the facts of the present case, there is no evidence to state that the work was executed through sources which are not explained. The sources for expenditures are related to the contract work receipts from M/s. MEIL for which the appellant has also submitted segment wise break-up of the expenditure, therefore, the said sum also cannot be charged u/ s 69C of the Act as the source is proved and there is no other evidence on record to suggest any expenditures which are not part of books and not recorded in the books of accounts. In view of the above discussion, the addition of' Rs.116,04,55,413/- made u/s 68 of the Act made on the basis of estimation is directed to be deleted. Even otherwise, the addition is not sustainable u/ s 69C of the Act as discussed in the above paragraphs. It is also seen from the history of the case that the scrutiny u/ s 143(3) and after that u/s 153A for AY 2014-15 and 2016-17 was completed without any addition and accepting the returned loss and in the scrutiny for AY 2015-16 u/s 143(3), there were certain disallowances made with regard to the expenditure debited by the appellant and the assessment was completed without any initiation of penalty proceedings and subsequently u/s 153A, no further additions were made. The proceedings for AY 2018-19 and AY 2019-20 u/s 153A were completed at NIL by making no additions. Keeping in view the factual discussion above, accordingly grounds no. 7(a) relating to the said quantum, 8 & 9 of the appeal are allowed. The ground no. 11 & 13 addresses all the three additions made by the AO u/s 68, each of the additions have already been separately adjudicated in the favour of the appellant. Therefore, these grounds are not separately adjudicated.

8 Ground no. 12 is related to invocation of section 115BBE on the above additions made by the Assessing Officer u/s 68 of the Act. Since the above additions are deleted u/s 68 of the Act, the invocation of section 115BBE which is consequential in nature, is not valid. Accordingly, ground no.12 of the appeal is in consequential for adjudication. However, any addition made u/ s. 68 or 69C will be liable for charge u/s. 115BBE. In ground no.6, the appellant contended that the AO did not consider the explanation of the appellant submitted vide letter 30.12.2019 and did not adhere to the principles of natural justice. It is seen that now the additional submissions/ evidence made by the appellant were considered by the Assessing Officer in the remand proceedings and relevant comments were also offered and thus, 'due opportunities and principle of natural justice have been followed and the grievance, if any of the appellant is addressed. Therefore, the said ground is irrelevant in view of the remand proceedings and thus is not relevant for adjudication.”

“1. Income from Contract Receipts : From the above discussion it is clear that assessee company is never able to explain the reasons for earning huge profit of Rs.117,32,00,270/- in carrying out construction work wherein he incurred expenditure of Rs.14,65,65,865/- only. No prudent business man can give an amount of Rs.131 for any work the cost of which will be Rs.14,65,65,865/-. Hence earning such a huge profit of Rs.117,32,00,270/- being 88.89% of the total receipts of Rs.131,97,66,135/- is beyond human comprehension. The actual profit at the rate of 8% on this work of Rs.14,65,65,865/- works out to Rs.1,27,44,857/-. Hence, assessee should have received an amount of Rs.15,93,10,722/- whereas the assessee received an amount of Rs.131 ,97,66,135/-. In spite of giving opportunities, the assessee has not produced any evidence explaining the strange situation. Hence, the excess receipt of (-) has to be treated as unaccounted cash credit u/s.68 of the IT Act in the books of accounts of the assessee. Alternatively, in the normal course of contract works, the profit margin will be 12%. However, the assessee got the works on a sub-contract basis where in the profit margin will be at the most 8%. Moreover, most of these works are allotted to the M/s.Mega Engineering & Infrastructures Limited, Hyderabad by Govt. of Telangana, Govt of Andhra Pradesh. Since the assessee has recognized the revenue in its books of accounts, the work thereon was completed by incurring commensurate expenditure. Such expenditure incurred in the normal course should be Rs.121 where as the company actually claimed to have incurred Rs.14,65,6,5865/- which is beyond human comprehension. Hence the excess expenditure to the extent of which is actually incurred but not shown in the books of accounts and also which was not explained in spite of opportunities given is to be treated as unexplained expenditure u/s.69C of the IT Act. Hence, it is clear that the assessee should have incurred unaccounted expenditure to the extent of which was not brought into the books and conveniently inflated the profits so that the company can set off these profits against the loss from Air Line Division. Also the assessee has never furnished the ledger extracts of MEIL expect project wise receipt details from MEIL. Also MEIL in response to this office letter has furnished only work contract agreements but not furnished the extract of the assessee in its books of accounts. The assessee neither substantiated that the Work has been actually carried out nor given the reasons for receiving So much of amount for executing contract work worth Rs. 14.65 crores.

19 Also on verification details of "other expenses' of Rs.214,00,72,362/- it is found that the entire expenditure is related to Aircraft and Solar Project and not to the construction income. From the above it can be established that the above transactions are designed to bring in unaccounted money of Rs.116,04,55,413/- into the books of accounts.”

10.1. Ground no.1 is general in nature and requires no adjudication.

GROUND NO.2

“5. Furnish the break-up of revenue from operations of Rs.372,22,47,614/- and cost of sale of real estate and construction expenses of Rs.14,65,65,865/-.

You may furnish relevant ledger extracts also. 5(d) Cost of sales of real estate and construction expenses of Rs.14,65,65,865/- Ledger extract enclosed. (Re. Annexure-V).” (Emphasis supplied by us)

11.1 Similarly, at Sl.No.6, it was mentioned as under :

“6. Details of lease rentals and fuel expenses. You may furnish relevant ledger extracts also. Reply: During the year Company has incurred lease rentals of Rs. 54,97,59,539/- towards aircrafts leasing and also incurred Fuel expenses of Rs. 113,09,79,932/- (Emphasis supplied by us) Ledger extract for the same is enclosed (Ref: Annexure VI)”

The assessee had further submitted the details of other expenses of Rs.214,00,72,632/- along with ledger extract. The reply is available at Sl.No.7 (Page 35 of the paper book), which is to the following effect :

11.2. The Assessing Officer had further issued a notice on 03.12.2019 and called for various details including the following :

“You have stated that you have received revenue of Rs.1,31,97,66,135/- from real estate and construction business and incurred expenditure of Rs.14,65,65,865/-. It is not clear how you earned such a huge profit. You may furnish your explanation with documentary evidence.”

11.3 The assessee vide its reply dt.14.12.2019 has submitted as under : “Nature of Real Estate projects carried out by LEPL Projects was Excavation of Hard Rock for Laying of Pipe Line and Closer of the opened stretch with Suitable soil and Construction of Culverts in Different Irrigation projects on subcontract basis. The work related expense of Rs. 14, 65, 65,865 is direct expenditure incurred incidental to business. Apart from this, other expenses such as Salaries, Travelling, Transport, and Fuel charges etc are incurred. TDS of 2% was deducted by Contractor on the income. Same is claimed as per the Form 26AS submitted to your perusal.”

11.4 The Assessing Officer had also issued a letter dt.24.12.2019 to M/s MEIL and called for the details. In response thereto, MEIL filed the details of the work allotted to LEPL Projects Ltd. and the works contract agreements but had not furnished the ledger extracts of the assessee in the books of M/s.MEIL.

11.5 Thereafter, the Assessing Officer considering the reply of the assessee had treated the amount of Rs.1,16,04,55,413/- as excess receipts and treated as unexplained cash credit u/s 68 of the Act in the books of accounts. The findings of the Assessing Officer vide page 7 of its order is to the following effect :

“1. Income from Contract Receipts : From the above discussion it is clear that assessee company is never able to explain the reasons for earning huge profit of Rs.117,32,00,270/- in carrying out construction work wherein he incurred expenditure of Rs.14,65,65,865/- only. No prudent business man can give an amount of Rs.131,97,66,135/- for any work the cost of which will be Rs.14,65,65,865/-. Hence earning such a huge profit of Rs. 117,32,00,270/- being 88.89% of the total receipts of Rs.131,97,66,135/- is beyond human comprehension. The actual profit at the rate of 8% on this work of Rs.14,65,65,865/- works out to Rs.1,27,44,857/-. Hence, assessee should have received an amount of Rs.15,93,10,722/- whereas the assessee received an amount of Rs.131,97,66,135/-. In spite of giving opportunities, the assessee has not produced any evidence explaining the strange situation. Hence, the excess receipt of Rs.116,04,55,413/- (Rs.131,97,66,135 (-) Rs.15,93,10,722/-) has to be treated as unaccounted cash credit u/s.68 of the IT Act in the books of accounts of the assessee.”

11.6 In the present case, it is evident that the work contract valued at Rs.1,31,97,66,135/- was allotted by MEIL to the assessee. It is the case of the assessee that the cost of sale of real estate and construction expenses was Rs.14,65,65,865/-. Further, the assessee vide its reply dt.14.12.2019 has sought to improve its version and stated that Rs.14,65,65,865/- is direct expenditure incurred incidental to the business and the other expenses such as Salaries, Travelling, Transport, and Fuel charges etc are incurred. TDS of 2% was deducted by Contractor on the income and that the same was claimed as per Form 26AS.

11.7 It is an admitted case of the assessee that the cost of sale of real estate and construction expenses was Rs.14,65,65,865/-. However, the assessee sought to improve its case by giving the details of the expenditure before the ld.CIT(A) in a table reproduced hereinbelow : Annexure of Allocation of Expenditure for the year ended on 31.03.2017 (Amount in Cr.s) Sl.No. Head of Air Costa Solar Contract Total Account Power Works 1 Contract work 0 0 14.65 14.65 recoveries 2 Salaries and 34.15 1.25 16.81 52.21 wages 3 Fuel expenses 84.48 0 28.62 113.1 4 Lease & Hire 38.12 0 16.86 54.98 Charges 5 Finance 0 1.28 12.77 14.05 Charges 6 Depreciation 18.26 5.33 0.17 23.76 7 Other expenses 192.87 1.91 19.23 214.01 Total 367.88 9.77 109.11 486.76 11.8 The ld.CIT(A) for the reasons best known to him has not examined the details of the expenditure given by the assessee in appellate proceedings with the details of the expenditure filed before the Assessing Officer along with ledger. The ld.CIT(A) has wrongly considered that Rs.109.11 crores were spent towards the contract value of Rs.1,31,97,66,135/-. In our view, the above said finding of the ld.CIT(A) is contrary to record.

11.9 The assessee in its reply dt.03.04.2019 had mentioned that during the year, company has incurred lease rentals of Rs. 54,97,59,539/- towards aircrafts leasing and also incurred fuel expenses of Rs. 113,09,79,932/-. Quite contrary to the above, the reply given before the Assessing Officer, it was wrongly submitted by the assessee before the ld.CIT(A) that instead of spending Rs. 54,97,59,539/-, the assessee has spent only Rs.38.12 crores towards the aircraft leasing. Similarly, fuel expenses of Rs. 113,09,79,932/- were mentioned before the Assessing Officer and quite contrary to this, the assessee had wrongly mentioned before the ld.CIT(A) that Rs.84.48 crores were spent towards fuel charges. In fact, the details of the fuel expenses incurred by the assessee towards the aircraft lease and the construction / real estate business are available on record. At page 40 of the paper book, the amount spent towards fuel charges and construction work is available, which shows that assessee had spent only Rs.9.94 crore as against Rs.28.62 crore claimed before the ld.CIT(A). This claim of Rs.28.62 crore as fuel charges was false and incorrect. The amount spent towards fuel charges and construct work is to the following effect :

- left intentionally - 11.10 Similarly, in the table, the assessee has mentioned Rs.192.87 crores towards the other expenses. However, the details submitted by the assessee at page 35 of the paper book, reproduced hereinabove (refer page 13 of this order) clearly shows that the amount of Rs.214,00,72,632/- were incurred towards the solar and aircraft business of the assessee. However, the assessee before the ld.CIT(A) had wrongly bifurcated the amount and shown Rs.19.23 crores were spent towards the contract work. Thus, made a false statement.

11.11 Similarly, the assessee had claimed Rs.12.77 crores towards the finance charges. However, no such details were provided either to the Assessing Officer or to the ld.CIT(A). In the audited balance-sheet of the assessee, the finance charges for the year ended on 31.03.2016, the assessee has mentioned Rs.15,34,12,570/- (Page 356 of the Paper Book of assessee) which is as under :

11.11.1 Admittedly, the work contracts were awarded to the assessee only in September, 2016 and therefore, there cannot be any occasion to incur any finance charges for the construction work in the year ended on 31.03.2016. Quite contrary to this, the assessee in the year ending 31.03.2017 has shown the finance charges as Rs.14,05,48,823/-. For the first time, before the ld.CIT(A), the assessee had submitted that out of the said Rs.14,05,48,823/-, an amount of Rs.12.77 crores were shown to have been incurred for the finance charges of the contract work. The ld.CIT(A) had closed his eyes to the fact that in the previous year i.e., assessment year 2016-17, the assessee has incurred for aircraft business and the other business, the finance cost of Rs.15,34,12,570/- whereas the entire finance cost for the other business had now been allocated to the construction business of the assessee. Further, the assessee has not given the details of the equipment which were financed and for which the assessee had paid the finance charges.

11.12 Similarly, the assessee had claimed Rs.16.81 crores as expenses incurred towards salary and wages of contract works. In our view, this figure is not supported by any document. The details of the salary paid, the names of the employees working for the contract had not been provided to the Assessing Officer. In fact, the employees’ expenses for the year ending as on 31.03.2016 was Rs.70,12,23,921/- and as against that the salary / employee benefit expenses for the year ending as on 31.03.2017 was Rs.52,21,01,421/-. Thus, the employee expenditure for the year under consideration is far less than the previous year. However, during this year the assessee had additionally undertaken the new construction activities, therefore, the necessary

29 corollary would be that there would be increase in the employee cost. No such details have been given by the assessee before the Assessing Officer or the ld.CIT(A).

11.13 In our view, the findings recorded by the ld.CIT(A) that the Assessing Officer has not doubted or objected to the bifurcation of expenses, is contrary to record which was available with ld.CIT(A) and against the duties casted on the ld.CIT(A) by virtue of the provisions of the Income Tax Act. In our opinion, the expenditure claimed by the assessee for executing the work, over and above the cost of construction work of Rs.14,65,65,865/- has not been thoroughly examined by the ld.CIT(A), though he has co-terminus powers. In our opinion, prima facie, the entire expenditure of Rs.94.46 crores (Rs.109.11 crores – Rs.14.65 crores) is not relatable to the activities of the construction and the assessee had wrongly and falsely claimed the same as expenditure incurred towards the contract work. This view of ours is supported by the decision of Hon’ble Delhi High Court in the case of in the case of CIT Vs. Jansampark Advertising and Marketing Pvt. Ltd. (2015) 56 taxman.com 286 (Delhi). Since the ld.CIT(A) granted relief without adequately verifying the facts and figures provided by the assessee, before the Assessing Officer, therefore, we are of the opinion that this issue needs to be remanded back to the file of Assessing Officer with a direction to verify and pass a reasoned speaking order. The order of ld.CIT(A) is considered to be cryptic and non-speaking, because he has failed to exercise the powers bestowed upon him under the Act, as held by the Hon’ble Delhi High Court in the case of Jansampark Advertising and Marketing Pvt. Ltd. (supra) whereby the Delhi High Court has held that the ld.CIT(A) cannot close its eyes and accept the imaginary claims or unrealized claims as real

30 which is against the commonsense, accepted norms and against the records.

11.14 Undoubtedly, the assessee has claimed only Rs.14,65,65,865/- as cost of sale of real estate and construction expenses (Page 34 of the paper book) against the contract awarded for an amount of Rs.131,97,66,135/-. Thus, the assessee had earned a huge profit of Rs.117,32,00,270/-. The assessee was called upon to explain the huge profit earned by it being the sub-contractor for the Government of Telangana and Government of Andhra Pradesh. The Assessing Officer has also called upon to furnish the following information : “You may furnish exact details of work given to M/s. LEPL Projects Limited. You may furnish the ledger extracts of M/s. LEPL Projects Limited in your books of account for the F.Y. 2015-16, 2016-17 & 2017- 18.

How much profit margin you have admitted on these works given on subcontract to M/s. LEPL projects."

11.15 In response thereto, M/s. MEIL had only filed the details of the work allotted to LEPL but no ledger extract of the assessee in the books of MEIL have been given and further, no details of the profit margin admitted by MEIL on the works given on sub-contract to the assessee was also given.

11.16 The assessee had filed submissions before the ld.CIT(A) and the ld.CIT(A) had called upon the remand report from the Assessing Officer. The submissions of the assessee were captured by the ld.CIT(A) in his order in Paragraphs 13 to 16, which is to the following effect :

11.17 Before the ld.CIT(A), the assessee filed written submissions. The ld. AR had drawn our attention to paragraphs 13 to 16, which is to the following effect :

- left intentionally –

11.18 The above said submission of the assessee, if compared with the reply submitted by M/s. MEIL which is at page 130 of the paper book, then it is apparent that running bills have been raised by the assessee immediately after the grant of the work order by M/s. MEIL. In fact, the details of the project and the date of award given by MEIL can be summarized as under :

Sl. Name of project Work order No. Date of work No. order 1 Akbar Nalagonda MEIL/AKBR-Nalgonda Water 22.07.2016 Project Grid/4126/W.O.No.135/16-17 for a total value of Rs.18,36,73,470/- 2 Nellore WSS Project MEIL/NWSS/16-17/744 for a total value 26.09.2016 of Rs.6,29,76,000/- 3 Purushothappatnam MEIL/PPLIS/16-17/1083 for a total value 14.12.2016 Lif Irrigiation Project of Rs.26,15,05,000/- 4 Kaleswwaram – MEIL/KP-New/1189/LEPL/W.O.174/16-17 29.11.2016 Medigadda for a total value of rs.10,22,81,150 5 Kleswaram – Sundilla MEIL/KP-New/1189/LEPL/W.O.200/16-17 16.12.2016 for a total value of Rs.8,07,53,975/- 6 Kaleshwaram – MEIL/KP-New/1189/LEPL/W.O.144/16-17 29.11.2016 Annaram for a total value of Rs.6,13,43,625/-

7 Nizamabad Singur MEIL/Nizamabad – Singoor Water Grid 10.10.2016 Water grid (4128)/W.O.441/16-17 for a total value of Rs.9,02,50,000/- 8 Adilabad Water gird MEIL/ADWG-Adilabad/4127/16-17/150 10.10.2016 for a total value of Rs.6,12,00,000/- 9 Warangal Paleru MEIL/Warangal – Paleru 03.10.2016 (4125)/330/2016-17 for a total value of Rs.12,03,62,500/- 10 Somasila MEIL/SLIS/16-17/792 for a total value of 06.10.2016 Rs.8,31,07,500/- 11 Mahbubnagar Grid MEIL/MBNR/1178/WO/3159/16-17 for 09.02.2017 Rs.6,02,74,241.50

12 -do- MEIL/MBNR/1178/WO/2197/16-17 for 07.11.2016 Rs.8,22,09,450

13 -do- MEIL/MBNR/1178/WO/2264/16-17 for 15.11.2016 Rs.8,60,45,350 14 -do- MEIL/MBNR/1178/WO/2544/16-17 for 20.12.2016 Rs.6,47,53,425

11.19 From the perusal of the above table, it is clear that the only two projects namely, Akbar Nalagonda Project and Nellore WSS Project were given on sub-contract to the assessee by MEIL in the month of July / September 2016 for Rs.18,36,73,470/- and Rs.6,29,76,000/-, respectively and the works were to be completed in the time frame given by the contractor. Similarly, the record shows that in respect of 10 work orders, the bills were raised immediately after the receipt of the contract work. The contract work for Kaleswara Sundilla at Sl.No.5 was allocated by MEIL on 16.12.2016 for a sum of Rs.8,07,53,975/- and the assessee ironically had raised the running bill of Rs.8,00,01,05/- on 31.01.2017, 28.02.2017 and 31.03.2017. We fail to understand how the bills can be raised within a gap of 43 days after the receipt of the work order for a huge amount. Similarly, in the case of the work order No.MEIL/MBNR/1178/WO/ 2544/16-17 at Sl.No.14, was given on 20.12.2016 and the assessee after receipt of the work order, within 40 days, has raised a huge bill of Rs.6 crore out of total work value of Rs.6,47,53,425/-. The only inference we can draw from the above

40 said analysis of the work contracts and the running bills is that either the bills were raised without any work done by the assessee or after doing negligible work and the amount was paid by MEIL to the assessee. There is no corresponding expenditure incurred by the assessee for executing the above said projects as mentioned in the preceding paragraphs except the small sum of Rs.14,65,65,865/-. In our opinion, when the 12 work orders were given by M/s. MEIL to the assessee, only after October, 2016, therefore, there is no occasion for the assessee to claim any running bills from M/s. MEIL in the assessment year under consideration. In our view, the observation of the Assessing Officer that no prudent businessman can grant such a sub- contract and permit the assessee to earn such a huge profit by spending meager amount of 8% of the contract value, is correct.

11.20 Before the ld.CIT(A), the assessee had filed submissions and in those submissions, the assessee had mentioned that it obtained the sub-contract work from M/s. Megha Engineering and Infrastructures Limited, Hyderabad (“MEIL”) through the Government of Telangana and Government of Andhra Pradesh. The assessee claimed to have earned such a huge profit approximately more than 92% of the total cost of the project. Out of which, assessee had only spent a sum of Rs.14,65,65,865/- on the construction work. In our view when the work is allocated by the State Government, the technical and commercial bids are called for and the payments are typically released based on the amount of work certified by the State Agency.

11.21 However, the Assessing Officer and ld.CIT(A) had failed to apply their mind to the basic fact that earning of more than 92% profit in the case of development activities, especially those intended for boosting the infrastructure meant to benefit the citizens, is highly unusual. In the present case, it is the case of 41 the assessee that it had earned a huge profit of 113 crores out of a total cost of Rs.131 crores apparently and thus pocketed more than 90% of the contract work. The earnings of such a huge profit and declaration of income by the assessee is unimaginable and beyond the preponderance of human probability and against the commonsense. The Assessing Officer / ld.CIT(A) should have raised eyebrow, scrutinized the profits earned by the assessee particularly considering that the development activity was intended for the citizens' welfare, not merely meant for the enrichment of the assessee.

11.22 If the arguments of assessee that it has earned the profit and paid the taxes are to be accepted, it would set a wrong precedent wherein development activities are undertaken without due execution, thereby neglecting the essence of responsible contract management in development projects. We have no reason to agree with the above said conclusion of the authorities below which seemingly have approved the huge profit earned by the assessee. The ld.CIT(A) has not applied his mind and had accepted the expenditure incurred by the assessee towards the aircraft business to be expenditure of construction activity and wrongly concluded that profit of 16% is just and fair. In the development project of the State, it is highly unimaginable and impermissible to divert the funds meant for construction and irrigation projects of the government to the aircraft activities of the assessee and further, it is highly impossible to earn the huge profits which is more than 90% of the contract value. We can imagine what kind of development on paper had taken place on the above noted 14 sites since as against the cost of Rs.131 crores, Rs.14 crores only had been spent and the remaining amount was adjusted towards the expenditure of the other activities i.e., aircraft business of the assessee. In our view, the notion of earning a profit of 90% is unimaginable and in other

42 words, is Contractual Loot under the guise of the alleged development activities.

11.23 It is correct that the assessee, in its wisdom, has disclosed the entire amount as income in the assessment year under consideration. However, we fail to understand whether any revenue, that is illegally and unlawfully received by the assessee can be considered as legal income. Tribunal being the final fact- finding authority has a duty to ensure that the Government funds meant for the development should be used for development and nor to be used for growth or enrichment of any individual. Though it is correct that the assessee disclosed the entire receipts and attempted to provide back-to-back verification form the contract justifying payment to the assessee but however, except providing the copy of contract by MEIL, MEIL had not provided the ledger account and other details of the expenditure to the lower authorities. As observed hereinabove, that 12 work contracts were issued after October, 2016, therefore, it is highly unimaginable and unfathomable that the major work has been completed and running bills were raised and the payments were made for the said work done by the assessee before March 2017. In our view, a livelink is required to be established with respect to the allotment of the work and its commencement, execution and completion and payment thereof. No such information was provided to any of the lower authorities by the assessee. Further, we are of the opinion that the release of payments is directly linked with bench mark fixed for various stages of completing the project.

11.24. In our view, though the identity of MEIL is established however, neither the genuineness nor the creditworthiness has been examined and proved by the assessee before the lower

43 authorities. Merely granting sub-contracts without any corresponding development activities will not legalize the unlawful amount paid by the said MEIL to the assessee in the guise of the running bills. Further nothing had been brought out on record that the State Government had permitted MEIL to grant sub- contract to assessee. Accepting the income disclosed by the assessee as legal income would be illogical, contrary to law and undermine the purpose of construction activities. In fact, it is difficult to comprehend that such activities were permitted to be carried out unabetted by the State Government and huge amount has allegedly been released to such contractors. The time has come where some suitable mechanism should be put in place by the State Government or other agencies against such contractors so that there should not be any siphoning or diversion of funds meant for development by any unscrupulous contractor. If today we decide this issue against the Revenue, by legalizing the payment merely because the contractor had submitted the confirmations of grant of contract then it would set a wrong precedent and there would not be any actual construction / development works would take place.

11.25 Since in the present case, the Revenue authorities have failed to examine the details of the work contracts awarded and the payment made by the Government which are relatable to various stages of work contract, therefore, we remit back the matter to the file of Assessing Officer for fresh examination. Needless to say while examining the matter afresh, the Assessing Officer shall take the assistance from state Government Development Agencies and other statutory enforcement agencies to find out the terms of the allotment of the contract, execution, performance, quality control etc., and whether the assessee can divert the funds meant for development to its other activities namely, aircraft / solar power business. Thereafter, considering

44 the inputs from the State Government and other enforcement agencies the Assessing Officer shall decide the matter in accordance with law after granting due opportunity of hearing to the assessee.

11.26 In case, the Assessing Officer comes to the conclusion that no work has been executed by the assessee or only a small part of the work has been executed then to pass the assessment order accordingly. Thus, ground no.2 is allowed for statistical purposes.

GROUND NO.3 12. The third ground raised by the Revenue is with respect to the deletion of addition towards Short Term Capital Gains. In this regard, the ld.DR for the Revenue had not made any argument and has relied upon the order passed by the Assessing Officer. Similarly, the ld.AR relied upon the order passed by the ld.CIT(A).

12.1 We have heard the rival contentions and perused the material on record. Since we are remanding ground no.2 back to the file of Assessing Officer, therefore, it is deemed appropriate to remand this issue also to the file of Assessing Officer, to maintain the consistency. Needless to say in this regard, the Revenue as well as the assessee has not substantiated their claims by filing any written submissions. Accordingly, ground No.3 is also allowed for statistical purposes.