Income Tax Appellate Tribunal - Nagpur
A,C.I.T. Central Cir.- 2(1), Nagpur vs M/S M.G. Bhaangadiya & Hitbhav ... on 30 June, 2017
4 ne Hat 1.T.A.Nos.71 & 72/Nag/2016 a: Assessment years: 2008-09 & 16-141 re a IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI P. K. BANSAL, VICE PRESIDENT AND SHRI AMARJIT SINGH, JUDICIAL MEMBER LT.A, Nos. 71 & 72/Nag/2016 Assessment year; 2008-09 & 2010-11 ACIT CENTRAL CIR-2(1), | Vs | M.G. BRANGADIYA & HITBHAY | 3°° FLOOR, ROOM NO, 312, ENGINEERS (JV) AAYAKAR BHAWAN, | 909, B WING, LOKMAT BHAVAN, TELANGKHEDI ROAD, WARDHA ROAD, NAGPUR -- 440 001. NAGPUR - 440010 | PAN: AAOFM4745L | atrereii(Appellant) | "eaeit Respondent) -- } Appellant by |: [Shri AR, Ninawe (DR) Respondent by _:_| Shri K.P. Dewani (AR) | Date of Hearing I; [19.06.2017 | Date of Pronouncement '_| 30.06.2017 ; | FTE ORDER
PER P.K. BANSAL, V.P.:
Both these appeals have been filed by the Revenue against the order of the CIT(A) dated 30.12.2015. In both these appeals the Revenue has taken following grounds of appeal except the change in the figure:
'2. Whether on the facts and crcumstances of the case and in law the Ld. CIT(A) was right in thwarting the very purpose of search and seizure provisions of the Act by ignoring seized incriminating documents and thereby directing the AO to tax the MNCome on presumed percentage based on surmises,
2. Whether on the facts and circumstances of the Case and in law the Ld. CITA) was right in not affording the opportunity to
----------$ ro re _------ 1.T.A.Nos.71 & 72/Nag/2016 'ai HoH Assessment years:2008-09 & 10-11 Mae tae fhe AO of being heard auring appellate Proceedings despite AO us specifically asked of being heard vide his letter dated 19.02.2015 and thereby Passing order in undue haste ignortng PrOVIsionSs of the Act.
J. Whether on the facts and in the circumstances of the case and in jaw, the Lod. CIT; (A) wes right in deleting the addition of Ks. 58,22,614/- made on account of bogus sub-contract Payments ?
4, Whether on the facts and in the cHcumstances of the case and in law, the id CIT{(A) was justified in deleting the addition OF RS. 58,22.614/- made an account of bogus sib-contract Payments. without appreciating the fact revealed from the seized materials and statements recorded that the sub-contractors are only name lenders and have not executed any stib-contract?
5. Whether on the facts and crcumstances of the case and in faw the Ld. CIT(A) erred in holding that the incHiminating diaries seized from residence of the Managing Director cannot be Said to be belonging to particular concern wWnoring the documentary evidence and the admission of Shri Mitesh Bhangdiya himself that the entries in the diaries Pertain to the details of cash flowy Of assessee's business activity and the entries in the diaries were hot completely recorded in the bOCKS Of account:
6, Whether an the facts and in the circumstances Of the case and in law, the Ld. CIT (A} was right in deleting the addition of RS. 171,02, 863/- being unaccounted income?
/. Whether on the facts and in the circumstances OF the case and in jaw, the Ld CIT (A) was justified in deleting the addition A OF Rs. 1,71,02,862/- being unaccounted income withdut.' °. appreciating the evidences found and seized during the sear aod seizure action? >
3. Whether on the facts and in the circumstances of the case"
and in law, the La. CIT(A) was Justified in directing AO to adopt total income of the assessee at the fate of 16% of gross receipt Oy ignoring the findings given by the AO regarding bogus sub- contractors, unaccounted income and gratification Payments?
(45 AT L.T.A.Nos.71 & 72/Nag/2016 Oy Assessment years: 2008-09 & 10-12 oe g On the fact and circumstance of the case and in law the id. CII(A) erred in accepting assessee's contention that various sub contractors used to keep deposit of money withdrawn by hem from bank with the assessee group for safe custody which was recorded on the credit side of the incriminating diarias without appreciating that if the contention of the assessee is true then the credit entries shall be in the name of the sub- contractors but the fact is otherwise as only names of the banks were found written there.
40. On the fact and circumstance of the case and in law the Ld. CITA) erred in accepting assessee's contention that the sub contractors Kept their money for safe custody with the assessee group and amounts in small quantities were later withdrawn by them for meeting the expenses at sites by ignoring the fact that Aone of the names of the sub contractors appeared on debit side of the incriminating diaries.
fi. Of the fact and circumstance of the case and in jaw the bd. CITfA) erred in not calculating exact unexplained expenditure and unaccounted investment mentioned in seized incriminating diaries as well as inflated claim of expenditure in various projects and directing the AO to assume certain percentage.
KE bias | a ne ee S12. On the fact and circumstance of the case and in law the ig La CIT(A) erred in holding that having been accepted receipts VER. wee 'Si from the assessee for assessing the income in the hands of sub wary % contractors the payments made by assessee group fo such sub contractors cannot be treated as ron genuine, ignoring the fact hat sub contract payments were assessed in the Aands of the assessee group as bogus sub contract payments and in the hands of the sub contractors protective assessments were made by treating the entire receipts as income as no contract was executed.
13. On the fact and circumstance of the case and in law the ia. CIT(A) erred in observing that unaccounted payments or unallowable expenses like gratification paid ta various politicians and government employers have no corroborative evidence on record to Aoid that assessee has made payments of any Hegal gratification. The onus in on the assessee to prove that the payments were genuine and incutred legality. As the cash Payments were not recorded in the regular books of account and as the assessee failed to substantiate those payments, the CLITA) ought fo have upheld that the entire amount of Rs £71.10 crores is unaccounted expenditure, i4. On the fact and circumstance of the case and in jaw the Ld. CIT(A) erred in relying on the decision of Hon'ble FTAT in Bhangaiya group of cases as at that time the information contained in incriminating diaries was not available either to the AO or to the appellate authorities while restricting it to 12%.
The CIT(A) ought not have relied on the decision of Hon'ble ITAT when seized documents prove clear concealed income and unexplained expenditure.
£5. On the fact and circumstance of the case and in faw the Ld. CIT(A) ought te have appreciated the fact that in the case of @SSE5SEC'S Group it is not feasible to estimate the net profit ata particular tatio as out of gross receipts of 579 crores the assessee group made unaccounted payments to the tune of Rs i/7l crores and hence spent only Rs. 408 crores fowards execution of contract work. Whatever profit was derived on execution of the contract wark by the assessee group, to that Profit unexplained / unrecorded expenses of Rs, 171 crores were required to be added to arrive at the correct taxable income of fhe ASSC5S@8:
16. On the fact and circumstance of the case and in law the Ld. CIT(A) fatied to appreciate that the taxable income need not be equal to the actual net profit derived by the assessee as it May include addition towards various other provisions fike section 40A(3), 40(a)(ia). 68, 69. 69C etc. and in the case of the aSSESSee group addition u's. 69C is applicable."
2. The facts involved in both the appeals are common. Both the parties agreed that the similar issue has arisen in the case of Mitesh Gotuialji Bhangadiya in whose case also the Revenue has made the similar addition but the same were deleted by the CIT (A) and the CIT(A) has directed the Assessing Officer to estimate the total income of the assessee by applying a net profit @16%. It was submitted that whatever view this Tribunal may taken in the case of Mitesh Gotulalji Bhangadiya in in LT.A.Nos. 56 to SS , Nie pets LT.A.Nos. 71 &.72/Nag/ 2016 ae Assessment years: ?7008-09.% 10-11 61/Nag/2016 and 261 to 265/Nag/2016, the same view may be taken in these appeais alse.
3. We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below. We noted that the similar issue has arisen in Revenue's appeal in the case of Mitesh Gotulalji Bhangadiya in in I.T.A.Nos. 56 to 61/Nag/2016 and 261 to 265/Naq/2016 in which also the additions were made by the Assessing Officer on the basis of the material found during the course of search by locating the receipt recorded in the diary being Item No. 1-65 of Annexure-B. When the matter went before the CIT(A), the CIT(A) has directed the Revenue to estimate the income of the assessee by applying the net profit rate @16%. Against the order of the CIT(A) in each of the assessment years, has come in appeal before us. In the instant cases, the Revenue has come in appeai but the assessee has not come in appeal. In that case the Tribunal under para 12 has held as under: .
"12. We have heard the rival submyssions, carefully considered the same along with the orders of the tax authorities below. We noted that the facts and the issue involved in aif the years under appeal in the case of the assessee are similar and identical. The CIT(A} has passed a consolidated order. The undisputed facts in the case of the assessee and the group concern aré that a search and seizure action ufs 132 of the Act was carried out in the Bhangaiva Group of cases on 19/07/2011. Simuttaneousiy, fhe business and residential premises of the assessee were aiso searched. During the course of search conducted, incriminating papers and documents were found and seized Shri Mitesh Gotuimal Bhangdiya is the key person of the group. Shri Mitesh Bhangdiya fias two sons namely Shri Kirtikumar M. Bhangdiva and Shri Srikant M. Bhangdiya and one daughter Neha. The business of the Bhangdiva group is being looked after by Shri Mitesh Bhangdiya and his two sons. The other key persons associated witht the group are Shri Sanjay Rameshchandra Heda, husband of Mitesh Bhangdiya's sister, Smt. Pradaya, resident of LTAMNos.71& 72/Nag/ 2016 Assessment years: 2008-09 & ip-17 Amravati and Smt. Manisha O, Manivar, widowed sister af Shri Mitesh Bhangdiva who fives with Bhangdiva family.
i2.f The main business concerns Of the group (incuding those discovered as a result of the search action) are as follows --
i AYS MG. Bhangdiya (AERPR25032} (Prop. MGB); converted into a company M/s M.K.S Constro-verture Pvt. (AAHCMOSE3T) Lid. from 01.04 2047,
2. M/s Mahendra Construction, Prop. Shri satay Heda (MC) (AADPH7I09)) J. M/s Mahendra Construction 85 MG. Bhangdiya (iV) (AANFMS56588) 4, M/s Kirtikummar M. Bhangdiva (Prop. AME) converted into a company M/s MKS Acme Bulldcon Pvt Ltd.
(AABCMOZ82K} fram 01.04.2011. (AGYPBIES9G) M/s KM. Bhangdiya & Mahendra Construction GV) (AAKFK18200) MVS Shrikant M. Bhangdiva (Prop. SMBVA ICPBII37}) Mitcon infraproject Pvt. Ltd. (MIPL) (AAGCM1868H) Lokshahi Publications Pvt. Ltd (LPPLYAABCLEG TH } MITZ Infraproject Pvt. Ltd (AAGCM30474 1} Sakshi Gruft Nirman Pvt. Ltd (SGNPLNAAOCS7974G} Balaji Stone -- ss Crusher & inffaventure Pvt.
Lich (AADCBS5273C) mg SONA Sn os! mi ; % toe 12.2 The group has also entered into Joint venturés "wi oy. various other civil contractors of the cy fo secure SOME Ch ee contracts. A few of them are listed below: ya eh es a a MYS M.G. Bhangdiva & Hitbhav Engg (IV) (AAOFM4T4 54 A MYS M.G. Bhangdiya & S. 5. P3ti! & CO. (IVWABIFS 36451 ) M/s Darshan Construction (iV) (AAHFDOGS4N} M/s MR Dhoble 8s KM Bhangdiva (IV) AAPFMO622B) A ha f2.3 The nature of the business Of the Bhangdiya group btitnarily is executing civil contracts, The group works Mmainty for Government departments fike M/s Vidarbha rtigation Levelopment Corporation and has been engaged in executing various contracts pertaining fo the irrigation Projects in the state of Maharashtra, During the course of search operations lnctiminating documents were found and seized from the a ne WaT LT.A.Nos.71 & 72/Nag /2016 7 Assessment years: 2008-09 & 10-11 a residential premises Of Shri Mitesh Bhangdiya. item na. f to 65 of Annexure-B seized from his residence are the diaries containing ledgers, daily cash books and bank books maintained by the Bhangadiya group. 36 Cash books contained entries for the pariod from 26/07/2006 fo [8/07/2011 and 27 dtaries relate to the financial year 2006-07 to 2010-11 whereas the remaining twe diaries were maintained for house hold and miscellarieous expenses. A statement of Shri Mitesh Bhangdiya was recorded on oath on 26.07.2011. in Ais sworn statement recorded during the course of search action, Shri Mitesh Bhangdiva was confronted with the entries borne out from the seized diaries marked as B-1 to 8-65 and to explain the contents of these diaries, Shri Mitesh Bhangdiya in ius statement recorded has _ submitted that the entries in the diaries and the ledger pertain'ta the business receipts and business expenditure. The Assessing Officer in the assessment order has recorded a finding that as per the item no. ft to 65 of annexure-B, it is apparent that- the amounts. withdrawn from the bank accounts of the sub-- contractors were credited to the daily cash balance of Bhangdiva group which was confirmed by Shri Mitesh G. Bhangdiva in Ais statement dated 14/09/2011, The Assessing Officer has reproduced the statement of Shri Mitesh Bhangdiya recorded on 14/09/2011 in pata 6 of the assessment order. The Assessing Officer in the assessment order has also recorded a finding that the seized documents being 8-1 to 8-65 contain entries of al expenses incurred by the Bhangdiya group in cash from FUY. 2006-07 onwards and expenses incurred through the Bank accounts from FLY. 2009-10 onwards. Thus, the Assessing Officer found that the actual expenses incurred de not match with thase shown to Aave been incurred in the books. The Assessing Officer thus concluded that the books of account of Shri M.G. Bhangoiya maintained for income-tax purpose do not reflect the true business affairs and are not at all reliable. The Assessing Officer analyzed the entries in the diaries and took the View that on receipf side various receipts including the withdrawal from the bank of the assessee group Concerns were recorded and on payment side entries of expenses ike interest payment repayinent of joan, deposit info bank accotti, household expenses, personal expenses, paymert to various persons in cash and iavestment in properties are found recorded. it was aiso noted by the Assessing Officer that some of the entries made in the seized diaries were found reflected in the books of account maintained by the Bhangdiva Group.
h po LV.A.Nos.71 & 72/Nag/2016 Fee Assessment years:2008-09 & 10-11 7 fs Statement of Mitesh Bhangdiva was recorded on 20/07/2011, During the coursé of search, Mitesh Bhangdiva was confronted with the entries borne out from the seized diaries marked B-1 to 8-65, in reply to question No. 30 of his statement. Mitesh Bhangdiya submitted that the entries in the diaries and ledgers pertain to the business receipts and business expenditure but at present if is very difficult for him to state whether the entries recorded in the seized diaries and accounted in the regular books of account and same can be explained only after verification of the entries of the diaries with rhe regular books of account maintained by the Bhangdiya Group. Shri Mitesh Bhangdiva, reply to question No. 38 we noted voluntarity offered additional unaccounted income of Rs.26 crores for the biock period including the current financial year over and above the regular income declared in the return filed for the assessment year failing within the block period. The income so declared are summarized as urder:
BHANGRIYA GROUP AY AY 200708 | AY 2008-09 | av IDLO) AY ZIiO-r) ay 2onT-12- | aY2n42-13 Gh?
Grand Total Particular: iRs.} Contract Incorrie 26 | per ocginal rebar 72,00, 540 28,956,131 18,64,865 56, 30,712 §45,18,322 FtaB2,707 "additional Incarne declared during SUDAEY / . :
Additional Income . e] ise Sor oun §,09,860 : 27,18,982 -576,81,675 255, £7,293 +f 86,27, 783 Contract Income Beclared 45,97 Ot 49,000,000 45,66,775 85110, 000 1120.00, Hug 970,00, 000 5,976] 17.40 27,04,412 1,50, 256 2914.64.07 | MES Concine Venture. P Lp Contract Income as per original return 182,75,379 | 1Be 75,379 Addibanal Income decared during Sunny Addicnal Ingame Offered Guring Search Ta Fah27 | let t4de7 Contract [come Derlared 447,50,000 0 [ J#.50, 0080 Mis, Mahendra SOStr UCU Contract become as per origina! return 36,77,856 125,101,051:
26,48, 924 20,60, 665 L.T.A.Nos.71.& 72/Nag/2016 Assessment years: 2008-09 & 10-11 73, 30,074 79,26,515 fae 7,538,468 366,20, 174 Ade iab Erect cae gecaread during Survey Addésthanal Income Offered uring Searth 40,41,398 26,360,448 49,1776 7,14,412 £113,224 FRFEATS 18:36,9h4 AFB, LL 128.62 ,926 01,735,685 10176, STH 26,41.512 347,03,008 Contact Inceine Declared 104,00,000 $2,000) O00 202,005,000 1 Fo 20 eH 34.00,000 #22 00000 212 0,000 Bais. Mabel rornst, & MG, Bhangdi if Cantract Income as par original return 157 47,756 FLO92, 744 Addiganal [come dedarad duing Survey
-£57,19,064 193,989,145 T1514, £47 492,62,083 | ASBF49, 320 FAP 36 ToT? OF, 302 BOS,AF AR?
Additional lacore Offered During Searmh aif 16,820 Contract [come Cegarec 314,67, 720 504, 90,986 £4g5,000,000 168, 24,680 5-45, 00,000 | 172,22,664 247,00, 000
--_an 619,604,164 4080, 55,578 fife Ko MM. Bhangcive Contract Ere caren as Per anginal return 18,18, 705 32.86, 705 Addltianat Econ geclared during Survey 14,12,344 25,22,555 27,370,407 AL oH, 306 01,656,570 | 33,99,244 19,05,760 7,500,653 T6000, 111 65,44, 712 Addillonal Incame Ofteread Buring Search 8,90 St 10:70, 239 28,41 041 54,335,390 34,00,7665 134,30,226 Contract lacome Declared 24,31,009 67,00,000 oO cn MKS Acme Guilt F Lig Contract Inoome as Ber original rebirn 57,00, 000 120,060,008) 6600,000
--- LN 391,41 049 | Additional Ineome declared during Survey "additional Income Csfered. Daring Search 34,70, 059 24,70,053 16,29,447 Contract Income Dear 16,259,347 51,600,000 1,040,000 M/5.M 4 Shangdiya and Hithhay LT.A.Nos. 71 & 92/Nag/ 2016 Assessment years: 2008-09 & 10-21 Contract Tacome as per origrial return Additional Incame declared during Survey 26.84.70) FA, 063 2,20; 187 3.344 FOR?
"UG, Sot 38, 27-905 5,935,927 Additranal tncorne Offered: During Seancti 2,495,469 1,41,008 4,80,475 Contract Inearre Detlared 22,46,410 9.0G, 000 863,997 46, 40,000 1 48,12, 307 Mis 4G Shangdive and 55 PATEL Jy Contract intome as per anginal return 465,923 a, 77,544 943,457 Additional Income declared: during Survey 6,01, 924 4,78, 5G 44,40,515 . Aditional Incame During 4U,000 4,000 focome 10,67,852 13,346,430 40, 000 24,23.982 Contract [Income as Per original reture 5, 14,551 9,372,441 14,4702 Additional Tnoome declared during Survey Agdibonal Income Offered During Search 5,35, 449 11,67,534 17,52,5658 Contract }acame Eeacdared 11,040,016 41,0000 Mitoon Infra Projet F ity ] Contract [cere 35 per anginal return 60,39.000 A596 A29 43 20,081 157,$95480 : Additional Income dedared during suvey Additional Incame Offered Curing Search 62,61, 000 iT OSAL 979,049 182,82, 520 Contract Income Declared 123,00.000 155,00.000 62,40,000 240,40,000 [20.5 pret <
1.T.A.Nos.71 & 72/Nagq/2016 Hie Assessment years; 2005-09 & 10-11 ional Jrcesm bo offered ip cases of ' Indvagiyal 7 Mitesh Bhangdiys 74, 75,442 #470442 Kirtikumar Bhangdiya 20.00.00 30,00,000 Snilkant Bhangonva 35.00, OC 25,00 1100 Keshar Singh Riatale 10,423,549 12,034,007 40,93 70 - 303,380,910 Consolidated For all Enriges Contract Intome a5 / per orginal return GE 96, StH 349,06 656 414,66,202 B15, 4.018 G7 IS.934 955,85 478 178,24, 505 3990,49,752 Additional Income declared durng Survey AdMitlanar frecpane Offered Buring Search 7H, 57,603 231,55,33) 261, 28,068 §13,14,596 : - : 1104,48,592 26,860,449 31,73,583 2007 203 F297, 492 12? 45.963 Hab, 14524 A9B,65,495 | 2356,81,045 Contract Income ae bua Decisred 194,28,950° | 652,258,572 | 7b 21,473 | 652,409,000 | 7190,83,097 1643, 00,000 494 aha" | 745 79,992 : ete - te Tf soon + Addeivional Income ' i = "
in cases of individual | - . 16,42,554 | 12,05,097 | 00.93.260 ; | Yh9-79,44% 243 39 der a Pees, ag 42.4 From the statement of Shri Mitesh Bhengdiya, it 'ig apperent that the diary found and seized belongs to the assessee group and the assessee group did not disown these diaries even though in the subsequent statement fecorded on 2//O7/2013 Shi Mitesh Bhangdiya stated that these diaries were Primarily maintained by his father Gotumal Bhangdivya. The Assessing Officer, we noted, has also observed that these seized diaries also contain the payment made in cash for probable extraneous gratification fo various persons inchiding politicians, government officers/officials which are recorded aiong with their names, Gates of payment and amount paid. We noted that the Assessing Officer has not examined these persons for bringing ihe corroborative evidence on record in support of Ais finding that the cash has been paid by the assessee group for probable extraneous gratification. We noted that the Assessing Officer Made ar exercise to match the entries of the tax Payment and receipt with the entries in the regular books of account of Bhangaoiva Group. The Assessing Officer came to the conctusion that the receipts are predominantly withdrawals from the bank account by way of creating bogus sub-contract expenditure. The
1.T.A.Nos.71 & 72/Nag/2016 (ea Assessment years:2008-09 & 16-11 n Assessing Officer found that the assessee group fasdeducted 3 sum OF RS.361 crores towards the stsb-contract payment agaist the gross receipts aggregating to Rs.579 crores. It was found by him after verifying from 21 contractors that a sum of Ps.54.40 crore is attributable to the amount deposited in the bank account of the sub-contractor by account payee cheques by various concems Of Bhangdiya Group, which was subsequently withdrawn in cash and is reflected on the feceiot side of the seized diaries. The total amount so reflected in the Wares on the receipt side was computed at Rs. 182.52 crore, The Assessing Officer added the said unaccounted amount of Rs. 182.50 crore in the income of the assessee group concen, A sum Of RS.54.40 crore was added in proportion to the amount of cheque credited 6 ¥ respective group concern in the hands of the respective group concerns. For the balance amount of Rs. 128.12 crore, the Assessing Officer added the s3me in Proportion to the contract receipt shown by the group concern in fhe respective assessment years to the total turnover of the group concern in that year. Now the question before us arises whether the said sum of Rs. 182.52 crores, found recorded in the daties found during the course of search as receipt being withdrawal from the bank account of the Group concern as weil as from the bank account of the sub-contractor can be regarded fo be the unaccounted income of the assessee. At the micro level. if we look into the nature of the receipt, it is nat denied by the Revenue that the receipt has come from the bank accourit ah. the assessee group concern and part of the receipt arid has:
come out of the cash withdrawn by the sub-contractor td Wiig the assessee group concern had made the payment. The. assessment has been made by the Assessing Officer u/s 1534 jn the case of the assessee as well as assassea's Group Concern. Proceedings have also been initiated by the Assessing Officer in the case of the sub-contractor u/s 153C of the Act The stub- contractor Aas submitted the return in response to the notice u/s f53C. The sub-contractor has shown the income from the contract receipt being amount paid to them Dy aSSessee group. The said income has duly been accepted by the Assessing Officer on substantive basis in the hands of the sub-contractor. The Assessing Officer thus has duly accepted while framing the assessment of the sub-contractor that the Payment received by fhe sub-contractor from the assessee as well as the ASSCSSC2 group concern were not bogus but were the Payment received by performing the obligation for a consideration entrusted on [Res fee L.y.A.Nos.71 & 72/Nag/2016 & Assessment years: 2008-09 & 10-14 nf ice eee Jee epee a:
them under the sub-contract. This denotes fhat the relationship Of the assessee as well as assessee Group concern with the sub- contractor, as genuine, has duly been accepted by the Assessing Officer. Once the sub-contractor has been assessed and their income has duly been accepted b y the Revenue, in our view, the Revenue, on the basis of the same facts in fhe case of the aSSCSSEE, Cannot teke the view that the payment made to the sud-contractor were bogus. Further it is not the case of tha Revenue that the Revenue has disallowed the Payment made to the sub-contractor. It is a case where the Revenue has added the impugned receipt from the sub-contractor entered into the diaries found and seized during the course of the Search. From the analysis of these diaties, the Assessing Officer has fategorically given the finding that the diaries consist of the receipt being the withdrawal made by the sub-contractor as wel! as the withdrawal made by the assessee from the bank account of the group. The diary also consists of the Payment, some of which relate to the site Expenses, expenses recorded in the books of account investment in the immovable property, Personal expenses, expenses for the Jewellery as well as money transferred and the amount paid to various persons. it is not the case of the Revenue that the assesses has debited the ZePELs 2 amount paid to various persons into his regular books of a / te NE', account and claimed the deduction so that these expenses can ¥ jal be disallowed by appiving the explanation to section 37 of the eX er 'SJ Act. In fact the assessee has not claimed deduction of these ' Je = ee expenses. The Assessing Officer added the receipt being ae amount withdrawn by the contractor as income of the assessea. The receipt in fact is coming out of the sub contract receipt of the sub-contractor as well as assessee and GTOUD CONCEMNS, which has already been assessed to income tax by the Assessing Officer, The source of the receipt therefore, is apparent. Where the nature and source of the receipt stands explained. it cannot be adtded to the income of the assessea. On this basis itself. in our View, No addition in view of the cash withdrawn from the bank account of the group concern and the sub-contractor which are duly disciosed fo the department, can be added in the mcome of the assessee, 25 This is not the case of Revenue that these cash withdrawals are from the pank account wich Aave aot bean disclosed to the Revenue or in which the assessee fas deposited the cash owtside the books of account. So for the source of the receipt is concerned, it is not denied that the business of the assessee is executing the Government contract and aif the receipts in the bank account of the assessee is generated only through the contract receipt from the contract taken from the State Government. No cogent material or evidence was brought fo our knowledge which may prove that the State Government fas made the payment to the assessee outside the books of account. On this basis itself, we confirm the order of CIT(A) that the addition cannot be sustained on the basis of cast! receipt found recorded out of the cash withdrawal by the assessee or the contractor frarn their bank account. We also noted that the Assessing Officer fas not orly analyzed the receipt side of the diaties but has also analyzed the payment side of the diaries and found from the payment side that a sum of 86.24.05 crore has been invested in the immovable property outside the books of account and similarly, a sum of 8s.8.47 crore has been utilized as expenses attside the books of account. As regards fo observation of outgoings observed by the Assessing Officer in respect of seized document, it is noted that the Assessing Officer has mainly drawn adverse inference without there being any Material evidence on record for such conclusion. Even before us, NO corroborative evidence were referred to and brought on record. Thus, the outgoing/investment ta the extent of Rs.32.527 crere can be regarded to have been incurred by the assessee outside the books of account but the same are spent out of money withdrawn from dank, fhe source thereof cannot be regarded to be unexplained. We noted that in this case the assessee as weil as assessee group concern, during the course of search, surrendered @ sun of Rs.26 crore and accordingly, filed the return in response to the notice u/s 1834. At the mast the Assessing Officer could have made the addition in respect of fhe unaccounted investment provided they are not covered by the amount surrendered by the assessee during the block period.
in fact, in our view, the source of the said expenditure shawn in the diary is also coming out of the cash withdrawal from the banks of the group concern as well as of sub-contractor which has already been disclosed to the Revenue and the receipt thereof has already been assessed to income tax, i2.6 We noted that the business income assessed by the Assessing Officer in percentage of the gross receipt in the hands I.7.A.Nos.71 & 72/Nag/2016 QR Assessment yearsi2008-09 & 10-11 Faiiag LT. A.Nos. 71 & 72/Nag/2016 Assessment years: 2008-09 & 10-11 of the various group concer varies from 9.34% to 129.92% as is apparent from the following chart:
Particular AY 2006- Jay 2o07- |ay 2008- [ay 2009- Tay 2o10- AY 201i- Jay 2012- oF a8 09 10 ii 12 13 M/s M.G. Bhangdiva 11.79% |41.27% 4$35.60% [18.60% |27 46% ]49.50% MKS Constro Verhure 9.3455 Ltd M/s. Mahendra 10.78% (43.13% [25.44% [12.04% |21.79% (33.05% [27.73% Construction M/s. Mahendra Const. & 49,53% |7a4ay, [17.69% [41-81% [16.08% MG. Bhangdiya I Mis.K.M. Bhanadiya [11.97% [23.39% |2a7e% le626% lis 22% lig94% MES Acme Build PF Ltd TO28% M/S.M G Bhangdiya and 66.5255 ELS8% 127 (89%. |O00% Hitehay Engg iv Mis MG Bhangdiya and 54.82% 129,92% [15.18% 55 PATIL 3¥ M/S KM Bhangdiya J¥ 24.28% 729.5256 | Mitcon Infra Project > Lect LOs0736 | 10 00S 10.00% Consolidated 12.36% 47.01% F4 36% 1E52% j34.25% = |49-07% 44.59% in the case of the assessee group the assessment u/s 1534 have been framed for assessment year 2006-07 to assessment year 2011-12 while assessment for the assessment year 2012-13 u/s 143(3} of the Act. The nature of the activity being execution of government contract was the same during all the assessment years. in assessment year 2006-07, the nature of the work executed for Vidarbha Irrigation Development Corporation remains ie same as in the case of the assessee for subsequent assessment years, The suf-contractors, who have executed the work, are also sitniar itt various assessment years. The Assessing Officer, we noted, in the case of the assessee group for the assessment year 2006-07, has accepted the income as Shown By the assessee group in the return about 12% of the gross receipts. The Assessing Officer, as is apparent from the aforesaid chart, has assessed the income on different footing in the subsequent assessment years under the -- similar circumstances. There had been search in the case of the
1.T.A.Nos.71 & 72/Nag/2016 Rae Assessment years:2008-069 & 10-11 Bag assessee. The nature of the business of the assessee remains the same. No other businass activity or the business were found from where the income is derived or generated. in various Aoung in the seized documents i.e. diaries are part of the grass receipt of the contract receipt of the group entity, is nat disputed. The Assessing Officer, while making the addition, observed that the amount withdrawn from the diary is utilized for unaccounted payments which ate not allowable like gatiication pad fo pofitican and Government officials.
However, fhe Assessing Officer does mot refer to any corroborative evidence on record to hoid that the assessee has made payment as illegal gratification. He has taken a view by observing that payment made in cash is probable extraneous gratification. During the course of search, statement of Shri Mitesh Bhangdiva was recorded on 20/07/2011 and he in answer fa question No. 30 explained that the sefzed documents are details of cash flow. During the assessment proceedings Shri Mitesh Shangdivya has explained that the diaries are noting for the movement of the cash in reply to question No. 23, in the statement recorded on 27/07/2013. It was also explained by fim in the course of the assessment proceedings that the sub- contractors on the withdrawal of the money gave to fis father for safe custody, the amount which are found to be noted in the seized documents. In the sfatement recorded. the assessee has Clearly explained that the notings made in the seized documents fas nothing to do with the political leaders as much as political leaders have no business transactions with Bhangdiya -group. Even we noied that the Assessing Officer fas not brought out on record any specific evidence to show that payment is made to any politician or the Government officer/official to whom the gratification payment have been givert by the assessee group. We noted that the Assassing Officer out of the sum of Rs. 182,52 crores, added Rs. 54.40 crores on the basis of deposition of the sub-contractor for which when the assessee has asked for the cross examination, the crass exarnination was not allowed to the assessee, which is contrary to the principles of natural justice. Hon'ble Supreme Court in the case of Andman Timber industries vs. Commissioner of Central Excise. Kolkata (Civil Appeal No. 4228 of 2006}, under the similar circumstances, when the adjudicating authority did not atiow the cross examination of the witnesses, heid as under:
pret fae LT.A.Nos.71 & 72/Nag/2016 Bape Assessment years: 2008-09 & [0-11 "According to us, Aor alowing tfe assessee to crass examine the witness by the Adjudicating Authority though the statements of fhose witness were made fhe basis of the impugned order is a serious Haw which makes the order nullity inasmuch as it amounted to violation of principles of natural Justice because of which the assessee was adversely affected.
in view of fhe above, we are of the opinion that if the testimony of these two witness is discredited, there was na maternal with the Department on the basis of which Couid Justify its action, as the statement of the aforesaid two witness was the only basis of issuing the Show Cause Notice.
We, thus, set aside the impugned order as passed by the PAbunal and allow ffs appeal"
Following the said decision of Hon'bie Supreme Court, the statement of the sub-contractor, in our view, cannot be relied on ven otherwise also, we noted that no corroborative evidence beng brought on record to prove that the receipts, which Aas been added by the Assessing Officer in the income of the assassee is the undisciosed income of the assessee. in fact the receipts for which the addition flas been made by the Assessing Officer represents the part of the gross receipts of the assessee and assessee group concern and tre sub-contractor, which Aas duly been taxed to income tax. As pointed by us earlier, due to this addition, there fas been Auge variance in the moome assessed as percentage with the receipts by the Assessing Officer. The CIT(A) therefore, was correct in rejecting the basis of making the addition by the Assessing Officer. in the facts of the present case, it is seen thaf regular assessment came to be made as net profit percentage of receipts and which were also upheld in appellate proceedings and have achieved finaiity. The returms u/s i53A fave also been filed as percentage of receipts in this group entities. it wilh only appropriate to determine the incorne as percentage of receipts as the same are available on record which are accepted by the assessee and the Revenue authorities without dispute.
iZ./ We may mention that in the case of the assessee group, survey action was conducted an 17/02/2009 wherein under the simiar situation, the payment to sub-contractor was disputed LT.A.Nos.72 & 72/Nag/2016 Assessment years:2008-09 & 10-21 Aiea:
and doubted by the Assessing Officer. The survey action relates fo the assessinent year 2006-07 to 2008-09 which are part of the block period for the search action conducted on I9/O7/701 1.
The Assessing Officer while making the assessment applied a net profit @14% but wher the matter reached to the Tribunal, the Tribunal Nagpur Bench in LTA Nos, 208, 269 and 285/Nag/2012 vide order dated 03/04/2013, after considering the impounded Material, directed the Assessing Officer to adopt the net profit @12% as against the net profit adopted by the Assessing Officer @14%, There are also the similar type of defects found as have been found in the course of search. We noted the CI TA) has in ihe impugned assessment years made in Consequence OF search, directed the Assessing Officer to estimate the profit @16% and not @i2%. -- Even though the CI H(A} was fully aware of that during the assessment year 2006-07 ta 2009-10, the assessee group fas surrendered additional income at Rs. ti crore and the Tribunal Aas directed the Assessing Officer to estimate the net PrOoHe @12%, The Tribunal in that order under para 4 observed aS unger:
"4, Grief facts of the case are that a survey u/S. 133A of the dncome Tax Act. 1961 was carried out in the business premises Of the assesses and his associates on 17.02.2009 During the course Of survey operations it was found that most of the bills, | vouchers and other evidence in support of the entries. in fe . books of account like fabour charges, materiat PUCHASES, i machine hire charges, site expenses, sub contract expefises, eit ~ and fubricants, repairs and maintenance etc pertaining to this A.Y. were not available, Statement of Sri Mitash Brhangadiva was recorded under Section 133A and u/s. 131 of the Act on behalf of the assesse, in the statement dt.24.02 £009 and 13.03.2009, in response to various questions relating to the genuineness of fe payments to third Parly sub contractors and in respect to other deficiencies, the assessee admitted additional income in gtoup cases of Rs. 11 crore and Proportionately were allocated between aif the assessment years relating to these four assessee. For the year under consideration je. for assessment yéar 2006-07 in case of Sri Mithesh Bhangadiva, the additional income was offered at RS.23,97,361/- besides the income shown originally at RS.23,63,910/. Due tax was Paid before the issuance of notice under Section 148 as admitted by the AO in para 2 of his order. The important contents of SUDTUSSION recorded on 24-02-2009 and 43-39-2009 of Sri Mithesh SS (Yi I.T.A,Nos.71 & 72/Nag/2016 2 Assessment years:2008-09 & 10-11 : é Bhangadiva are incorporated in the order of the AQ, in query of question No. IL, it was answered that during the course oF survey, it was noticed that there are certain discrepancies and amissions and to cover up aff such discrepancies we have Made out mind to offer additional income over and above the regular income. We are under the process to determine such additional income to avoid litigation and, to buy peace of mind. Thereafter in response to question Nos, 18 & 19 of the statement recorded on 13-3-2009. it was answered that the sub contractors were awarded the sub contract work by our firms as per contract notes and the nature of sub contractors has been that labour charges and machine hire charges. The sub contractors by and large illiterate and therefore, their books of accounts found to be incomplete, without maintenance of any bills and vouchers. The expenses incurred by our firm has been on the basis of the $0 called vouchers raised by them and therefore, there appears the discrepancies in the expenses claimed. It was further stated that the assessee has admitted in his previous statement recorded during the course of survey that there are certain discrepancies and anomalies in the sub contract expenses in their hooks of accounts, non availability of bills and vouchers for the past three assessment years, Accordingly, it was submitted that there were certain discrepancies and anomalies in the sub."4
contract accounts, in books of accounts for assessment. years* ; 2006-07 to 2009-10. The assessee declared the additional . income of Rs. 11 crore in their firrn and the five sister concerns. . * in the assessment year 2006-07 to 2009-10, The working of the additional income of Rs. 11 crores will be done accordingly and the same wilt be shown. These part of the statements have been incorporated in the order of the AO as state above. Thereafter the AO started scrutiny of the case. The AO noted that the assessee has shown various expenses under the head labour & wages, machine hire charges, site expenses and sub cortract expenses etc, on very higher side, which are not supported by valid vouchers. Neither any further evidence was filed. it was also observed by the AO that since there are various deficiencies in accounts of sub contracts and the assessee has affered a sum of Rs. 23,97,361/- on account of discrepancies in respect to sub contract, therefore, he proceeded to make further addition on account of various deficiencies 1.e. in absence of bills and vouchers, excess claim towards machinery hire charges, verification of applicability of provision of Section 194C and denial of alleged sub contractors regarding r .
tT Assessment years: 2008-09 & 10-11 3 the suib contract given by the assessee, Alf these discrepancies are noted by the AQ in his order. Thereafter in para 7. the AO has opserved that after faving rejected the books of account of the assessee under Section 145(3) of the Act. the profit of the assessee fas fo be estimated reasonably. The AO also observed fhat the assessee fas declared net profit ratio of 6% and 7% of the total turnover in assessment years 2006-07 & 2007-08.
After offering additional income of Rs.23,.97,360/- for assessment year 2006-07, the results in revised net profit comes to 12.87% of the contract receipts. However, this net profit was found dy the AQ on iower side. The AO noted that in ane of the group case namely, M/s. Mahendra Construction & M.G. Bhangadia (JV) , who had declared additional income of Rs.
L54,47, 760/- in the Assessment Year 2007-08, which gives a net profit ratio of 13.84% of the net contract receiots. In view of fhase facts the AO adopted 14% net profit. Thereafter the AO completed the assessment and made addition of &s.
JO,42722/- against additional income shown by the assessee at Rs. 23,97,360/-, which resulted further addition of RS.6,15,362/-."
and ultimately under para 7 as reproduced hereunder, estignated net profit @12%: te a "f " .
"7 After considering the submission and perusing the mat@ial - on record, we find that the assessee deserves to succeag i at HS appeal in part. We noted for the year under consideration i.e: for:
assessment year 2008-07, the assessee''s NP rate comes fo 12.87%, for assessment year 2007-08 the assessee's NP rate comes to 10.53%, respectively, We also noted that if the NP rate of aff the concerns are taken into consideration, then it is seen that aif the assesses have shown government receipt at Rs, 258,55,37,850/-- and income on these contracts have been Shown by these assessee at RS.6,49 57, 111/- which gives a NP rate of 6.38%. The assessee has offered additional income dedared during the survey at Rs. 11, 03.85,877/-, which gives a NP rate of 4.27% and the total NP rate in aif these concerns comes fo 17.65%. Of course. the additional income of Rs. if crore or odd was segregated proportionately on the basis of contract receipts in the hands of each concern. In case of M/s Mahendra Construction & MG. Bhangadia (JV), the NP rate comes to 13.84% i.e. for assessment year 2007-08 and this rate fas been adopted by the AO and has applied the NP rate of 14% E.T.A.Nos.71 8&8 72/Nag/2016 Gee mr LT.A.Nos.7i & 72/Nag/2016 Assessment years:2008-09 & 10-11 [aay in aff the years in case of aif these assesses on whom @ survey was conducted. In view, this approach of the AO was not correct approach. in case of M.G, Bhangadiya, the NP rate of three years come te 9.87% , whereas in case of other assesses i.€.
Sanjay Heda, M/s Mahendra Construction & M.G. Bhangadiya (JV) , the NP rate comes to 9.50% and in case of M/s Mahendra Construction & M.G. Bhangadiya (JV), the average NP rate of three years comes fo 71.28% and in case of Mys KirfikumarBhangadiva, the NP rate comes to 8.72% and in case of M.G. Bhangadiya and M/s Mahendra Construction & M.G. Bhangadiva (7V), the NP rate comes io 6.12%, in case of M.G. Bhangadiva and S.S. Patil & M.G. Bhangaciya, the NP of three years comes to 11,55%. As stated above, the average NF rate of ai the assesses for ali the three years comes to 10.65%. Therefore, in our view, @ rational approach should have been adopted by the AO or by the fearned Cif fA). For one case i.€. M/s Mahendra Construction & MiG. Bharigadia (/V), the NP rate was 13.84% and if this rate is applied in aif other cases, which in our view, is not justified. However, there is also no dispute that there were so many discrepancies in maintaining vouchers, bills, sub contracts. accounts and other feads, which were not verifiable, therefore, the assessee and his group came forward to offer an additional income of Rs. {1 crore and the same fas aiso Offered and due tax has been paid. Since as stated above, there ara certain discrepancies, we are of the view, that if NP rate of i2% is adapted instead of 14%, that will meet the end of justice. We made if clear that where NP rate shown by the assessee in any year is more than 12% then the more NP rate shawn by the assessee has to be taken as assessee has declared himself and in other years where NP rate shown by the assessee is jawer than 12%, then 12% NP rate has to be taken. The AO wil recomputed the income accordingly. For the sake of caritication, in case of assessee for assessment year 2006-07, the NP rate cores to 12.87% after showing the additional income, therefore, the income shown by the assessee has to be accepted. However, for assessment years 2007-08 & 2008-09, the NP rate shown by the assessee after additional income comes fo 10.69% and 10.53%. The AO will adopt the rate of 12% and wif compute tfre income accordingly."
iZ.8 We noted that the CIT(A) even though followed the order of the Tribunal in the case of the assessee for the assessment year 2006-07 to 2009-10 but directed the Assessinig Officer to
---- L.T.A.Nos.71 & 72/Nag/2016 pe Assessment years:2008-09 & 10-11 , AR SAY ¥ ;
SS estimate the net profit during the block period @16% and for that he has given the reasoris that there is material difference in the years under appeal i.e. search action fas also resulted into detection of the unaccounted asséts fo the tune of Rs.26 crores and unaccounted jewetlery of Rs.7.37 crores which Aas not been disclosed by the assessee group in their respective returns filed hor the source of such acquisition of such assets coud be explained satisfactorily. We do not agree with such finding of CITfA} as we noted that during the block period. the assessee Aas surrendered Rs. 1 crore during the course of survey for the assessment year 2008-07 to 2008-09 and further during search @ sum of Rs.26 crore was surrendered. Thus, a sum of Rs.37 crore was avaiable with the assessee which assessee could have utilized for investment in the assets as well as for the purchase of jewellery. The unaccounted assets as well as unaccounted Jewellery fs only Rs.28.37 crore, which is much fess and fs duly covered by the disciosure of Rs.37 crore during the block period inade by the assessee, Rs.li crore during the survey and Rs. 26 crore during the biock period Even otherwise also, the Assessing Officer, we soted. fas gathered the information of unaccounted assets and unaccounted jewellery out of the oe PS, documents found during the course of search which shows the "3, ubflization of the amount which the assessee has received by way at | 'S 'eof withdrawal from the bank account of the group concern as fei well as from the bank account of the sub-contractor which ME a od cannot be regarded to be undisclosed. We, therefore, do not RE agree with the reasoning of the CIT(A) in adopting the net profit @16% of the gross receipts, in our opinion, no addition on account of unaccounted assets to the extent of Rs.26 crores and unaccounted jewellery of Rs.2.37 crores could be made. We, therefore, after considering the facts of the case, past history, relevant case laws and nature of the activities carried on by the assessee, are of the view that the estimation of the income by the CITA) fs at a Aigher side and is net justified, Therefore, we set aside the order of CIT(A) to the extent of directing the Assessing Officer to estimate the net profit @16% of the gross receipts and direct the Assessing Officer to estimate the net profit on the gross receipt @12% as has been astimated and returned by fhe assessee group in their respective returns filed in response to the notice issued u/s I5S3A and u/s 139 af the income Tax Act.
us RR I.T.a.Nos. 71 & ¥2/ Mag/2016 ae oe Assessment years: 2008-09 & 10-11 fs
4. Respectfully following the decision of this Tribunal, we confirm the order of CIT(A} deleting the addition made. Since the assessee is not in appeal before us, we also confirm the order of CIT(A) estimating the income @16% of the gross receipts.
5. In the result, both the appeals of the Revenue are dismissed.
(Order pronounced in the open court on 30/06/2017 Sd/. Sd/.
(AMARJIT SINGH) ( P. K. BANSAL ) Judicial Member Vice President Dated:30/06/2017 *Singh Copy of the order forwarded to:
The Appellant The Respondent Concerned CIT The CIT(A) {™ D.R., bites Reiae Fale I 2 3 4 ?. 6
6 Goer \ eee ai Assistant Registrar TTB aGrefiz income Tax Appellate Tribune a