M/S BHATE & RAJE CONSTRUCTION CO. PVT. LTD.,PUNE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1), PUNE, PUNE

2 ITA.No.1390 to 1393/PUN./2023 2. It emerges at the outset with the able assistance coming from both the parties that the assessee’s first and foremost substantive ground; rather the sole ground in assessment years 2011-12 and 2012-13 and it’s former grievance in latter twin appeals; is that the learned lower authorities have erred in law and on facts in disallowing the corresponding sub-contractual expenditure payments of Rs.11,19,50,550/; Rs.12,15,39,950/-; Rs.7,67,94,800/- and Rs.4,85,52,293/-, assessment year-wise, respectively. It is in this factual backdrop that we proceed to decide the instant first and foremost substantive issue herein together for the sake of convenience and brevity.

The assessee preferred it’s separate as many appeals. The CIT(A)’s common impugned order has upheld the Assessing Officer’s impugned action as follows :

We have given our thoughtful consideration to the vehement rival submissions against and in support of the learned lower authorities action disallowing the assessee’s sub-contractual payments. Ld. CIT-DR Shri Patel vehemently argued that both the lower authorities have rightly made the impugned sub-contract payments disallowance(s) going by the contents of the seized material carrying presumption of correctness u/sec.292C of the Act. He reiterated that the assessee had been duly found to have prepared bogus sub- contract expenditure vouchers as per the said material. He further sought to highlight the fact that it is the bounden duty of the assessee only to plead and prove the impugned 10 ITA.No.1390 to 1393/PUN./2023 expenditure by filing the necessary explanation supported by cogent evidence which has been given a complete amiss at it’s behest. He thus prayed for upholding of identical disallowance(s) in all these assessment years in entirety.

Learned counsel representing the assessee on the other hand is fair enough in not disputing the foregoing facts emerging from the incriminating material as well as the survey statements regarding the impugned sub-contract expenses amounts deposited in the payee’s accounts followed by the cash withdrawals; which has been utilized in regular business activities. He further drew our attention to the relevant impugned material in pages 388 onwards in the paper book to this effect.

Next comes the equally important question of quantification of the impugned disallowance(s) in all these four assessment years. A perusal of the assessee’s comparative chart of it’s admitted corresponding book results at page-386 of the paper book for assessment years 2011-2012 and 2019- 2020 inter alia, indicates that it’s net profit rates stood at less than 10% i.e., 6%; 4.63%; 5.9%; 6.59%; 4.98%; 3.15%; 5.87%; 4.43%; and 4.75%; respectively as increased to 6.96%; 6.78%; 9.01% and 7.31% in these four assessment years after the survey declarations of Rs.10 crores (supra). The same have admittedly rose to 17.69%; 19.86%; 13.65% and 11.08%; 11 ITA.No.1390 to 1393/PUN./2023 respectively in these four assessment years post facto the impugned additions.

We wish to make it clear at this stage that there is no dispute between the parties about the assessee having carried-out the very nature of civil construction activity in all these assessment years. And also that the learned departmental authorities have admitted it’s net profit rate in assessment year 2013-2014; forming part of the CIT(A)'s common detailed adjudication herein. This is indeed coupled with the fact that the assessee’s detailed paper book running into 520 pages; and more particularly, from pages 388 to 503 [containing the incriminating material] further indicates that it had incurred some actual expenditure as well along with under various personal heads; as the case may be; which carry presumption of correctness u/sec.292C of the Act. It is thus an instance wherein the assessee’s book results deserve to be rejected once they have not been properly maintained. The fact also remains that once the assessee’s “Net Profit” [“NP”] margins have uniformly remained in the same ratio [approx.], the only inference which could be drawn is that there is indeed a possibility of the taxpayer having utilized cash withdrawals to meet day-to-day business requirements.

Mr. Patel at this stage vehemently submitted that we ought not to dismiss the learned lower authorities’ findings 12 ITA.No.1390 to 1393/PUN./2023 either in light of sec.44AD or as per the incriminating material proving only part of expenditure.

We have considered the Revenue’s foregoing vehement objections regarding quantification of the impugned sub-contract expenditure disallowance(s). We find that case law settles the issue that sec.44AD could indeed form a broader guiding factor to apply the foregoing presumptive scheme in peculiar facts of a case even of it involves more than the eligible turnover therein.

CIT vs. Subodh Gupta [2015] 54 taxmann.com 343 (Del.) 2. Pr.CIT vs. Vishwashakti Construction, Mumbai – Judgment of Hon’ble Bombay High Court in ITA.No.1016 of 2018 dated 04th May, 2023. 3. Pr. CIT vs. Ram Builders, Mumbai - Judgment of Hon’ble Bombay High Court in ITA.No.398 of 2018 dated 18th May, 2023. 4. CIT vs. Kailash Kacchawaha [2007] 293 ITR 449 (RAJ.) 5. V M Matere Infrastructures (India) Private Limited, Pune vs. ACIT – Order of ITAT, Pune Bench, Pune dated 29.05.2023. 6. Hari Chainrai Kataria, Pune vs. ACIT – order of ITAT Pune Bench, Pune dated 28.02.2013. 7. Nishikant T. Patne vs. ACIT [2013] 36 taxmann.com 540 [Pune-Tribu.]. 8. G. Raja Gopala Rao vs. DCIT [2017] 78 taxmann.com 61 [Visakhapatnam-Tribu.].

Learned Counsel next take us to the twin latter assessment years 2014-2015 and 2015-2016 allegedly involving some “reversal” entries regarding the assessee’s sub- contracting parties. We are of the considered opinion that once the learned Assessing Officer has been directed to restrict the impugned disallowance(s) in foregoing terms after rejecting the assessee’s book results; such a course of action of dealing with the impugned reversal entries hardly deserves an independent adjudication anymore going by Indwell Construction vs. CIT [1998] 232 ITR 76 (A.P.). Rejected accordingly.