DCIT CENTRAL CIRCLE- 1(3), AAYKAR BHAVAN vs. SIDDHESWARI INFRASTRUCTURE, JUDGES BUNGLOW ROAD

"ी िस"ाथ" नौिटयाल, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम#। ] ] BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA Nos. 595 & 596/Ahd/2023 िनधा"रण वष" /Assessment Years: 2016-17 & 2017-18 respectively The DCIT Siddheswari Infrastructure बनाम/ Circle-1(3) B-101, Shakti Enclave v/s. Ahmedabad Judges Bungalows Road Ahmedabad – 380 054 "थायी लेखा सं./PAN: ABMFS 3587 R (अपीलाथ$/ Appellant) (%& यथ$/ Respondent) Assessee by : -None- Revenue by : Shri Rignesh K. Das, Sr.DR सुनवाई की तारीख/Date of Hearing : 12/09/2024 घोषणा की तारीख /Date of Pronouncement: 23/09/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:

These two appeals by the Revenue are directed against the orders of the Commissioner of Income-tax (Appeals)-11, Ahmedabad [hereinafter referred to as "CIT(A)"] for the Assessment Years (AYs) 2016-17 and 2017-18. These orders were passed by the CIT(A) against the order of Assessing Officer [hereinafter referred to as "AO"] under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 [hereinafter referred to as "the Act"]. Since common & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 2 issues are involved, these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.

Facts of the case:

Particulars A.Y. 2016-17 A.Y. 2017-18 Return Filing Date 10.10.2016 29.10.2017 (Original) Declared Income Rs.1,45,23,680 Rs.1,38,87,790 Original Assessment 12.12.2018 (Income Not applicable u/s 143(3) assessed at Rs.1,99,93,611) Income After CIT(A)'s Rs.1,45,23,680 (Post- Not applicable Order (Original CIT(A) order dated Assessment) 05.03.2019) Search & Seizure Conducted under Conducted under Action Section 132 (Sadbhav Section 132 (Sadbhav Group) on 06.04.2017 Group) on 06.04.2017 Notice for 17.02.2020 17.02.2020 Reassessment u/s 148 Issued Section of Section 143(3) read Section 143(3) read Reassessment Order with Section 147 with Section 147 Date of Reassessment 29.09.2021 29.09.2021 Order Key Additions by AO - Rs.1,38,65,603 - Rs.2,10,62,866 (Unexplained (Unexplained transactions) transactions) & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 - Rs.3,85,82,434 - Rs.36,50,754 (Excess (Estimated profit @ depreciation on heavy 20% of bogus sales on machinery) Rs.23,19,02,495) - Rs.2,06,99,817 (Estimated profit @ 20%) Assessed Income by Rs. 6,69,71,720/- Rs. 5,96,56,450/- AO (Reassessment) CIT(A) Order Date 04.05.2023 04.05.2023 CIT(A) Relief on Restricted to Restricted to Unexplained Rs.26,00,888 (from Rs.91,06,296 (from Transactions Rs.1,38,65,603) due to Rs.2,10,62,866) due to double taxation double taxation CIT(A) Relief on Rs.3,85,82,434 deleted Rs.2,06,99,817 deleted Estimated Net Profit entirely entirely CIT(A) Decision on Not applicable Disallowance of Depreciation Rs.36,50,754 deleted entirely

Grounds of A.Y. 2016-17 (ITA No. A.Y. 2017-18 (ITA No. Appeal 595/AHD/2023) 596/AHD/2023) 1. CIT(A) erred in restricting CIT(A) erred in restricting Unexplained the addition of the addition of Transactions Rs.1,38,65,603 to Rs.2,10,62,866 to Rs.26,00,888, leading to Rs.91,06,296, leading to double taxation. The AO double taxation. The AO had discussed in detail that had discussed that the the transactions related to transactions related to Sadbhav Group were not Sadbhav Group were not disclosed or accounted for disclosed or accounted for at the time of filing of ITR. in the ITR and should not Hence, these transactions be included in the turnover should not be considered disclosed in the ITR. & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 as part of the turnover disclosed in the ITR.

2. Estimation CIT(A) erred in deleting CIT(A) erred in deleting of Net Profit the addition of the addition of Rs.3,85,82,434 based on an Rs.2,06,99,817 based on an estimation of net profit at estimation of net profit at 20%. The AO had 20%. The AO had established that the discussed that the transactions related to transactions related to Sadbhav Group were not Sadbhav Group were not disclosed or accounted for disclosed or accounted for in the ITR, and hence the in the ITR, and these estimated profit should not should not be considered have been considered as as already reflected in the already included in the disclosed turnover. turnover.

3. Not applicable. CIT(A) erred in deleting Disallowance the disallowance of of Rs.36,50,754 on account of Depreciation claiming a higher rate of depreciation on heavy equipment. The assessee had claimed that these vehicles were used in mining and excavation; however, the AO found no documentary evidence to support this claim.

On the grounds related to Unexplained transactions: 5. A search operation was conducted on the Sadbhav Group on 06.04.2017. During this operation, incriminating documents and books of account were seized, which revealed significant unaccounted transactions involving several group entities, including the assessee. These transactions were found to be unrecorded in the regular books of the assessee. The seized documents included details of cash transactions, bogus sales, subcontractor agreements, and other financial dealings with the Sadbhav Group. The AO observed that the records contained evidence of transactions that were neither disclosed nor accounted for in the financial statements filed with the ITR. These transactions were also corroborated by statements made during the survey, where individuals admitted to fabricating records for accommodation entries and bogus transactions. Specific Details of Unexplained Transactions are:

A.Y. 2016-17 (ITA No. 595/AHD/2023): 5.1. The AO added Rs.1,38,65,603/- as unexplained income based on the statement of Shri Rameshbhai Prajapati. In his statement, he admitted that the income related to manpower supply, mining income, and indirect income was not declared. Specifically, the details are as follows:

• Manpower Supply Income: Rs. 62,090/- • Mining Income (3% commission): Rs. 30,92,784/- • Profit from mining income (4%): Rs. 92,45,055/- & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 • Indirect income: Rs. 14,65,674/- A.Y. 2017-18 ( 5.2. An addition of Rs. 2,10,62,866/- was made due to unreported income derived from unaccounted transactions. The assessee had not disclosed large- scale unaccounted sales and commission income from dealing with Sadbhav Group, as admitted in Shri Rameshbhai Prajapati's statement:

• Commission on Sadbhav Group transactions (3%): Rs. 1,00,84,199/- • Mining Income: Rs. 42,01,205/- • Manpower supply income: Rs. 46,762/- • Indirect income: Rs. 58,11,836/- 5.3. The AO, in conclusion for A.Y. 2016-17, determined that the assessee had engaged in bogus transactions with the Sadbhav Group. This conclusion was based on the evidence collected during the search, which revealed that M/s. Siddheshwari Infrastructure issued bogus bills to the Sadbhav Group and returned the funds in cash. The main partner of the firm, Shri Rameshbhai Prajapati, admitted to this in his statement. Specifically, the AO concluded that the assessee had not disclosed the additional income of Rs. 1,38,65,603/-. This amount was added back to the total income of the assessee for the year under consideration. For A.Y. 2017-18, the Assessing Officer (AO) concluded that the assessee, M/s. Siddheshwari Infrastructure, had engaged in bogus sales and transactions with the Sadbhav Group. The AO found that the firm provided accommodation entries without performing any real work, as admitted by its main partner, Shri Rameshbhai Prajapati, in his statement. Based on seized materials and digital data, the total addition & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 of Rs. 2,10,62,866/- was made, representing unaccounted income that was not disclosed in the assessee's return of income.

6.1. The CIT(A), for the A.Y. 2016-17, found that the assessee had indeed disclosed Rs. 1,12,64,715/- as income in the return. However, upon perusal of the statement by Shri Ramesh Prajapati and the seized documents, it was evident that the total net income for the year amounted to Rs. 1,38,65,603/-. The CIT(A) rejected the assessee's claim that the difference in income was due to depreciation and partner remuneration, as Shri Ramesh Prajapati had admitted to earning a specific percentage of profit from the accommodation entries provided to the Sadbhav Group. The CIT(A) upheld the addition of Rs. 1,38,65,603 made by the AO but allowed the assessee to adjust the income already disclosed in the return. As the assessee had already disclosed Rs.1,12,64,715/- in their return, the CIT(A) directed that the confirmed addition should be limited to Rs.26,00,888/- (i.e. Rs.1,38,65,603 – Rs.1,12,64,715). For A.Y. 2017-18, after reviewing the records and the statement of Shri Rameshbhai Prajapati, CIT(A) found that the AO’s addition was based on the partner's admission of earning profits from various sources. & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 The CIT(A) noted that the income admitted by the partner was indeed Rs. 2,10,62,866. However, the assessee had already shown Rs.1,19,56,570/- in their return of income. CIT(A) determined that the difference in income was not due to depreciation or partner remuneration, as claimed by the assessee, but rather due to the nature of the income itself. CIT(A) confirmed the addition made by the AO but allowed for the adjustment of the income already declared. The final confirmed addition was reduced to Rs. 91,06,296 (i.e., Rs.2,10,62,866 – Rs.1,19,56,570).

6.2. After carefully considering the submissions and the materials placed on record, and the findings of the lower authorities, we conclude that the CIT(A) has provided a well-reasoned order, carefully addressing the issue of double taxation. The CIT(A) thoroughly examined the seized materials, verified the assessee's explanations, and correctly restricted the additions made by the AO to prevent the same income from being taxed twice. The CIT(A) has rightly concluded that a substantial portion of the unexplained transactions were already reflected in the turnover disclosed in the Income Tax Return filed by the assessee. The remaining portion of the transactions, which could not be satisfactorily explained or evidenced by the assessee, was retained as additions.

6.3. The Revenue's appeal primarily seeks to restore the entire addition made by the AO, arguing that the assessee's books of accounts did not disclose the full nature of the transactions. The CIT(A)’s decision to restrict the addition to the unexplained portion, based on a careful review of the evidence and explanations provided, is justified and requires no interference. There are ample judicial precedents which support the principle that double & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 taxation should be avoided and that additions for unaccounted transactions must be supported by concrete evidence, not suspicion alone.

6.4. Considering the discussions above, we uphold the decision of CIT(A) and dismiss these grounds of the revenue.

Ground relating to Estimation of Net Profit: 7. In both A.Y. 2016-17 and A.Y. 2017-18, the AO made significant additions based on the estimation of net profit. These additions were primarily driven by the AO's observation that certain transactions, particularly related to bogus sales and accommodation entries, were not disclosed in the books of accounts and that the declared profit margins were artificially reduced. The AO concluded that the declared profit margins were not reflective of the true profits earned by the assessee based on seized documents and statements. The AO further observed that subcontractor payments and purchase invoices were found to be bogus or inflated, indicating that expenses had been overstated to reduce the taxable profit.

7.1. During the assessment relating to A.Y. 2016-17, the AO rejected the net profit disclosed by the assessee, which was 3.36% of the total turnover (Rs. 1,12,64,714 on Rs. 33,49,95,279). Citing that 30% of the total turnover comprised bogus sales (i.e., Rs. 10,30,92,784), the AO estimated a net profit of 20% on the remaining turnover of Rs. 23,19,02,495. This led to an estimated net profit of Rs. 4,63,80,499. After adjusting for the proportionate net profit (Rs. 77,98,065), an addition of Rs. 3,85,82,434 was made to the total income. For A.Y. 2017-18, the AO once again rejected the net profit declared by the assessee (which was Rs. 1,19,56,570 at a rate of 2.62%). The AO applied a net & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 profit rate of 20% on the adjusted turnover (Rs. 11,91,43,721), resulting in an estimated net profit of Rs. 2,38,28,745. After adjusting for the proportionate net profit (Rs. 31,28,928), an addition of Rs. 2,06,99,817 was made.

7.2. In the appeals for A.Y. 2016-17 and A.Y. 2017-18, the CIT(A) considered the assessee’s submissions and examined the findings of the AO regarding the estimation of net profit. The assessee raised several arguments before the CIT(A) regarding the additions made by the AO, focusing primarily on the estimation of net profit, the rejection of certain books of accounts, and double taxation concerns. In case of A.Y. 2016-17, the assessee contended that the AO erroneously applied an arbitrary 20% net profit rate on the total turnover without rejecting the books of accounts. The assessee argued that the books were certified by a chartered accountant and had not been rejected under section 145 of the Act. Thus, any estimation of profit without proper rejection was unsustainable. The assessee also pointed out that differences in net income declared in the books of accounts versus the AO’s estimation were attributable to legitimate claims, such as donations, depreciation, and partner remuneration. The assessee emphasized that these discrepancies had been properly disclosed in their return of income. The assessee claimed that the AO's addition of the same income twice resulted in double taxation. The same gross receipts were subjected to profit estimation multiple times, leading to inflated reassessed income. The assessee argued that such additions were legally and factually incorrect and requested the deletion of these amounts.

7.3. The CIT(A) found that in both the years, 20% profit estimation was arbitrary and without any justification or supporting. He also noted that the AO did not reject the audited books, nor did he identify any significant & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 discrepancies in the records. Additionally, the application of such a high profit rate led to double taxation, as a substantial portion of the income had already been declared by the assessee. The CIT(A) deleted the additions for both AY 2016-17 and AY 2017-18, emphasizing that profit estimations without rejecting the books and without substantial evidence were unsustainable.

7.4. We note that the CIT(A) correctly deleted the addition of Rs. 3,85,82,434/- (AY 2016-17) and Rs. 2,06,99,817/- (AY 2017-18) based on a 20% net profit estimation made by the AO. The CIT(A) found that the AO had not rejected the books of accounts and there was no material defect found in the audited accounts of the assessee. Therefore, the arbitrary estimation of profit at 20% without rejecting the books of accounts was unsustainable. The Revenue's contention that the transactions related to the Sadhbhav Group were not disclosed in the ITR lacks evidence, as the turnover and profits were already accounted for in the regular books maintained by the assessee, duly audited and accepted.

7.5. Considering the discussions above, we uphold the decision of CIT(A) and dismiss these grounds of the revenue.

On the ground relating to Higher Depreciation Disallowance of Rs.36,50,754/- in A.Y. 2017-18:

8.1. The CIT(A) found that the assessee was engaged in contract-based mining, road construction, and transportation services. In these activities, the Volvo Dumpers/Tipper were used for transporting goods and materials, as well as for hiring out heavy machinery as per the terms of the contracts. CIT(A) relied on various judicial precedents and CBDT circulars, which clarified that motor lorries used in a business for hiring or transportation qualify for a higher depreciation rate of 30%. CIT(A) highlighted that in the assessee’s own case for earlier assessment years (AY 2014-15 and AY 2016- 17), higher depreciation had been allowed on the same class of assets by the CIT(A) in appeals. Therefore, the principle of consistency applied, and the disallowance by the AO for AY 2017-18 was unjustified.

8.2. We note that the CIT(A) had correctly applied judicial precedents that allow 30% depreciation on vehicles used for the transportation of goods and hiring. The Revenue failed to provide any new evidence to contradict the assessee’s claim or the findings of the CIT(A). The AO’s disallowance was based on a misinterpretation of the facts and the law, as the vehicles were indeed used in the business of hiring and transportation. We also observe that higher depreciation had been consistently allowed in the assessee’s own case & 596/Ahd/2023 The DCIT vs. Siddheswari Infrastructure Asst. Years : 2016-17 & 2017-18 for earlier assessment years. Therefore, disallowing it for AY 2017-18 without any new or contrary facts would be inconsistent and unjustified.

8.9. Therefore, we dismiss this ground, upholding the CIT(A)’s decision to delete the disallowance of Rs.36,50,754/-.