ACIT, NEW DELHI vs. M/S. SHIV NARESH SPORTS PVT. LTD., NEW DELHI

1. The order of Ld. CIT (A) is not correct in law and facts.

2. On the facts and circumstances of the case, the CIT (A) has erred in law in deleting the estimation of income @ 50% of gross CWG receipts.

3. On the facts and circumstances of the case, the CIT(A) has erred in holding that once the assessee has produced books of accounts and bills/vouchers, its books cannot be rejected.

4. On the facts and circumstances of the case, the CIT(A) has erred in holding that absence of actual transaction cannot be made basis for rejecting books of account, if the assessee has furnished bills and vouchers.

5. On the facts and circumstances of the case, the CIT(A) has erred in deleting the estimation of income @ 3 % of gross non- CWG receipts.

6. On the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of unexplained cash amounting to Rs. 6,25,000/-.”

1 Estimation of income at 50% of Rs.31,63,90,518 gross receipts on account of Common Wealth Games projects 2 Estimation of income at 3% of Rs.50,36,342 other gross receipts Sub-Total Rs.32,14,26,860/- Discussed in the assessment 6,25,000/- order, however, no addition made: Unexplained physical cash 3 Grand Total 32,20,51,860/-

28.3.2013.For rejection of accounts, the AO has made reference to higher Cement Consumption by relying upon Various reports of agencies. Further A.O. referred to the investigation of Cement suppliers, Labour contractors, Sub-contractor, vehicle hirers. In this regard, AO alleged that there is no proper correlation between purchase of cement, transportation and storage of the cement. The assessee could not produce any confirmation from the CWG authorities. The assessee has not been able to produce parties for verification. The notice u/s 133(6) of the Act to the parties were returned un-served. A.O. referred to payment by assessee to M/s Belhasa Projects and Deduction by CWG Authorities. A.O has also alleged that assessee has not maintained complete books of accounts, no information/details/evidences including supporting bills and vouchers were furnished by the assessee. The assessee has not produced stock registers for many of the consumables. The ld. A.R. made submission on each issue raised by AO in the Assessment order which are as follows:

Issue No. 1 – With regard to Cement Consumption:-

• Enquiry or investigation has been conducted with respect to all the cement suppliers. The noting sheet entries of the AO show that the parties have been produced before the AO. In investigation, all cement suppliers confirmed and owned up their transactions with the assessee. They were reputed cement dealers having sizeable cement turnover. They submitted original invoice, proof of receipt and payment by way of account payee cheque/RTGS and their books of account. No fault has been found with the purchase bills of the assessee by the AO. They explained the process from placing of order till delivery through transport from railway siding and payment. They confirmed that they purchased cement directly from C&F agent of reputed cement manufacturer companies like ACC, Ultra Tech, Gujarat Ambuja etc. who deliver cement at railway siding to the transporter irrespective of the fact that the freight is paid by the dealer or assessee-buyer. Thus, they gave delivery to the assessee at Railway site, Shakurbasti. Delivery challans are not allowed by VAT Deptt. The depositions/evidences received from the parties are in support of the assessee rather than the AO. • No incriminating document or material or books of account indicating any cash received by the assessee from any cement supplier, or cash paid by the cement dealer to the assessee, against cheque issued by assessee to suppliers was found or noticed from the premises of the assessee searched upon or survey upon dealers.

• There was no cash withdrawal from bank account of cement suppliers corresponding to cheques received from assessee against cement supplies. • Outcome of investigation of cement suppliers has not been confronted to the assessee, although assessee had requested AO to confront materials through his letters dated 12.3.2013, 18.3.2013 and 21.3.2013. • The documents submitted by the parties before the AO, obtained by the assessee post-assessment from the AO and submitted to CIT(A) during appellate proceedings, after due examination were found to be correct by CIT(A). • VAT Deptt. has not drawn any adverse inference with respect to assessee’s purchase of cement. Copy of order passed by VAT Officer, Ward-52, Delhi in the case of assessee was submitted by assessee. • No enquiry has been made by the AO with cement manufacturers like Ultratech Cement, Shree Cement, Birla White, J.P. Cement etc. to examine the role of cement suppliers as intermediaries passing on the purchase order procured from the assessee to these cement manufacturers. • With respect to transportation arrangements, statement dt. 21.3.2013 of assessee’s director Sh. S.P. Singh clarifies the position, wherein he deposed on oath that “in some cases the delivery of the cement is arranged by the suppliers and most of the cases we have arranged our own transportation”. The statement dt. 21.3.2023 has been verified from the books of the accounts comprising of Freight paid ledger account and GRs issued by transporters which show that the transportation, cartage and loading and unloading expenses of cement, to the tune of Rs. 23,51,536, are borne by the assessee direct for cement procured from 26 suppliers except for 3 suppliers. These three suppliers provided transportation details and the copy of account of the assessee in their books to the AO. The fact that the parties could not produce transportation expenses vouchers cannot be held against the assessee. Actually, the statement of the proprietor of Manoj Brothers that cartage was borne by the assessee can be seen from the assessment order itself. Thus, the assessee has borne cartage expenses for cement purchased from all suppliers except 3 suppliers, and this is supported by evidence in assessee’s own books as well as evidence furnished by the suppliers • AO has placed too much reliance on the initial statement of Sh. S.P. Singh dated 05.01.2011, and has ignored the subsequent clarification in his own statement dated 21.03.2013 before the AO himself and also evidence available on the assessment record in the form of books of account of the assessee and the uncontroverted evidence furnished by the parties. • The assessee had brought the aspect that the actual amount of cement purchased in FY 2010-11 is Rs. 12,53,86,414 (6,17,289 bags) of which closing unsold stock as at 31.03.2011 was Rs. 9,22,77,9181 (5,24,216 bags) and, therefore, assessee had only declared cement consumption of Rs. 3,31,08,496 (93,073 bags), while AO had alleged consumption of Rs. 14,02,12,681. The assessee had brought closing stock to notice of AO in its letters dated 12.02.2013 and 28.03.2013. The tax audit report submitted by assessee to AO also shows the stock of cement. The closing stock of cement as at 31.03.2011 was sold in the succeeding financial year and accordingly, sale revenue realized there from was credited to profit & loss account.

According to ld. A.R. the above finding of the ld. CIT(A) to be upheld as the cement purchases are genuine.

Issue No. 2: With regard to three Labour Contractors

The parties have neither paid any ESI/PF nor maintained any bill book. The parties did not have any cash balance at the time of execution of project and the entire sum received from the assessee has been withdrawn in cash.

“During survey and before the AO, the parties have described the work done by them by way of labour supply work for civil construction work carried out by the assessee at various sites.

The parties have been doing similar work for other government departments in the past. The bank statements of these parties depict various transactions other than those relating to the assessee. There is balance in their bank accounts even prior to the receipt from the assessee.

There are deposits received by cheque from various agencies and these too have been withdrawn in cash. Some of these cash withdrawals have been used to pay the labourers at the assessee's site. It is neither necessary nor feasible, that only receipts from the assessee would be utilized to make payments to the labourers at the assessee's site. As far as cash withdrawals are concerned, it is in the very nature of the business of labour-supply that payment is made to labourers on a daily basis by way of cash, each labourer receiving the daily wage. It is also not necessary that a written contract has to be entered into between two parties to a transaction. These parties have produced work orders received by them from the assessee, which has not been disputed by the A.O. Regarding the ESIC/PF, these parties have produced the copies of their ES1C and EPF returns before the A.O.”

The ld. A.R. submitted that above findings of the ld. CIT(A) to be upheld as the AO overlooked the above facts observed by the ld. CIT(A).

Issue No. 3: M/s Inderjit Mehta Construction Pvt. Ltd. (IJMCPL)

Subsequently, the assessee sub-contracted part of the total work to the said party after mutual negotiations for Rs. 3.47 crore against which assessee deducted Rs. 57.98 Lakhs due to non-execution of awarded work by IJMCPL and eventually paid Rs. 2.89 crore to IJMCPL

During survey conducted at the premises of IJMCPL in Bhatinda, no incriminating evidence has been found with respect to the transactions with the assessee. IJMCPL has also provided information in great detail to the AO about the work done by it at the stadium sites. The IJMCPL has filed the returns regularly and has produced the relevant documents before the AO. Records and documents as an evidence of services provided by IJMCPL to the assessee, copy of bills, books of accounts, proof of site material receipts, copy of bill of machine used to execute work, copy of ledger accounts, records of skilled and unskilled employees for the sub-contract work were produced by IJMCPL to the Investigation Department as well as to the AO during the course of statements recorded during assessment proceedings. IJMCPL has also worked for other government agencies too; that is not disputed by the AO.Non- submission of books and bills apparently cannot be held against assessee.

Therefore, the ld. A.R. submitted that the conclusion of the AO that this party is bogus is not tenable and stands on flimsy premise. Per contra, the Ld. Departmental Representative relied on the orders of the A.O.

Issue No. 4: Travelling Expense/Vehicle Hire Expense

17,12,622) and Sh. Rajan Gandhi (Rs. 4,71,390) for vehicles used by engineers, since as per the tender conditions, the assessee was to hire some vehicles for the engineers of the CPWD/DDA for overseeing the work at various sites.

The ld. A.R. submitted that above findings of the ld. CIT(A) to be upheld as there is no sufficient material to hold otherwise.

Issue No. 5: M/s Belhasa Project

“The seized material itself includes the invoices, packing list and the Bill of Entry for Home Consumption with respect to material supplied by M/s Belhasa Project. The purchase bills have not been controverted by AO. The ledger account of the said party in assessee’s books is a running account and has entries pertaining to the earlier assessment year i.e., AY 2010-11.

The AO has not made any adverse observation in his order for AY 2010-11 in respect to the transaction with the said party. The Profit & Loss account does not show any debit of any amount towards consultancy fees. Thus, no disallowance is called for under this head too.”

The Ld. AR relied on the above findings of the Ld. CIT(A) and the Ld. Departmental Representative relied on the findings of the A.O.

Issue No. 6: Deduction by CWG Authorities

“It is undisputed that the principal agencies namely, CPWD/DDA/ Govt. of Delhi refused to sanction the entire contracted amount, reducing receivable amount by sum of Rs. 7.62 Crores. The assessee has not contested this reduction with the principal-agencies. The assessee has written it off as irrecoverable, even before taking it into its books of accounts.

The assessee has simply reduced the gross receivables by this amount and credited the balance amount to the Profit and Loss A/c. Such accounting practice is neither illegal nor irregular. At most, technically the assessee could have credited the entire contractual amount to the P & L. account and then claimed deduction in the same year itself as a bad debt, since there is no requirement under section 36(i)(vii) that the bad debt has to be claimed in a year subsequent to the year in which it was offered to tax. The assessee has not claimed the deduction twice.Thus, the allegation of the AO was untenable.”

On the above reasons, he submitted that order of ld. CIT(A) to be upheld.

The Ld. Departmental Representative relied on the orders of the A.O. and sought for reversal of the finding of the CIT(A).

Issue No. 7 – Non-production of books of accounts and Stock Register and Details

• Before rejecting books, AO had given a finding that the expenditure debited in respect of purchase of cement, payment of labour supply, hiring of vehicles, crediting of net contact amount receivable were suspect. This view of the AO is not supported by any justified reason or evidences. The findings of the AO with respect to the bogus expenditure, in absence of the supporting material, have to be rejected. • The order sheet noting of the AO dated 18.03.2013 shows that all the books of accounts including cash books, bank books, journal book, journal ledger, debtor ledger, creditor ledger and stock register along with the vouchers and bills were produced before the AO in soft copy. Further, Assessee produced complete books of accounts in hard copy on 26.3.2013. Thus, AO’s finding about books of accounts is incorrect. • Regarding stock register, assessee submitted stock register to AO. Even the Form 3CD report submitted by the assessee along with its return of income clearly shows the auditor's certification regarding the stock of raw material, raw material consumed, closing stock etc., but the A.O. has not led any evidence to reject the auditor's report.

Further, various judicial pronouncements state that the rejection of the books of accounts solely on the basis of stock register not being produced is not maintainable unless there is any incriminating evidence or circumstances. • It has not been established that the books of accounts maintained by the assessee were incorrect or incomplete or the method of accounting adopted by the assessee was such that the true profits of the business could not be deduced there from. Therefore, the basic preconditions of section 145(3) are not satisfied. • Hence, according to the ratio laid down by the Hon’ble Delhi High Court in the case of CIT v. Poonam Rani (2010) 326 ITR 223 (Del), it is clearly evident and therefore, held that the AO was not justified in rejecting the books of the accounts of the assessee. Accordingly, there would be no case for estimation. • CIT(A) thus reversed the findings of rejection of books, and the estimation of income.

• The Assessing Officer had asked the assessee to produce 16 parties/creditors who supplied goods or services to assessee, out of which 11 appeared in person for statement on oath. The remaining five parties also submitted detail in Daak Counter of the AO. Thus, all the witnesses called for by the Assessing Officer submitted complete detail of their transaction with the assessee along with supporting documents.

With respect to the five parties who did not appear in person before AO, assessee had requested AO to issue summons to them in case he still desired their attendance. AO has not made any further investigation nor has confronted outcome of any investigation to assessee nor has drawn any adverse inference in the order.Even otherwise, failure of the assessee to produce creditors, job workers or any other party cannot be a ground for rejecting books of accounts as held by the Hon’ble High

Court of Delhi in the case of CIT v. Jas Jack Elegance Exports (2010)

324 ITR 95. • With respect to non-service of notice u/s 133(6) upon 5 parties, assessee submitted that 1 party had submitted its response and notice was thus in fact served upon it. The notice to 2nd party was incorrectly addressed by AO. The assessee provided new address of the remaining

3 parties.

• Further, with regard to 4 parties upon whom notice u/s 133(6) had been served but had not furnished their reply to AO, assessee stated to AO that it had no power to compel the parties to submit reply to AO.

• The AO has not made any further investigation upon these 9 parties nor has confronted outcome of any investigation to the assessee nor has drawn any adverse inference in the assessment order.

• The assessee had submitted complete detail of all purchase and expenses along with relevant bill/supporting of the same. No purchase/expense claimed by the assessee remained unverified. The Assessing Officer has not even made any allegation with respect to the amount of purchase/expense remained unverified. Even if otherwise, any expense remains unverified, it could at the most become a ground for disallowing that particular expense but the same cannot be held as a ground for rejection of books of accounts as a whole as held by the Hon’ble Delhi High Court in the case of CIT v. Paradise Holidays (2010) 325 ITR 13. • The assessee had maintained stadium-wise income ledgers and had submitted stadium-wise detail of revenue earned. Further, assessee had submitted comparative statement matching revenue as per contract with CWG authorities (BOQ) and expense incurred on account of cement, labourcontractors sub-contractor. AO has not doubted about the correctness of the detail. Thus, on one hand, AO has accepted the revenue declared by the assessee on account of BOQ, but has unfairly disallowed the corresponding expense incurred. • The assessee has been maintaining regular books of account, which were duly audited by independent statutory auditor under the Companies Act, 1956 and by tax auditor u/s 44AB of the IT Act, 1961 who had not found any fault and, therefore, had not expressed any qualification in the accounts of the assessee.

a) Where the assessing officer is not satisfied about the correctness or completeness of the accounts; or b) Where method of accounting, cash or mercantile has not been regularly followed by the assessee; or c) Accounting standards as notified by Central Government have not been regularly followed by the assessee.

Departmental Representative has also not pointed out anything to controvert the findings of the CIT(A). Thus, we find no merit on the Ground No. 3 & 4 accordingly, Ground No. 3 & 4 of the Revenue are dismissed.

Estimation of income @ 50% of Gross CWG receipts and @ 3% of Gross non-CWG receipts:

o Through various letters dated 20.02.2015, 13.03.2015, 10.04.2015, 22.04.2015, 12.05.2015, 13.05.2015, 22.09.2015, 20.10.2015, 08.12.2015, 31.12.2015, 06.04.2016 and 23.05.2016, CIT(A) directed

AO to examine his records and produce the copies of the response received from various agencies and other materials in his hands showing huge profitability reported in CWG projects. o Finally, on 31.05.2016 AO submitted that the reports were not traceable in spite of best efforts. He further stated that even the reports could not be found from Investigation Wing and, thus, expressed his inability to produce the desired report. o The CIT(A) thus held that there is no evidence whatsoever on record to support the AO’s vague reliance on report of “some agencies”. It is also clear from the assessment order itself that these documents have not been provided or confronted to the assessee. The same were not produced even during appellate proceedings, despite best efforts of the subsequent incumbent AOs. o The AO’s allegation that the cement consumption could not have exceeded Rs. 25 to 30 lacs is completely unsubstantiated and without any evidentiary basis. o The net profit declared by the Assessee is 15.26%, which Assessing Officer has not found faulted with viz.-a-viz. in other comparative cases or even the assessee's own case for the preceding years. o Hence, according to the ratio laid down by the Hon’ble Delhi High Court in the case of CIT v. Poonam Rani (2010) 326 ITR 223 (Del), it is clearly evident and therefore, held that the AO was not justified in rejecting the books of the accounts of the assessee. Accordingly, there would be no case for estimation.

o The assessee had repeatedly requested AO to provide the ‘agency reports’ or any other document or material which are contemplated to be used against him, but never provided by AO. o Keeping in view the CPWD Works Manual 2010,which stipulates that works contract shall not be awarded at the rate of cost plus 15%, Net profit declared by the assessee for CWG Project in its audited accounts of 15.26% is substantially high. Hence, NP rate @ 50% estimated by AO is wholly baseless. o The net profit rate in the works contract business of construction of synthetic track declared by the assessee in the immediate preceding year was 8.81% on gross revenue from construction projects of Rs.8,70,67,558/-, which had been duly accepted by the same Assessing

Officer, whereas the net profit rate declared by the assessee for the year under consideration is 15.26% on gross revenue from construction projects of Rs. 51,17,73,578/-. Similar is the case for AYs 2012-13 and 2013-14 assessed u/s 143(3). It is submitted that the rule of consistency is an important aspect of tax proceedings and views should not be changed on the same set of facts and the position of law remaining the same, the rule of res judicata notwithstanding. In the case CIT v. Inani Marbles P. Ltd., (2009) 316 ITR 125 (Raj), it was held that since in the earlier year the gross profit rate declared and accepted was 2.51 per cent, the same rate would be applicable for the year in question also. o The net profit rate of 15.26% declared by the assessee in its audited accounts in itself is twice the rate of 8% stipulated in section 44AD of the IT Act, 1961 for construction business and, therefore, the net profit declared by the assessee is much more than sufficient.

Unexplained Cash amounting to Rs. 6,25,000/- Cash Seized:

was found from the office premises of the assessee and the residence and lockers of its directors. AO made addition in the order of Rs.

6,25,000/-. However, AO has not made any separate addition in the final total income. • Assessee explained that cash found is as per regular books maintained by assessee and thus duly appearing in its cash book.

Assessee submitted cash book extracted from the hard drive seized during search with its letter dated 12.3.2013 to AO. It was further submitted that all the cash vouchers and bills may not indisputably be entered and incorporated in the cash book on the same date, which is usually the reason for non-matching of cash balance in hand with cash book as on the date of search. It is a well-settled law that if an assessee does not furnish explanation during the course of search but furnishes explanation during the course of assessment proceedings, such explanation has to be duly considered.

satisfactory explanation. ii. During the course of assessment proceedings the assessee could not provide any specific explanation with evidence. iii. The explanation of the assessee was found to be vague and is an afterthought and that assessee was having excess cash as compared to the balance appearing in the cash book for which explanation was provided.

explanation for the cash found, especially after submission of the cash book itself, which is it not doubted.

Accordingly, this ground is also rejected.

Order pronounced in the open court on : 18/08/2023.