DEEPAK JAIN,C-SCHEME vs. ITO WARD 2(1), BHAGWAN DAS ROAD

ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 30.08.2021 [here in after (NFAC)/ ld. CIT(A) ] for assessment year 2013-14 which in turn arise from the order of the Income Tax Officer, Ward -2(1), Jaipur [ here in after the ld. AO ] passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1981 [ here in after referred to as “Act”] dated 17.11.2018.

2. In the facts and circumstances of the case and in law, Id.CIT(A) has erred in confirming the action of the Id AO in making addition of Rs. 18,43,234, under Section 68 of the Income Tax Act, 1961. The action of the Id. CIT(A) is illegal, unjustified, arbitrary and against the facts of case. Relief may please be granted by deleting the entire such addition made by the Id. AO and confirmed by the ld. CIT(A).

3. In the facts and circumstances of the case and in law, Id.CIT(A) has erred in confirming the action of Id AO in making addition of Rs. 18,43,234, without carrying out any independent enquiry before making addition in hand of the assessee. The action of the Id. CIT(A) is illegal, unjustified, arbitrary and against the facts of case. Relief may please be granted by deleting the entire such additions made by the Id. AO and confirmed by the Id. CIT(A).

4. In the facts and circumstances of the case and in law, Id.CIT(A) has erred in confirming the action of Id AO in making addition of Rs. 18,43,234,without providing any opportunity of cross examining or providing the relevant documents as relied upon by the Id. AO for making addition in the hands of the assessee. The action of the Id. CIT(A) is illegal, unjustified, arbitrary and against the facts of case. Relief may please be granted by deleting the entire such addition made by the Id. AO and confirmed by the Id. CIT(A).

The assessee craves his rights to add, amend or alter any of the grounds on or before the hearing.”

Agarwal Infracon Private Limited (DRA) Group at Ahmedabad.

During course of search in the inquiry conducted it was gathered that that Dineshchandra R. Agarwal Infracon Private Limited has generated unaccounted money by way of booking bogus Sub- contractors Expenses and for material. The assessee is one of the entity who has received amount against expenses incurred by Dineshchandra R. Agarwal Infracon Private Limited as sub- contractor expenses. The ld. AO based on these set of information hold a view that the assessee is one of the entity/beneficiary who has received amount against expenses incurred by Dineshchandra R. Agarwal Infracon Private Limited as sub-contractor. Thus, the receipt is not a contract receipt but is in the nature of other receipts should be taxed under the head income from other sources. During the assessment proceeding, details / information were furnished from where the ld. AO hold that the assessee has received Rs. 20,03,515/-, on which the assessee has already declared profit of Rs.1,60,281/- @ of 8 % thus, the balance amount of Rs. 18,43,234/- is required to be added treating it as other receipts u/s. 68 r.w.s. 115 BBE of the Act vide order dated 17.11.2018.

“6.2 I have carefully considered the above submissions of the appellant. The appellant has only reiterated the documents submitted before the AO, which also find mention in the assessment order. So, the appellant has not brought anything new on record. The main issue is that the appellant was not able to furnish any that the app evidence of the expenses incurred for the work actually executed by him for M/s. Dineshchandra R. Agarwal Infracon Pvt. Ltd. If the appellant has received the work order, raised invoice and received payment, then surely, he would have some evidence in his possession to demonstrate the actual execution of the work of sub- contract. The appellant neither furnished any such evidence before the AO nor did he produce the same during the course of appellate proceedings. In the absence of the same, it clearly shows that no real job work was carried out by the appellant and he received the impugned amount from M/s. Dineshchandra R. Agarwal Infracon Pvt. Ltd. as a bogus sub-contractor to that extent. In view of the same, the action of the AO in treating the receipts from M/s. Dineshchandra R. Agarwal InfraconPvt. Ltd. to the extent of Rs. 18,43,234/- as Income from other sources, is upheld. Ground Nos. 3 & 4 are Dismissed.”

I. Assessee, an individual, is engaged in the business of executing Job Work of road marking and painting of pavements/boards/runways and other concrete structures, for Infrastructure companies, under the name and style of M/s Rajshree Construction Company, as sub-contractor.

II. During the year under consideration, assessee declared income of Rs. 5,80,286, under Section 44AD of the Income Tax Act, 1961 (“ITA”), being 8% of the Gross Receipts of Rs. 71,29,023. Returned income of the assessee was Rs. 9,38,400.

III. Search was conducted by the Income Tax Department, on M/s Dineshchandra R Agrawal Infracon Pvt. Ltd (“DRPL”). M/s Dineshchandra R Agrawal Infracon Pvt. Ltd. was engaged in engineering, procurement and construction services in different sectors across Gujarat.

IV. Thereafter, information was received by the jurisdictional Assessing Officer of the assessee. On the basis of such information, it was concluded by the ld. AO that the contract receipts, as received by the assessee of Rs. 20,03,515 from M/s Dineshchandra R Agrawal Infracon Pvt. Ltd., during the year under consideration were bogus. Case of the assessee was reopened under Section 148 and order under Section 143(3), read with Section 147, was passed in the case of the assessee.

V. In such order entire receipts, as generated by the assessee, from M/s Dineshchandra R Agrawal Infracon Pvt. Ltd. of Rs. 20,03,515, during the year under consideration were held to be bogus. Accordingly, addition of Rs. 18,43,234, being Rs. 20,03,515 minus Rs. 1,60,281 [which was 8% of Rs. 20,03,515, already offered for tax], was made to the income of the assessee. Such addition was made under Section 68 of the ITA and also the provisions of Section 115BBE were invoked.

VI. Thereafter, assessee, against the additions made by the ld. AO, preferred appeal before the National Faceless Appeal Centre (“NFAC”). NFAC dismissed the appeal of the assessee. Against the order of NFAC, present appeal has been preferred by the assessee before the Hon’ble ITAT, Jaipur Bench.

GROUND NO. 1 REOPENING UNDER SECTION 148 1. SUBMISSIONS

1.1. Apropos the aspects of reopening, ld. AO completely relied on the so called information received from the Joint Commissioner of Income Tax (OSD) Central Circle - (2) (1), Ahmedabad. 1.2. In formation of belief qua assessee’s involvement in giving bogus invoices, ld AO did not have access to the search inquiries, documents statements recorded from DRPL, on the date of search. As a result, no copy of such documents/statements was provided by the ld AO, during the course of reassessment proceedings. Thus, in such formation of belief, ld AO did not analyse the contents of the documents seized/statements made by DRPL, which could prove the involvement of the assessee in any manner. 1.3. Further, reasons recorded by the ld. AO were silent whether the group was examined to establish the reasonableness of the allegation. Similarly, whether addition for the same in their hands was made or not was not discernible from the reasons recorded. 1.4. Conclusion with regard to all the facets of the alleged bogus invoices was drawn by the ld. AO, only on the basis of the information received. Ld. AO, on his own, nowhere tried to corroborate the information received, including analysing the outcomes of the search proceedings, including the documents seized/statements recorded of any person associated with DRPL, against assessee. 1.5. Ld. AO did not mitigate the risk of any lapse/disconnect in the information provided/compiled by the Investigation Wing. 1.6. It is a settled principle, even expounded by the Hon’ble Supreme Court in the case of Common causes v. UOI (Sahara Diaries case) and also Central Bureau of Investigation v. V.C. Shukla (1998) 3 SCC 410, that entries in loose papers/ sheets, or even excel sheets, are irrelevant and inadmissible as evidence and cannot be used to charge any person with liability. Thus, it was a pre-requisite, for reopening the case of the assessee, that such entries should have been corroborated with facts and such aspects should have been discernible from the reasons recorded. 1.7. First part of Section 147(1) requires Assessing Officer to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus, formation of reason to believe that is subject matter of examination. AO, being a quasi judicial authority, is expected to arrive at a subjective satisfaction, independently based on objective criteria. 1.8. Information from the Investigation Wing, might constitute part of the material to investigate further, however, the process of arriving at such satisfaction cannot merely be such information. Recording of reasons to believe and not reasons to suspect is the prerequisite to the assumption of jurisdiction under Section 147. 1.9. In Ganga Saran and Sons Pvt. Ltd. (1991) 130 ITR 1 (SC), Hon’ble Apex Court observed that the words "reason to believe” are stronger than the words “reason to be satisfied". Since the words used are reason to believe the satisfaction theory would not apply but the belief must be reasonable and based on relevant materials. It is clear, that in the instant case of the assessee, reopening action was driven by HEARSAY. 1.10. For reopening the case of the assessee, in the reasons recorded, reliance has solely been placed on information received from the Joint Commissioner of Income Tax (OSD) Central Circle –(2) (1), Ahmedabad. Thus, it is clearly discernible from the reasons recorded, that the case of the assessee has been reopened in an “AUTOMATIC MANNER” without any independent enquiry, of even the minutest order. 1.11. It is for this reason that, in the below mentioned judicial pronouncements, Hon’ble Delhi High Court has held that Information received from the Investigation Wing cannot per se be considered to be a tangible material for warranting reopening:- 1.11.i SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) 1.11.ii Insecticides (India) Ltd. [2013] 357 ITR 330 (Delhi) 1.11.iii Krown Agro Foods (P.) Ltd. [2015] 375 ITR 460 (Delhi) 1.12. Thus, what was required and expected, as per the settled principles of reopening, was corroboration, checking and cross checking of the information, received from the Investigation Wing, with independent evidences and establishing a clear trail suggesting, even if prima facie, issuing of bogus invoices from the assessee. However, as against that, reopening has been done by directly considering the information received from the Investigation Wing by considering it to be sacrosanct. 1.13. This is nothing but a case of “BORROWED SATISFACTION” which renders the entire proceedings of reopening to be illegal and void- ab-initio. 1.14. Hon’ble Delhi High Court in case of RMG Polyvinyl (I)B Ltd. [2017] 83 taxmann.com 348 (Delhi), and also in the case of Meenakshi Overseas Pvt Ltd. [2017] 395 ITR 677 (Delhi), held that where reassessment was resorted to on the basis of information from DIT(Investigation) that the assessee had received accommodation entry but there was no independent application of mind by AO to tangible material and reasons failed to demonstrate live link between tangible material and formation of reason to believe that income has escaped assessment, reassessment was held to be not justified. 1.15. In the case of Manzil Dineshkumar Shah [2018] 406 ITR 326 (Gujarat), the High Court, at Para 7-8, held that even the assessment which is completed u/s. 143(1) cannot be reopened without proper ‘reason to believe’. If the reasons state that the information was received from any department, then such aspects “needed deep verification”. Otherwise, it is to be considered that AO reopened the case for doing ‘fishing or roving inquiry’ without proper reason to believe, which is not permissible. Special Leave Petition, filed by the Department, against the aforementioned judgment of the Gujarat High Court, was dismissed by the Hon’ble Supreme Court, vide order dated 4.01.2019 [2019] 101 taxmann.com 259 (SC). 1.16. Hon’ble Jurisdictional High Court of Rajasthan, in the case of Sandeep Stocks Pvt. Ltd., in Civil Writ Petition No. 16705/2018, held that no reopening can be done only on the basis of information received from the Investigation Wing. It was held that the reasons recorded by the Assessing Officer cannot in any way be vague. 1.17. The present reopening has been done on the basis of certain incriminating documents found during the course of search on DRPL. The same has also been referred to in the reasons recorded by ld AO for reopening the case. However, while providing the copy of the reasons recorded, ld AO did not enclose all the relevant documents on the basis of which belief was formed that the income of the assessee had escaped assessment. 1.18. In case of Deepraj Hospital (P) Ltd., ITA 41/AGRA/2017, Hon’ble ITAT, Agra Bench, vide order dated 1.6.2018 held at Para 22-24 of the order that, if the reopening is based on information received from the Investigation Department, the reasons must show that the AO independently applied his mind to the information and formed his own opinion. If the reopening is done mechanically, it is void. Also, if the reasons refer to any document, a copy should be provided to the assessee. Failure to do so results in breach of natural justice and renders the reopening void. 1.19. It is submitted that the sole basis, emerging out of the reasons recorded, of reopening the case of the assessee was the incriminating documents found during the course of search on DRPL.

1.20. Reassessment pursuant to material found in search can be done through recourse to Section 153C only and not by invoking the provisions of section 147/148. The provisions of section 153C are over-riding in nature and contain non obstante clause for sections 139,147,148,149,151 and 153. 1.21. Section 147 and 153C are not interchangeable but are mutually exclusive sections. It is not the choice of the revenue to invoke either of the two sections at its whims. The scope of the two sections has been legislated differently with a definitive purpose. 1.22. For the above ratio, reliance is placed on the following judicial pronouncements:- 1.22.i Arun Kumar Kapoor [2011] 140 TTJ 249 (Amritsar) 1.22.ii G. Koteswara Rao [2015] 64 taxmann.com 159 (Visakhapatna - Trib. 1.22.iii Rajat Shubra Chatterji, ITAT Delhi Bench 1.23. The above-mentioned judgments have been recently followed by the Hon’ble ITAT, Jaipur Bench, in the case of Shri Navrattan Kothari, in ITA No. 425/JP/2017, wherein under identical set of facts the entire re-assessment proceedings were quashed. 1.24. Aforementioned submissions were made in the first appellate proceedings, before ld. CIT(A). However, none of the submissions as made before him has been considered/rebutted by him in his order at page 3, while dismissing the ground as regards reopening taken by the assessee. 1.25. Ld. CIT(A) solely relied on the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. [2007] 291 ITR 500 (SC), for the proposition that at the initial stage of reopening what is required is reason to believe, but not established of the fact of the escapement of income. No conclusive proof of escapement of income needs to be established at the time of reopening the case of the assessee. 1.26. Ld. CIT(A) has misplaced his reliance on the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (Supra). Ld. CIT(A) has ignored the factual position that the entire reopening has been done by the ld. AO solely on the basis of the information received. Ld. AO while reopening the case of the assessee was not having requisite evidences with him which could minutely establish the link of the assessee in entering into bogus transaction.

1.27. It is also pertinent to note that in the reasons recorded ld. AO has alleged that there is escapement of income of Rs. 71,29,023 of the assessee, for the year under consideration. Ld. AO was not aware of the fact that the assessee during the year under consideration had only entered into transaction of Rs. 20,03,515 with DRPL. If the relevant documents were available with the ld. AO, then this mistake would not have been committed by the assessee, in the reasons recorded. Accordingly, the reasons have been recorded on the basis of only information and hearsay and not on the basis of concrete evidence against the assessee. Reasons have been recorded without application of mind by the ld. AO In view of the above, reopening done by the ld. AO and upheld by the ld. CIT(A) deserves to be quashed GROUND NO. 2-4 ADDITION OF RS. 18,43,234 UNDER SECTION 68 1. SUBMISSIONS

1.1. Assessee is engaged in the business of taking Job work of Road Marking and painting of pavements/roads/runways etc. on work contract basis under the name of style of M/s Rajshree Construction Co., since May 2009. 1.2. During the year under consideration, assessee received work of painting of runway at Airforce Station, Nal site Bikaner from DRPL. In this regard, below mentioned documents were submitted to the lower authorities:- 1.2.i Copy of Work order Copy from DRPL [PB : 13-14] 1.2.ii Copy of Invoices of raised on DRAIPL [PB : 15-16] 1.2.iii Copy of Ledger account of DRPL [PB : 17-18] 1.2.iv Copy of Bank Statement indicating payment received from DRPL. [PB : 19-31] 1.3. Assessee has been regularly involved in carrying out job work, in the construction sector, for various large entities. The same is evident from Form 26AS of the assessee for the year under consideration. Summary of the receipts and the TDS deducted, for the year under consideration are as under [PB: 32-33]:-

Amount Credited TDS Deducted S.No. Name of Deductor (In Rs.) (In Rs.) 1 Dineshchandra R Agarwal Infracon Pvt Ltd 10,10,101 10,101 2 Ultratech Cement Limited 74,287 743 3 B.R. Goyal Infrastructure Limited 95,280 953 4 Prakash Asphalting and Toll Highways (India) Ltd 44,751 895 5 Rajshree Instrument Private Limited 40,000 45,000 6 Rajshree Mining Private Limited 11,36,722 11,368 7 Relcon Infraprojects Limited 5,00,000 5,000 8 Longjian Road and Bridge Ltd Co 2,00,000 4,000 9 Longjian Road and Bridge Ltd Co 2,50,000 5,000

1.4. Aforementioned entities are all renowned entities in the field of infrastructure development. Accordingly, allegation cannot be made on the assessee of him being engaged in entering into bogus transaction. 1.5. Neither did the ld. AO examine the concerned person from DRPL, not did the ld. AO provide any opportunity to the assessee to cross examine any person. In this regard, submission was made before the ld. CIT(A), however, the same was rejected by ld. CIT(A) at page 6 of his order by simply stating that the assessee never requested for cross examination or the relevant documents, before the ld. AO. It is submitted that the ld. AO, as a quasi-judicial body, was duty bound to provide the relevant documents to assessee, before placing any reliance. Also, opportunity to the assessee should have been provided of cross examination. This aspect should have been considered by the ld. CIT(A). 1.6. The reason, as stated by ld. CIT(A), for upholding the additions made by the ld. AO was that assessee did not submit evidences of the expenses incurred by him, with respect to the work executed for the DRPL. It is submitted that the assessee offered his income tax, just like any other small contractor, under Section 44AD, on presumptive basis. Accordingly, assessee was not required to maintain evidences of the expenses incurred for execution of the work. As a result, the same could not be presented before the lower authorities. 1.7. Assessee during the proceeding and the subsequent years had been offering his income for tax under Section 44AD and, accordingly, was not maintaining the requisite details for the expenses incurred as the assessee, as was not required so under the law. Lower authorities could have ascertained the work completed by the assessee, using their wide powers as provided under the Act. Also, necessary enquiry could have been done from DRPL. 1.8. Lower authorities did not point any defect/discrepancy in the documents submitted before them, still went ahead in making additions to the income of the assessee. 1.9. Without prejudice to the submission made above, if the assessee is considered to have entered into a bogus transaction, then also the entire receipts cannot be taxed. Element of income, even in case of bogus transactions is not more than 2-5%. Whereas, in the present case, the assessee has already offered 8% of the receipts for tax. Accordingly, no further addition should be made to the assessee. In view of the above, additions made by ld. AO and confirmed by the ld. CIT(A) to the income of the assessee deserves to be deleted in to-to.

S. No. Particulars Page No. 1 Copy of the Income Tax Return filed by the assessee for the 1-3 relevant previous year.

2 Copy of the reasons recorded by the ld. AO for reopening the 4-7 case of the assessee, for the relevant previous year. 3 Copy of the reply, dated 10.08.2018, filed by the assessee before 8-10 the ld. AO 4 Copy of the reply, dated 16.11.2018, filed by the assessee before 11-12 the ld. AO 5 Copy of work order received by the assessee from Dineshchand 13-14 A Agarwal Infracon Private Limited. 6 Copy of invoice raised by the assessee to Dineshchand R 15-16 Agarwal Infracon Private Limited, against the work executed. 7 Copy of ledger account of Dineshchand R Agarwal Infracon 17-18 Private Limited in the books of the assessee 8 Copy of the Bank Statement of the assessee for the relevant 19-31 period 9 Copy of Form 26AS of the assessee 32-33 10 Copy of the written submissions filed by the assessee before the 34-45 National Faceless Appeal Center. submission so filed submitted that the assessee is acting as a small job worker engaged in the small paint work related to marking on the road, pavement, sign boards under the name and style as M/s. Rajshree Construction Company. This works he undertake a sub-contractor. The ld. AO has not doubted the other receipt of job work offered by the assessee except the work of Dineshchandra R.

Agarwal Infracon Private Limited.(DRA). The ld. AR of the assessee drawn our attention to page 13 & 14 being the work order issued by DRA. The work order is for painting of Runway at Air Force Station, Nal Site Bikaner. Considering the nature of work the ld. AO has not done any independent inquiry because the work in the military area/organization is to be strictly based on the evidence and attendance is strictly under observation in that matter how the expenditure of this work can be considered as bogus. The reasons recorded are vague and not specific information that the work carried out is bogus and considering the air force work how it can be considered as bogus. The assessee was never confronted with the information or statement if any relied upon and there is no finding except the general allegation made. Even the work carried out by the assessee is not doubted then there is no basis of submitted that even if the work can be considered as accommodative or bogus then in that case also the whole amount cannot be added to the income of the assessee but only the profit can be added. To drive home to this contention the ld. AR of the assessee relied upon the decision of Hon’ble Rajasthan High Court in the case of Khokhar Construction Co. 34 Taxmann.com 180 wherein the Hon’ble court dismissed the appeal of the department by holding that in case of civil contractor 8 % of profit declared is reasonable.

Dineshchandra R. Agarwal Infracon Private Limited, whose business premises were searched by the revenue and found that main contractor has debited certain expenses as sub-contractor and has thus inflated the expenditure and the assessee has undertaken the work of sub-contractor of these DRA group. Thus, based on that she relied upon the findings of the lower authorities but at the same time not objected to the alternative argument of the added as income.

Dineshchandra R. Agarwal Infracon Private Limited whose business premises were searched and department is having the information from that search that the said M/s. Dineshchandra R.

Agarwal Infracon Private Limited has generated unaccounted money by way of booking bogus sub-contractors expenses. In that matter of the fact the case of the assessee was re-opened. The assessee in support of the sub-contract receipt filed the work order giving scope of work and the nature of work to be carried out at site. From the perusal of the work order submitted by the ld. AR of the assessee the bench observed that the sub-contract work is to be executed by the assessee at runway resurfacing project at Nal AF Station Bikaner. From the paper book filed by the assessee we copy to the assessing officer but he has not cross verified with the relevant military organization to confirm the averments of the assessee and merely based on the information so received from the search for which no details were confronted to the assessee the addition was made by the assessing officer. On the contrary we have observed that the ld. CIT(A) dismissed the appeal of the assessee stating that the nowhere the assessee had requested for any documents from the AO or any cross examination and therefore, with this observation the appeal of the assessee was dismissed.

Respectfully, following the finding of the jurisdiction high court we are of the considered view that we have not hesitation to vacate the addition made by the ld. AO for an amount of Rs. 18,43,234/- as the assessee has already declared profit @ 8 % of the receipt as it evident from the finding of the ld. AO. In terms of these observations the ground no. 2, 3 and 4 are allowed.

In the result, appeal of the assessee is allowed.