Income Tax Appellate Tribunal - Amritsar
Inderjit Mehta Construction Pvt. Ltd., ... vs The Assistant Commissioner Of Income ... on 23 January, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : C : NEW DELHI
BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER
AND
SHRI ANUBHAV SHARMA, JUDICIAL MEMBER
ITA No.248/Del/2016
Assessment Year: 2010-11
Inderjit Mehta Construction Pvt. Vs ACIT,
Ltd., Circle-I,
13219/6, Gali No.9/1, Bathinda.
Namdev Road,
Shiv Colony,
Bathinda - 151 001.
PAN: AAACI3235L
(Applicant) (Respondent)
Assessee by : Shri S.B. Gupta, CA &
Shri M.M. Yadav, Advocate
Revenue by : Shri Waseem Arshad, CIT, DR
Date of Hearing : 08.11.2023
Date of Pronouncement : 23.01.2024
ORDER
PER ANUBHAV SHARMA, JM:
The appeal is preferred by the Assessee against the order dated 28.03.2016 of the Commissioner of Income Tax (Appeals), Bathinda, (hereinafter referred as Ld. First Appellate Authority or in short Ld. 'FAA') in appeal No.194-IT/CIT(A)/BTI/14-15 arising out of an appeal before it against the order dated 08.01.2015 passed u/s 143(3) r.w.s. 148 of the Income Tax Act, ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT 1961 (hereinafter referred as 'the Act') by the ACIT, Circle-I, Bathinda (hereinafter referred to as the Ld. AO).
2. Heard and perused the record.
2.1 The facts of the case, in brief, are that the appellant is a private limited company engaged in the business of civil construction, which is aggrieved by the order of assessment dated 08.01.2015 pertaining to A.Y. 2010-11 under the provisions of section 143(3)/147 of the Act. The appellant company had been earlier subjected to scrutiny assessment for the year under consideration vide order dated 17.10.2012 in which the returned income of Rs.2,10,24,810/- was accepted except for an estimated addition of Rs. 3 lakhs on account of probable inflation of expenses on labour and wages in the accounts. However, based on survey at the business premises of the appellant located at Delhi and Bathinda on 27.05.2011. Search and seizure action under section 132(1) of the Act were conducted in the case of M/s Shiv Naresh Sports Private Limited (henceforth "SNSPL") on 28.10.2010 and M/s SNSPL was searched in connection with the Commonwealth Games Scam of 2010 with allegations of blatant irregularities and fleecing and siphoning of public money by obtaining unrealistically high-
value bogus contracts through underhand means. As Per the CIT(A) order, post the survey, the appellant's case was reopened by issuance of notice under section148 of the Act and assessment was reframed, assessing the taxable income at Rs.7,62,98,570/-, raising a tax demand of Rs.2,79,95,470/-.
2 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT 2.2 In appeal before the ld.CIT(A), the question of re-opening and valid exercise of jurisdiction u/s 147/148 of the Act was decided against the assessee with the following observations:-
"2. ...... Even if it is assumed that the appellant had discharged its onus of disclosing all the primary facts in its return of income which was concluded as true and correct by the Assessing Officer at the time of the original assessment, yet the assessing authority would not be rendered powerless to reopen the assessment within a period of four years from the end of the relevant assessment year, if his "reason to believe" was founded or predicated on a credible information which was processed or analysed after the completion of original assessment and the same shall be a sound foundation for exercising power and conferring jurisdiction under section 147 read with section 148 of the Act. Such a situation cannot possibly be considered as mere change of opinion or a review of earlier decision."
3. The ld.CIT(A) examined the facts of the matter regarding the conduct of the business of the assessee and how the AO formed a prima facie opinion that the payment of Rs.3.46 crores made to the assessee company by SNSPL was for reasons extraneous to the execution of the sub-contract. The ld.CIT(A) observed that the AO has formed an objective inference and opinion on the basis of direct and circumstantial evidences and which cannot be called to be mere suspicion. With regard to the merits of the addition, the ld.CIT(A) upheld the addition with the following relevant findings in paras 5 to 10 of his order:-
"5. Now coming to the merits of the enhancement of the returned income, it is seen from the assessment order that the appellant acted in a 3 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT stubborn manner in refusing to produce before the AO any document pertaining to the execution of the sub-contract of SNSPL as desired by him to verify the expenses claimed in the said purported execution of the contract. The AO wanted the appellant to produce before him the documents regarding the tender bid to obtain the works contract. Since the purported work was stated to be labour-intensive, the AO specifically desired to see the muster roll of labour deployed for the said execution of the work-contract along with the original bills of raw materials used and measurement sheets on which basis bills were raised for payment from SNSPL. In order to be convinced about the fact of execution of work- contract as pleaded by the appellant, the AO requisitioned the site report in terms of log book, receipt of materials to be utilised at the site as well as the report of the technical expert as the purported work-contract was a typically & technically specific work. However, none of the aforesaid documents/materials were made available to the AO for his examination and verification. On the contrary, the appellant indulged in obfuscation by giving the following reply:
"... That during the year under consideration the company had executed work contract for M/s Shiv Naresh Sports Private Limited (SNSPL) amounting to Rs.3.46 crores at for the stadiums in New Delhi namely Jawahar Lai Nehru Stadium,Tyagraj Stadium,Chhatarsal Stadium and Commonwealth Games Village.
The company was simultaneously executing another work contract in New Delhi for M/s Delhi Metro Rail Corporation (DMRC) of approximately Rs. 20 crores. The said work contract being larger in size and duration as compared to the work contract from SNSPL, all the material, labour and other services and components used were kept centralised at the site of DMRC. As and when any material or labour or any other equipment/machinery et cetera was required for execution of work contract of SNSPL, the same was provided and mobilised from the company's site at DMRC. Therefore all the books of accounts, vouchers, muster rolls et cetera were maintained centralised at the company's site at DMRC. We are therefore producing all the books of accounts, expenditure vouchers, muster rolls et cetera pertaining to the New Delhi branch for the year under consideration.
As cited above our company has maintained all the records of the work executed for SNSPL in New Delhi branch from where contract of DMRC was being undertaken. All the expenses made for the work contract of SNSPL are duly vouched and kept in the said branch. The work contract executed for SNSPL is very much in the ambit of income under the head business and should be taxed accordingly and the claim for expenditure incurred for the execution would thus be imperative...."
4 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT
6. From the aforesaid reply of the appellant, it is apparent that there was an unexplained reluctance to let the AO verify the expenses debited in the accounts purported to be pertaining to the execution of the said works- contract. It is relevant to note here that even during the course of survey proceedings at the business premises of the appellant, neither the accounting staff nor the promoter of the company, Shri Inderjeet Mehta could identify the accounts pertaining to SNSPL from the consolidated accounts of DMRC. It was even stated that the log books, measurement sheets and other site reports have been destroyed once entries have been made in the account books. In the circumstances, it never needed a great deal of analysis and reasoned thinking to come to the conclusion that the appellant was only indulging in obfuscation and tried to create a red- herring by repeatedly reiterating that the accounts of the sub contract of SNSPL was merged with the account of the contract with DMRC. The AO, thus concluded that the appellant did not do any job-work for SNSPL and further held that the entire receipt of Rs.3,46,80,925/- as reflected in 26AS was not a contractual receipt and assessed the same as the income of the appellant under the head "income from other sources". Since the appellant had included the receipts from SNSPL in the accounts as business receipts, the AO invoked the provisions of section 145(3) of the act and adopted the net profit rate of 10% of the gross receipts less the receipts from SNSPL and thereafter allowed the claim of depreciation of Rs.1,07,64,386/-, thereby assessing the business income at Rs.4,16,17,640/-. To this, was added the receipt of Rs.3,46,80,925/- from SNSPL treated as "income from other sources" to arrive at the net taxable income at Rs.7,62,98,565/-, rounded off to Rs.7,62,98,570/-.
7. Challenging the action of the AO in rejecting the book results, the same plea was reiterated that all the receipt and expenditure relating to both the work contract of DMRC & SNSPL was accounted for in the single set of books and an averment was made that perhaps the AO failed to appreciate the concept of recording accounts of projects in a single set of books. It was further contended that in the assessment of SNSPL framed under section 153A/143(3) for the same assessment year, the payment made to the appellant was neither doubted nor adversely commented upon and the GP rate disclosed was accepted as such in the post-search assessment. The past assessment history of the appellant company was also canvassed to show that the books of accounts were regularly accepted and never before a NP rate of 10% or any other odd flat rate had been applied. Failure of the AO to cite any comparative instance for adopting the NP rate of 10% was emphasised to suggest the unreasonableness of such assessment. It was pleaded that the succeeding officer's different view than taken by the predecessor AO on the same materials amounted to nothing, but change of opinion in the reassessment proceedings under section 147 of 5 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT the Act and a plethora of judicial precedents were cited to the effect that such change of opinion is not permissible as per the provisions of the act.
8. The aforesaid submissions of the appellant were taken note of and the matter was remanded to the AO for providing opportunity to the appellant to produce the relevant books of accounts pertaining to the works contract of SNSPL. However, in the remand proceedings also the appellant remained adamant in producing before the AO only the merged accounts without identifying the expenses on material and labour pertaining to the purported works contract of SNSPL. The AO returned the remand, only reiterating his stand in the assessment order in view of the cussedness of the appellant in not identifying the expenses pertaining to SNSPL separately. A copy of the remand report was afforded to the appellant and an opportunity was provided in the appellate proceedings to produce before the undersigned extracted accounts pertaining to SNSPL from the computerized purported merged accounts of DMRC and the corresponding bills and vouchers along with muster roll of labour. To the disquiet of this appellate authority, such an opportunity was also not availed by the appellant for the reasons best known to it. However, the reasons are not far to seek. The presumption of the appellant not having executed any works contract in the absence of the relevant accounting and appropriate site- paperwork, becomes a stark reality in the face of the appellant's complete inability to produce the relevant accounts, bills, vouchers and muster-roll of labour to vouchsafe the execution of the purported works contract and expenses incurred thereon. Now the question arises as to why the appellant would have been given such a substantial amount of money for no corresponding work in return. The appellant has alluded to no adverse inference with regard to the impugned payment in the assessment of SNSPL. The answer to this question lies in the domain of the appellant itself on whom the onus lay to show the expenses out of such receipts, which the appellant has miserably failed to discharge. So far as the payout from SNSPL is concerned, the same could be verified upfront as the same was made through banking channels on which TDS was effected. There is no dispute or struggle regarding the veracity of the amount of payment made by SNSPL to the appellant company and its receipt in so far as the same is reflected in 26AS. The dispute arises only with regard to expenses out of the said receipts, which had to be proved by the appellant before the AO. At the risk of reiteration, it is stated here that the appellant despite innumerable opportunities failed to discharge its onus. Since the assessment of income is a civil proceedings, rules of probability of circumstances apply. It is probable in the circumstances that the appellant garnered the impugned receipt of money to window-dress its gross turnover, increment or maximisation of which entitles the appellant or puts him in a sound position to bid for bigger contracts of MES or DMRC. Such gratuitous receipts are generally masqueraded as contractual receipts against which bogus and dubious expenses are debited to square off the taxable income component 6 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT of such receipts. However, this has been stated only to answer and address the refrain of the appellant as to why SNSPL would make a huge gratuitous payment if no work was to be executed.
9. In view of what has been stated above, it is held that the AO's action in treating the purported contractual receipt from SNSPL as "income from other sources" is fully justified, requiring no interference. All the grounds of appeal pertaining to this impugned issue is treated as dismissed.
10. Now the question of invocation of section 145(3) of the Act and adoption of 10% of the gross receipt as net profit as reduced by the claim of depreciation. There can be no doubt that the primary function of accounting is to provide quantitative information and an effective measurement and reporting system. This role of accounting by business entities have been approved and emphasised by the Hon'ble Supreme Court in the case of Jake Industries Ltd versus union of India [2008] 297 ITR
176. Thus it is not only the right but the duty of the Assessing Officer to consider whether or not the books disclose the true state of accounts and correct income can be deduced therefrom. It is incorrect to say that the officer is bound to accept the past gross-profit rate disclosed by the appellant consistently over the successive assessment years, the correctness of which had not been questioned in the past. There is no estoppel in these matters. Section 145 provides for computation of income under section 29 on the basis of books of accounts and method of accounting regularly followed by the assessee. However, when the AO is not satisfied with the correctness or completeness of the books, he is empowered to reject them and estimate the income to the best of his judgement in accordance with the provisions of section 144 of the Act. (Reference : CIT versus Giyan Chand Labour Contractors [2009] 316 ITR 127, Punjab). The expression "correct" is antonymous to the word "wrong" which would imply erroneous account. The error or wrong might be in a particular entry or in totalling etc. "Completeness" is an expression opposite to the word "incomplete". As per the relevant provision of the act, if the AO is satisfied that the account produced before him is not correct or is incomplete, there is an automatic conferment of power upon him -- nay it imposes a duty upon him to make such computation in such manner as he determines for deducing the correct profits and gains. The only safeguard that he has to undertake is to abstain from capriciousness and to base his conclusion on necessary and connected aspects in regard thereto. If there is a guess work, that, too, has to be a reason. In the appellant's case, the AO in the absence of the accounts produced before him in the manner in which he wanted so as to deduce the correct profits, treated a part of the disclosed turnover as not related to business of civil construction. He was given to understand that the books contained debit of expenses with respect to that portion of the contractual receipt in the gross turnover, which actually was not a business turnover. In such a scenario, the AO was well within his rights to treat the 7 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT books as incorrect and even incomplete, which he did and rejected the book results. Once the books were rejected, the AO had to estimate the profits. He could not have been bound by the consistent GP rate shown by the appellant as in the present circumstances, the situation was entirely different in as much as non-contractual receipts of significantly higher amount was masqueraded as contract receipts. In his assessment, NP rate of 10% was a reasonable estimate after allowing the credit of claim of depreciation. Even if he had adopted a GP rate of 8% as stipulated in the presumptive provisions of the statute (section 44AD), taking in its fold as deemed allowed any deduction allowable under the provisions of section 30 to 38, the assessment of taxable business income would have been in the same vicinity or even marginally higher. It is therefore held that the AO's act in adopting the net profit rate of 10% was based on sound reasoning and cannot possibly be considered as unreasonable or capricious. All the grounds of appeal pertaining to this issue are, thus, treated as dismissed. It is ordered accordingly."
4. The assessee is in appeal raising the following grounds:-
"1. That the assumption of jurisdiction u/s 147 of the Income Tax Act, 1961 ("Act", in short) by the Assessing Officer without complying with mandatory conditions laid down in sections 147 to 151 of the Act is illegal and thus the resultant reassessment order dated 08/01/2015 deserves to be quashed.
2. That the only reference made in the Reason dated 11/08/2014 for forming belief of escapement of income is survey conducted upon the assessee on 27/05/2011 in relation to assessee's transaction with M/s Shiv Naresh Sports Pvt. Ltd. ("SNSPL", in short), while initial assessment order u/s 143(3) dated 17/10/2012 was passed by the same Income Tax Authority Mr. S.K. Gupta who conducted survey on 27/05/2011, that too after making several enquiries during assessment proceedings with respect to the assessee's transaction with SNSPL and after considering material impounded during survey, and therefore, the assumption of jurisdiction u/s 147 by the Assessing Officer is illegal and thus the resultant reassessment order dated 08/01/2015, being based upon stale information and change of opinion deserves to be quashed.
3. Without prejudice to the above, the only basis of the belief of escapement of income recorded by the Assessing Officer in the reason that business receipts of Rs. 3.46 crore suo motto offered to tax by the assessee in its Income Tax Return ("ITR", in short) is liable to tax as income from other sources, is illegal because firstly, both business receipts and income from other sources are liable to the same rate of 30% tax, and secondly, the Assessing Officer has not specified in the reason 8 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT that any expense debited by the assessee to its Profit & Loss Account is bogus or inflated expenditure or otherwise not allowable under any provision of the Act, thus resulting into neither escapement of income nor under assessment of income at lower tax in initial assessment order dated 17/10/2012, and, therefore, the assumption of jurisdiction u/s 147 by the Assessing Officer is illegal and thus the resultant reassessment order dated 08/01/2015 deserves to be quashed.
4. Without prejudice to the above, the assumption of jurisdiction u/s 147 by way of issuance of notice u/s 148 dated 11/08/2014 by Assistant Commissioner of Income Tax, Circle I, Bathinda, who was neither the Assessing Officer of the assessee nor had made the original assessment order u/s 143(3) dated 17/10/2012 for the impugned assessment year, is illegal and, therefore, the resultant reassessment order dated 08/01/2015 deserves to be quashed.
5. Without prejudice to the above, the notice u/s 143(2) dated 12/08/2014 served by the Assessing Officer upon the Authorized Representative of the assessee on the same date on which the Authorized Representative submitted the return in response to the notice u/s 148 dated 11/08/2014, obviously without examination of return and application of mind, is illegal and void-ab-initio and, therefore, the resultant reassessment order dated 08/01/2015 deserves to be quashed.
6. Without prejudice to the above, the rejection of accounts by invoking section 145(3) of the Act and estimation of profit @ 10% of turnover subject to deduction of depreciation allowance are illegal and unjustified and, therefore, the addition of Rs.5,52,73,760 deserves to be deleted.
7. Without prejudice to the above, the rejection of accounts by invoking section 145(3) of the Act is illegal and unjustified because-
i) In assessment order of SNSPL for the impugned assessment A.Y. 2010-11, the Assessing Officer of SNSPL has not drawn any adverse inference with regard to allowance of expense of Rs. 3.46 Crores to SNSPL, and, therefore, raising doubt on the nature of receipts as contract revenue in the hands of the assessee is unfair;
ii) Assessing Officer has not disturbed credit or debit side of the Profit & Loss Account by pointing out any suppressed sale or unrecorded income or bogus or inflated or unrecorded expenditure, nor has the Assessing Officer alleged that any income or expense recorded by the assessee in its accounts remain unverified;
iii) No incriminating material or document or evidence, pointing out any suppressed sale or unrecorded income or bogus or inflated or 9 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT unrecorded expenditure, was found during the course of survey upon the premises of the assessee or during the course of search upon the premises of SNSPL that contradicted the transactions recorded in assessee's book of accounts;
iv) No show cause notice ("SCN", in short) was issued by the Assessing Officer to assessee for rejection of accounts and for estimation of Profit @ 10%; and
v) There is no statutory obligation on assessee to maintain project wise books of accounts and to maintain address of construction workers, and the assessee has been consistently maintaining the same records in same manner in past and succeeding years with no case of adverse inference drawn by the revenue in any of those years.
8. Without prejudice to the above, the estimation of profit @ 10% of turnover subject to deduction of depreciation allowance, without giving any basis thereof in the form of past history of assessee or comparable industry trend, is illegal and unjustified and, therefore, the addition of Rs.5,52,73,760 deserves to be deleted.
9. Without prejudice to the above, the estimation of profit @ 10% of turnover subject to deduction of depreciation allowance is illegal and unjustified because estimated NP rate cannot exceed the NP rate of the immediate preceding assessment year of 2.47% while the net profit declared by the assessee as per its audited accounts for the impugned assessment year was 3.55%."
5. On behalf of the assessee, it was submitted that grounds of appeal No. 1-5 relates to the challenge to the assumption of jurisdiction u/s 147 of the Act and framing of assessment u/s 143(3)/148 of the Act. The remaining grounds no. 6-9 relates to the challenge to the rejection of accounts and addition made in the assessment order u/s 143(3)/148 of the Act.
5.1 As to challenge to the assumption of jurisdiction u/s 147 and framing of assessment u/s 143(3)/148 of the Act, it was submitted, in regard to Ground No. 2, that the only basis of the Reason dated 11/08/2014 is stale information 10 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT and change of opinion. Referring to the Reason dated 11/08/2014 (Pg. No. 918- 921 of Paper Book) it was submitted that same does not refer to any tangible material. The only reference made in the Reason is Survey conducted upon the Assessee on 27/05/2011 in order to enquire into civil contract for preparation of sub base for laying Synthetic Athletic track for four stadiums at Delhi for Rs.
3.92 crore awarded by one M/s Shiv Naresh Sports Pvt. Ltd. (in Short "SNSPL") and executed by Assessee, while the initial assessment of the Assessee by way of Scrutiny Assessment Order U/s 143(3) dated 17/10/2012 (Pg. No. 912-914 of Paper Book) was made by the same income-tax authority Mr. S.K. Gupta who carried out the survey on 27/05/2011 (Warrant of Authorisation at Pg. No. 116 of Paper Book) after making several enquiries and investigation with respect to the Assessee's transactions with SNSPL (Letter submitted by assessee along with documents in support at Pg. No. 138-911 of Paper Book).
5.2 It was submitted that the AO applied his mind to evaluate the Assessee's receipts from SNSPL while making initial assessment order dated 17/10/2012.
Thus the notice U/s 148 dated 11/082014 is based upon stale information obtained during the course of survey conducted on 27/05/2011 and was obviously available to the AO and in fact used by the AO during the completion of assessment proceedings u/s 143(3). Ld AR submitted that it is by now a settled law that jurisdiction U/s 147 cannot be invoked even within 4 years from 11 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT the end of the relevant Assessment Year based upon change of opinion or to re-
enquire into the material that was available to the AO at the time of making original assessment U/s 143(3) of the Act. In this regard, Ld. AR has relied;
• Rasalika Trading & Investment Co. Pvt. Ltd. v. DCIT (2014) 365 ITR 447 (Del);
CIT V/s Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) (FB) -
Affirmed by hon'ble Supreme Court in 320 ITR 561 (SC);
• CIT Vs. Kocher Ltd. 294 ITR 310 (Del);
• CIT v. Usha International Ltd. (2012) 348 ITR 485 (Del) (FB);
• Kaira District Cooperative Milk Producers Union Ltd., Vs. ACIT: 220
ITR 194 (Guj);
• Jindal Photofilms Ltd. Vs. DCIT 234 ITR 170 (Del);
• Arvind Boards & Paper Products Ltd. v. ITO (1980) 124 ITR 626 (Guj)
6. As with regard to Ground No. 3, Ld. AR submitted that indisputably, mere change of head of income from business to income from other source of the receipt of Rs. 3.46 crore from SNSPL does not at all result into belief of escapement of income or assessment at low rate of tax in initial assessment order dated 17/10/2012.
7. As with regard to Ground No. 4, Ld. AR submitted that the issuance of notice u/s 148 dated 11/08/2014 by Assistant Commissioner of Income Tax, Circle I, Bathinda, who was neither the Assessing Officer of the assessee nor 12 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT had made the original assessment order u/s 143(3) dated 17/10/2012 for the impugned assessment year, is illegal. He submitted that the original assessment order dated 17/10/2012 (Pg. No. 912-914 of Paper Book) was passed by the Joint Commissioner of Income Tax, Range-I, Bathinda. In paragraph No. 2 of the original assessment order dated 17/10/2012, the Joint Commissioner of Income Tax, Range-I, Bathinda noted that the case was received by him on transfer from the then AO. He submitted that the notices under section 142(1) of the Act dated 09/04/2012 and 18/09/2012 (Pg. No. 134- 136 of Paper Book), calling for information and explanation from the assessee for the impugned assessment year, were issued by the Joint Commissioner of Income Tax, Range-
I, Bathinda. Eventually, the Joint Commissioner of Income Tax, Range-I, Bathinda made the original assessment order dated 17/10/2012. Ld. AR contended that in the absence of any order under section 127 of the Act of the transfer of the assessee's case after 17/10/2012, it necessarily implies that the Joint Commissioner of Income Tax, Range-I, Bathinda was the AO of the assessee since the year 2012 for the simple reason that the assessee never received any notice or order under section 127 of the Act for transfer of its case from the Joint Commissioner of Income Tax, Range-I, Bathinda to any other income-tax authority. He thus contended that re-opening of case of the assessee through issuance of the notice under section 148 dated 11/08/2014 (Pg. No. 915 of Paper Book) by the Asstt. Commissioner of Income Tax, Circle-I, Bathinda, while, bad. In this regard, Ld. AR relied the following case law:
13 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT • Dushyant Kumar Jain v. DCIT (2016) 381 ITR 428 (Del) • Lt. Col. Paramjit Singh v. CIT (1996) 220 ITR 446 (P&H) CIT v. M.I. Builders Pvt. Ltd. (2012) 349 ITR 271 (All) • ITO v. NVS Builders Pvt. Ltd. (ITA No. 3729/Del/2012) • ACIT v. Resham Petrotech Ltd. (2012) 136 ITD 185 (Ahd.)(Trib.) • Smriti Kedia (Smt.) v. UOI (2012) 71 DTR 245 / 250 CTR 221 (Cal.) • ITO vs. Rajender Prasad Gupta (2010) 48 DTR 489 (JD)(Trib) 7.1 For detailed discussion on this Ground, the Assessee places reliance upon Para No. 30-30.9 at Page No 44-52 of Paper Book submitted on 24/03/2021.
8. In regard to Ground No. 5, Ld. AR submitted that Notice u/s 143(2) dated 12/08/2014 was served by the Assessing Officer upon the Authorized Representative of the assessee on the same date on which the Authorized Representative submitted the return in response to the notice u/s 148 dated 11/08/2014, and that obviously was issued without examination of return and application of mind, is illegal and void-ab-initio. In this regard, he relied following judicial decisions, wherein it has been held that notice u/s 143(2) issued on the date of filling of ITR by Assessee in response to notice u/s 148 is illegal and liable to be quashed:
• Director of Income Tax V. Society for Worldwide Interbank Financial 14 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT Telecommunication (2010) 323 ITR 249 (Del);
• Satish Kumar Vs ITO - ITA No. 3586/Del/2018 - ITAT Delhi;
• Micron Enterprises Pvt. Ltd. v. ITO - ITA No. 901/Del/2016 - ITAT Delhi.
9. In regard to challenge to the rejection of accounts and addition made in the Assessment Order u/s 143(3)/148 of the Act covered by ground no. 7 to 9 the Ld. AR has filed a comprehensive submission to supplement to what he argued and we consider it advantageous to reproduce the same hereinbelow to avoid anything being left out:-
"7.1 Firstly, No incriminating material or document or evidence, pointing out any suppressed sale or unrecorded income or bogus or inflated or unrecorded expenditure, that contradicted the transactions recorded in assessee's book of accounts, was found during the course of survey upon the premises of the assessee or during the course of search upon the premises of SNSPL. No incriminating material indicating any cash received or paid by the assessee from any of the creditors or debtors against cheques issued or received to such creditors or debtors, including but not limited to SNSPL, was found from any of the premises of the assessee surveyed by the revenue.
It is not the case of the AO that any creditor or debtor denied its transactions with the assessee.
7.2 Secondly, in assessment order of SNSPL for the impugned AY 2010- 11 (Pg. No. 1144- 1148 of Paper Book), the AO of SNSPL has not taken adverse inference with regard to allowance of expense of Rs. 3.46 crores to SNSPL. If no objection is raised while allowing expense of such sub-contract expense of Rs. 3.46 crore to SNSPL, raising doubt on the nature of receipt as contract revenue in the hands of assessee is unfair.
7.3 With regard to non-appearance of Sh. Shiv Prakash Singh, director of SNSPL, without issuance of any summons by AO to him, no adverse inference can be drawn against the assessee. Even otherwise, failure of assessee to produce any party cannot be a valid ground for rejection of accounts u/s 145(3) as held in CIT v. Jas Jack Elegance Exports 324 ITR 95 (Del).
15 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT 7.4 Thirdly, rejection of accounts is unjustified because AO has not disturbed credit side of profit & loss account by pointing out any suppressed sales or other income noticed by him not recorded in accounts by assessee, and no adverse observation made by him with regard to any entry on the debit side of profit & loss account by pointing out any bogus or inflated expenditure recorded in accounts or any expenditure not recorded in accounts, ignoring that net profit is the trading result, arrived at after deducting expenses/outgoings appearing on the debit side of profit and loss account from receipts/incomes appearing at the credit side of the profit and loss account. What the AO has done in the reassessment order is that he has merely bifurcated the contract receipts of Rs. 55.85 crore, suo moto credited to the profit and loss account by the assessee, into 2 parts, which obviously cannot disturb net profit. Moreover, the assessee had submitted complete detail of all purchase and expenses along with relevant bill/supporting of the same. No purchase or expense claimed by the assessee remained unverified nor has the Assessing Officer made any such allegation.
7.5 Fourthly, No Show-cause Notice (SCN) was issued by AO to assessee for rejection of accounts and for estimation of profit @ 10%, resulting into illegal rejection of accounts. Non-issuance of SCN gets substantiated from a bare perusal of the Order Sheet entries (Pg. No. 926- 930 of Paper Book). In this regard, please see:
• Maruti Suzuki India Ltd. v. Addl. CIT [2010] 192 Taxman 317 (Delhi);
• Sahara India (Firm) v. CIT [2008] 169 Taxman 328 (SC);
• State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC).
7.6 Fifthly, the objection of the AO with regard to accounts is that the assessee has not maintained separate accounts for SNSPL project. The AO has admitted that the assessee has maintained project-wise accounts for all projects undertaken by him, but books of accounts of SNSPL project and DMRC project (both projects at Delhi) are consolidated.
In this regard, it would suffice to state that there is no statutory obligation on assessee to maintain project-wise books of accounts. Further, the contract revenue of SNSPL Project at Delhi was Rs. 3.46 crore. The assessee was simultaneously executing another works contract in Delhi for Delhi Metro Rail Corporation (DMRC) of approximately Rs.20 crores. The said works contract, being larger in size and duration as compared to the works contract from SNSPL, all the material, labour and other services and components used were centralised at the site of the DMRC. As and when any material or labour or any other equipment/machinery etc. was required for execution of works contract of SNSPL, the same was provided and mobilised from the company's site at DMRC. Therefore, all the books of accounts, vouchers, muster rolls, etc. were maintained centralised at the company's site at 16 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT DMRC. The assessee produced all the books of accounts, expenditure vouchers, muster rolls, etc. pertaining to the Delhi branch for the year under consideration. All the expenses made for the works contract of SNSPL were duly vouched and kept in the said branch. The assessee thus submitted that it had maintained all the records of the work executed for SNSPL in New Delhi branch from where contract of DMRC was also being undertaken simultaneously. Copy of all documents submitted during the course of original assessment proceedings inasmuch as related to the assessee's transactions with SNSPL project and books of accounts of Delhi project is enclosed at Page No. 141-911 of Paper Book submitted on 24/03/2021. Order Sheet recording production of such books even during reassessment proceedings is enclosed at Page No. 926-930 of Paper Book submitted on 24/03/2021. It is also pertinent to note that Assessee's books of account were duly audited by an independent statutory auditor under the Companies Act, 1956 and by a tax auditor under the IT Act. None of these auditors has found any fault with regard to maintenance of consolidated books for 2 projects at Delhi. Also, business carried on by the assessee is subjected to VAT Deptt, which had also not found made any objection with regard to consolidated books for 2 projects running within the same State (copy of audited accounts, tax audit report and VAT returns of the assessee for AY 2010-11 enclosed at Page No. 103-115 and 1149-1184 of Paper Book submitted on 24/03/2021). Moreover, consolidated books of SNSPL and DMRC projects show gross profit rate of 16%. If receipts of SNSPL is excluded from turnover to compute GP, as done by AO, GP ratio becomes negative (-)6.79%, which gives absurd results. Detailed calculation of the above figures in tabular form is placed at Para No. 42.10 and 42.11 at Page No. 81-83 of Paper Book. Further, in assessment order of Shiv Naresh Sports Pvt. Ltd. (SNSPL) for AY 2010-11 (copy of Order enclosed at Page No. 1144-1148 of Paper Book submitted on 24/03/2021), the AO has made no adverse inference in regard to allowance of expense of Rs. 3.46 crores to SNSPL. If no objection is raised while allowing expense of such sub-contract expense of Rs. 3.46 cr to SNSPL, raising doubt on the nature of receipt as contract revenue in the hands of the impugned assessee is unfair.
AO's second objection though already considered in the initial assessment order U/s 143(3), and mentioned in reassessment order for namesake is that muster roll maintained by assessee for payment of wages to construction labour does not contain their address.
In this regard, it would suffice to state that in the absence of any legal requirement regarding address of construction workers and in view of ground reality relating to their engagement, no adverse inference deserves to be drawn by AO in respect of non-availability of addresses of construction labour/workers in Muster Roll to justify Rejection of Accounts (copy of Specimen Register required to be maintained by the assessee under 17 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT applicable statutes enclosed at Page No. 1063-1065 of Paper Book submitted on 24/03/2021).
Further, Commissioner (Appeal) is wholly silent on this issue in his order, meaning that he did not find any force in the AO's ground to confirm his order of rejection of accounts on this ground.
Furthermore, this point had already been duly considered by the Assessing Officer while passing the initial assessment order u/s 143(3) dated 17/10/2012 (Pg. No. 912-914 of Paper Book) where the Assessing Officer assessed the assessee accepting its books of account after adding Rs. 3 lakh to the returned income on ad hoc basis without initiating any penalty proceedings, and explicitly did not reject the books while recording in categorical terms in the order that the vouchers for labour and wages expense of Rs. 7.07 crores were mostly self-made and did not contain their address.
As regards non-availability of addresses of construction labour/workers in the muster roll maintained by assessee, assessee's explanation is as under:
a) Due compliance with the provision in this regard has been made by maintaining muster rolls wherein fortnightly attendance is recorded and payment is made against thumb impression/signature of construction workers/labour. Labour laws provide for statutory format of muster rolls, requiring assessee to mention name of construction workers/labour, amount paid to them and their thumb impression/signature. There is no provision in such statutory muster rolls for address of construction workers/labour. Copy of the relevant register required to be maintained by the assessee under Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Central Rules, 1998, The Contract Labour (Regulation and Abolition) Central Rules, 1971 and the Minimum Wages (Central) Rules, 1950 is enclosed at Page No. 1063-1065 of Paper Book submitted on 24/03/2021.
b) Construction workers/labour are mostly migratory and keep shifting their dwelling place to various construction sites. They are mostly casual labour who come to site in search of work and stay there till the work is over.
c) Construction workers/labour live on the construction site in temporary structures with their children and cook in the open. They do not have any home at all, let alone any permanent address. They are usually extremely poor and illiterate people and so at times are unable to sign.
d) Assessee hires Construction workers/labour on temporary basis for construction sites located at different places in different States of India.
Importantly, such sites frequently keep on changing on yearly basis.
18 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT
e) Labour & wages expenses and gross turnover of construction business during FY 2009-10 relevant to the assessment year under consideration are Rs.7.07 crores and Rs. 55.85 crores respectively. It results into labour expenses to gross turnover ratio of 12.66% (7.07 crores as percentage of 55.85 crores), which is well in line with the ratio of preceding and succeeding years, wherein revenue has accepted ratio in scrutiny assessment cases.
Assessment Labour & Wages Turnover (Rs.) Labour exp. to
Year Expense (Rs.) Turnover Ratio (%)
2008-09 59,893,901 463,072,775 12.93
2009-10 77,213,420 430,342,440 17.94
2010-11 70,713,250 558,501,192 12.66
2011-12 169,166,238 744,475,854 22.72
2012-13 113,546,124 798,098,020 14.23
Copy of the audited accounts of assessee for AYs 2008-09 to 2012-13 is enclosed at Page No. 1066-1143 of Paper Book submitted on 24/03/2021.
f) Labour expenses to gross turnover ratio of 12.66% is much more than reasonable when compared with Rule 15(4) of the Punjab VAT Rules, wherein value added tax is chargeable on the value of material embedded in the receipts of a contractor and to work out the value of the material, a deduction to the extent of 30% is allowed on account of labour component involved in execution of the contract.
g) Assessee has been maintaining muster roll and other labour records in the same manner consistently in past and succeeding years, and revenue has never rejected assessee's accounts on this ground. Thus, principle of consistency is applicable. Copy of the Muster Rolls for AYs 2009-10 to 2011- 12 and Assessment Orders u/s 143(3) of the Act for AY 2009-10 is enclosed at Page No. 947-1062 of Paper Book submitted on 24/03/2021.
h) In this regard, reliance is also placed upon the following judicial orders:
• ACIT v. Ashoka Builders - ITA NO. 375/MUM/2009;
• Brij Bhushan Lal Parduman Kumar v. Commissioner of Income-Tax, 115 ITR 524;and • Yog Raj Soni V. ACIT (2007) 108 TTJ (Del) 912.19 ITA No.248/Del/2016
Inderjit Mehta Construction P. Ltd. vs. ACIT 7.7 Sixthly, the erstwhile section 145, prior to its substitution by the Finance Act, 1995, permitted AO, by virtue of proviso to sub-section (1) of section 145, to reject accounts where it was not possible to deduce income there from properly. However, by virtue of substitution of section 145 by Finance Act, 1995 w.e.f. 01/04/1997, this power of AO has been dispensed with. It necessarily implies that w.e.f. 01/04/1997, it is now illegal for AO to reject accounts on the ground that it was not possible for him to deduce income there from properly. The Commissioner (Appeal) held in paragraph no. 10 at page no. 16 of his order that the AO in the absence of the accounts produced before him in the manner in which he wanted so as to deduce the correct profits, treated a part of the disclosed turnover as not related to business of civil construction, for he was given to understand that the books contained debit of expenses with respect to that portion of the contractual receipt in the gross turnover, which actually was not a business turnover. However, as above stated, accounts cannot be rejected on this ground.
7.8 Seventhly, in case of rejection of accounts, burden to prove that a case is fit for invocation of section 145 lies upon the revenue. See, Ramswarup Bengalimal v. CIT 25 ITR 17 (All). The department has to prove satisfactorily that account books are unreliable, incorrect or incomplete before it can reject accounts, which may be done by showing that important purchases are omitted therefrom or proper particulars or vouchers are not forthcoming or accounts do not include entries relating to a particular class of business. Rejection of accounts should not be done light-heartedly. [St. Teresa's Oil Mills v. State of Kerala, (1970) 76 ITR 365, 367-8 (Ker); Tola Ram Daga v. CIT (1966) 59 ITR 632 (Assam)]. If there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the revenue or other side to contend that what is shown by the entries is not the real state of affairs. See, CIT v. Amitbhai Gunwantbhai, (1981) 129 ITR 573, 580 (Guj). It, therefore, follows that assessee's account books are to be accepted, unless, on verification, they disclosed any faults or defects, which cannot be reasonably and satisfactorily explained by the assessee See, R.B. Jessaram Fetehchand (Sugar Deptt.) v. CIT, (1970) 75 ITR 33,37 (Bom). If evidence is produced by the assessee in support of his return, it should be accepted unless it is rebutted by other admissible evidence and not by hearsay. See, Dunichand Dhani Ram v. CIT, AIR 1926 Lah 161; George Oommen v. C. Ag. IT (1963) 52 ITR 977 (Cal). Section 145(3) cannot be invoked unless accounts are non- genuine and the reasons for rejecting accounts are just and proper. See, CIT v. Shiv Agrevo Ltd. 398 ITR 608 (Raj)."
10. As to Ground No. 8 & 9 challenging the estimation of Net Profit @ 10% of turnover again the Ld. AR has filed a comprehensive submission to supplement to what he argued and we consider it advantageous to reproduce the same here in below to avoid anything being left out.
20 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT "8.1 Firstly, the Estimation @ 10% of turnover subject to deduction of depreciation allowance is without giving any basis thereof in the form of past history of assessee or comparable industry trend.
In the reassessment order, the Assessing Officer has not at all given any basis for the fixation of net profit @ 10% of the gross receipts. Upon rejection of accounts, estimation of income has to be based upon (i) past history of assessee, or (ii) industry or trade comparables citing the factors or points of similarity between instant assessee and the person whose GP/NP rate is being used as comparable, or (iii) assessment orders of assessee of past or succeeding years passed by and accepted by IT Department, or (iv) prevailing economic conditions vis-a- vis the assessee's business, or (v) rise in price index as notified by Government from time to time. Thus, for making addition after applying provisions of section 145, it is imperative on the part of Assessing Officer to apply a particular gross profit rate either with reference to past history of assessee's case or with reference to any other comparable case available.
NP rate chart of the assessee for preceding years, displaying past history of the assessee, is as under:
(All figures in lacs) Assessm- Turnover Gross Profit Profit before Profit before Net Profit after ent (Rs. in Interest & Depreciation Depreciation Year lacs) Depreciation (Rs. in (%) (Rs. in (%) (Rs. in (%) (Rs. in (%) lacs) lacs) lacs) lacs) 2008-09 4630.72 529.73 11.44 374.50 8.09 168.06 3.63 0.92 0.02 2009-10 4303.42 548.31 12.74 455.78 10.59 224.30 5.21 106.21 2.47 2010-11 5585.01 659.61 11.81 572.07 10.24 317.57 5.69 198.37 3.55 Copy of the audited accounts of assessee for AYs 2008-09 to 2010-11 is enclosed at Page No. 1066-1110 of Paper Book submitted on 24/03/2021.
In this regard, reliance is also placed upon the following judicial orders:
• Brij Bhushan Lai Parduman Kumar, etc. v. CIT (1978) 115 ITR 524 (SC).
• CIT v. Gupta, K.N. Construction Co. 371 ITR 325 (Raj).
• Action Electricals v. Deputy CIT [2002] 258 ITR 188 (Delhi)
• ITO v. Kundanmal Surana [2004] 3 SOT 632 (Jodh)
• Jupiter Textile v. ITO [2002] 77 TTJ (Jodh.) 735
• Bathinda Truck Operator Union v. ITO [2007] 158 Taxman 148
(Asr.)(Mag.)
21
ITA No.248/Del/2016
Inderjit Mehta Construction P. Ltd. vs. ACIT
For detailed discussion on this argument, the Assessee places reliance upon Para No. 43-46 at Page No. 84-91 of Paper Book submitted on 24/03/2021.
8.2 Secondly, NP rate of 8% specified u/s 44AD, as contended by the Commissioner (Appeal) to justify the NP rate of 10% subject to depreciation allowance fixed by the AO, cannot be used as yardstick to those cases where turnoverof assessee is higher than the amount specified in the said section, being rupees one crore for the impugned assessment year 2010- 11, and where assessee is maintaining books of accounts. In this regard, reliance is placed upon:
• Shri Ram Jhanwar Lal v. ITO (2010) 321 ITR 400 (Raj)
• CIT v. Dolphin Builders Pvt. Ltd. 356 ITR 420 (MP).
For detailed discussion on this argument, the Assessee places reliance upon Para No. 47 at Page No 91-92 of Paper Book submitted on 24/03/2021.
8.3 Thirdly, Estimated NP rate cannot exceed the NP rate of the immediate preceding assessment year. Please see, • CIT v. Jas Jack Elegance Exports 324 ITR 95 (Del) • CIT v. Inani Marbles P. Ltd., (2009) 316 ITR 125 (Raj) For detailed discussion on this argument, the Assessee places reliance upon Para No. 48 at Page No 92-93 of Paper Book submitted on 24/03/2021.
8.4 Principle of Consistency - Fourthly, Assessee has been consistently maintaining same set of books of accounts in the same form and manner, particularly Muster Roll, consistently accepted by the revenue in past and succeeding years. Therefore, different view cannot be formed by AO in the impugned assessment year. See, • CIT v. Navbharat Export 378 ITR 89 (Del) • CIT v. Kohinoor Foods Ltd. 373 ITR 682 (Del) • CIT v. S.R. Fragnances Ltd. 270 ITR 560 (Del) For detailed discussion on this argument, the Assessee places reliance upon Para No. 51-51.2 at Page No 95-96 of Paper Book submitted on 24/03/2021.
8.5 Fifthly, the assessee submitted complete details called for and audited books of accounts including cash book, bank book, journal book, general ledgers, debtor ledger, creditor ledger, and stock register along with vouchers and bills in soft as well as hard copy, which was acknowledged by the Assessing Officer in order sheet noting dated 05/01/2015. Copy of order sheet noting including those related to submission of books of accounts on 22 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT 05/01/2015 is enclosed at Page no. 926-930 of Paper Book submitted on 24/03/2021.
8.6 Sixthly, the assessee has been maintaining regular books of account, which were duly audited by an independent statutory auditor under the Companies Act, 1956 and by a tax auditor under the IT Act. Both the auditors have not found any fault and, therefore, had not expressed any qualification in the accounts of the assessee. Copy of statutory auditors' report with audited accounts and tax audit report is enclosed at Page no. 103-115 of Paper Book submitted on 24/03/2021. Therefore, rejection of accounts by AO is illegal. See, CIT v. Paradise Holidays 325 ITR 13 (Del).
8.7 Seventhly, Construction business carried on by the assessee is subjected to VAT. The assessee was regularly filing returns with these authorities. Such returns were periodically subjected to check by the relevant statutory authorities who had not found any discrepancy in the returns filed. Copy of VAT audit report and returns filed with VAT authorities for FY 2009- 10 relevant to the impugned assessment year is enclosed at page no. 1149- 11184 of Paper Book submitted on 24/03/2021. See, CIT v. Paradise Holidays 325 ITR 13 (Del)."
10. The Ground No.2 and 3 being interconnected are taken up first of discussion. It comes up from the material on record in the form of 'reasons for issuance of notice u/s 148 of the Act' as made available at page 918-921 of the paper book that more than reasons it appears to be a narration of sequence of events by the AO wherein he opens reasons from the background of the survey operations conducted on the business premises of the assessee on 23.05.2011 at Bhatinda and New Delhi. The AO mentions that during the course of this survey, a number of incriminating documents were found and impounded and during post search investigation, statement of one Shri Shiv Prakash Singh, director of M/s Shiv Naresh Sports Private Limited was recorded seeking details of the sub-contract executed by the assessee. The ld. AO mentions in the 23 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT reasons that during the inquiries it was found that the quality of the material used in the execution of sub-contract was poor. Further, it came up in inquiry that the sub-contract was executed by another sub-contractor M/s Chaudhary Construction Company at a cost of Rs.2.86 crores and, as such, the assessee company had not done the work under the sub-contract. The reasons as stood recorded show that the ld. AO had considered the statement of Shri Amarjit Mehta, one of the Directors of the assessee company and found that the purchases made by the assessee company from certain name suppliers were not of good quality.
10.1 The reasons mentions that when asked to produce the bills, copy of ledger accounts and proof of receipt of material at the stadium sites of the suppliers in their books, Shri Amarjit Mehta was not able to give satisfactory replies. He was asked to clarify why the details were not available with the Delhi office.
Again, there was unsatisfactory reply. The AO narrates that when he was asked to produce the day book, the same were not produced. The AO specifically observes that he was unable to identify the expenses in respect of SNSPL out of day book extracted from the computer. Further, when asked why they have not pursued their pending bill of Rs.2.45 crores as on 31.03.2010 out of which Rs.94.68 lakhs only were paid by M/s SNSPL in the month of February, 2011.
Shri Inderjit Mehta had stated that they pursued the payments on telephone only and no written correspondence was made with SNSPL.
24 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT 10.2 After narrating all this, the AO mentions that the assessee was again provided an opportunity to produce the books of account and copy of bank account on 30.05.2011. On this day too, Shri Suraj Garg, CA and AR of the assessee filed copy of bank statement and copy of the last audited balance sheet.
The books of account were again not produced.
10.3 Thereafter, the ld. AO makes the following relevant observations:-
"From the above discussion it is clear that the above noted company has received an amount Rs.3,46,80,925/- under the head sub contractor job whereas from the enquiry it is emerged that the assessee was not able to justify the work done for the company M/s Shiv Naresh Sports Pvt. Ltd. and the assessee has taken this amount in its gross receipt for the assessment year 2010-11 and after claiming the huge business expenses the assessee has shown net profit of Rs.1,98,36,757/- against the total gross receipt of Rs.55,85,01,192/- @3.97% whereas the amount under consideration of Rs.3,46,80,925/- is required to be assessed under the head 'income from other source' as the assessee company is not entitled to allow the business expenses as claimed it against this amount as the same is not received by the assessee company against any execution of any work done under the head sub contractor as discussed above.
In the light of the above, I have reasons to believe that the assessee company has escaped assessment an amount of Rs.3,46,80,925/- by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
Accordingly, notice u/s 148 is to be issued to reassess the income which has escaped assessment besides any other income chargeable to tax which would have escaped assessment and would come to my notice subsequently in the course of assessment proceedings under this section, within the meaning of section 147 of the Income Tax Act, 1961."
10.4 Now, what is relevant is that in the reassessment order passed on the basis of the aforesaid reasons, the ld. AO mentions that for the AY 2010-11, the return of income was filed on 28.09.2010 and the same was assessed u/s 143(3) of the Act on 17.10.2012 by 'the then AO' by making an addition of Rs.3 lakhs.
25 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT The AO has reproduced the observations of the 'then AO' while making addition of Rs.3 lakhs and we consider it appropriate to reproduce the same below:-
"....During the course of assessment proceedings, it was noticed that the assessee has debited an amount of Rs.70713250/- under the head "labour and wages for which the vouchers are mostly self made. The addresses of the persons to whom the payments were made are also not available in record. Only names and thumb impressions/signatures of the persons stated to have received these payments have been mentioned on the vouchers but no address or detail are available. As such the verification of claim of the assessee for expenditure made is not possible under such circumstances. When this defect in the books of account was brought to the notice of the counsel of the assessee, the counsel of the assessee has contended that vouchers have been maintained as per trade practice. However, an addition of Rs.3 lacs is being made by way of disallowance out of labour and wages expenses, in order to cover to any leakage of revenue..."
10.5 Thus, what crystallises is that at the time of passing assessment order u/s 143(3) of the Act on 17.10.2012, the then AO had before him all the relevant material to examine revenue from the work done by the assessee concerning Common Wealth Games. The reasons for reopening themselves manifest that extensive inquiries were made on the basis of survey operations including recording of statement of Shri Amarjit Mehta, one of the directors of the company. The reasons make it apparent that whatever information was subsequently considered at the time of recording of reasons for reopening was, in fact, part of the assessment record on the basis of which assessment was completed on 17.10.2012 u/s 143(3) of the Act. As observed earlier, at the time of recording of the reasons, there is specific reference to a notice dated 26 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT 30.05.2011 by which the assessee was said to have been given a final opportunity to produce books of account and copy of bank statement in compliance of which Shri Suraj Garg, CA and AR of the assessee filed bank statements and copy of the last audited balance sheet.
10.6 Thus, it is established that at the time of recording of the reasons on 11.08.2014 there was no fresh information with the AO. It appears that only because there was a new Assessing Officer the case was reopened. As a matter of fact, the assessment u/s 143(3) of the Act and the survey was done by the same Assessing Officer Mr. S.K. Mittal, who was Joint Commissioner of Income-tax, Range-1, Bathinda who had concluded the assessment on 17.10.2012. The subsequent notice u/s 148 of the Act dated 11.08.2014 is issued by the Asstt. Commissioner of Income-tax, Circle-1, Bathinda while taking cognizance of only so much of the information which was available on record with Shri S.K. Mittal, the Assessing Officer at the time of conclusion of assessment u/s 143(3) of the Act.
10.7 The law in regard to reopening stands settled that the reasons to believe for the purpose of section 147/148 of the Act reassessment should be recorded or based on some information which was not available or not considered or left out of consideration due to any act of assessee or assessing officer, at the time of original assessment. Any information which has been consciously procured and processed becomes stale and if same used will amount to a mere change of 27 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT opinion. Reliance in this regard is placed on judgments relied by the ld. AR on of the Hon'ble Delhi High Court in the cases Rasalika Trading & Investment Co. Pvt. Ltd. v. DCIT (supra); and CIT V/s Kelvinator of India Ltd. (supra).
The Hon'ble Supreme Court confirmed the decision of the Hon'ble Delhi High Court judgement in CIT V/s Kelvinator of India Ltd. (supra) wherein the Hon'ble Supreme Court judgement in the case of Indian and Eastern Newspaper Society vs. CIT (1979) 119 ITR 996 (SC) was relied for making observations that the AO must first have information in his possession and then in consequence of such information he must have 'reasons to believe' that income has escaped assessment. The 'information' to be relied, to our mind, should be one which was not in the knowledge of the Assessing Officer, for the reasons it was not patent or left latent. In the case in hand, the Assessing Officer has merely relied on the survey and post survey/search inquiries made by the 'then AO', himself. The aforesaid discussion establishes that there were extensive inquiries post survey with regard to the sub-contract work and its accounting in the books of the assessee in the course of regular assessment and merely by using the same the 'reasons to believe' were recorded.
10.8 The ld. DR has although defended the reasons for reopening relying on the prima facie belief test that at the stage of reopening only a prima facie belief is to be formed and mere possibility is sufficient. However, it is not the case of lack of substance in the information, but, as discussed above case of no 28 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT 'information' at all, as what is considered as 'information' was already processed and had culminated into the assessment order u/s 143(3) of the Act.
10.9. The ld. DR has also submitted that there was a duty on the part of the assessee to disclose facts fully and truly but this contention is not of any assistance to the Revenue as it is not a case of escapement due to furnishing of false or incorrect facts by the assessee, but, here in this case, the AO had invoked the reassessment powers on basis of information said to be emanating merely out of survey operations or post survey/search enquires.
10.10 The Ld. CIT(A) seems to have missed the vital fact that all the enquires referred in re-opening reasons were collected before the original assessment u/s 143(3) of the Act. The ld.CIT(A) has merely gone on the question: 'if there was prima facie some material for reopening and not sufficiency or correctness of the material', relying on the judgement of the Hon'ble Supreme Court in the case of Raymond's Woolen Mills vs. ITO (1999) 236 ITR 34, where there was allegation of suppression of material facts by the assessee during initial assessment, which is not the case here at all. Every aspect was enquired in initial assessment and there was no further information to show that was accepted out of enquiry in initial assessment was erroneous on facts or law, requiring re-assessment.
29 ITA No.248/Del/2016Inderjit Mehta Construction P. Ltd. vs. ACIT
11. In aforesaid context it comes up further that for mere change of head of income from business to income from other source of the receipt of Rs. 3.46 crore from SNSPL, the Ld. AO has found it case of escapement. However, we are of considered view that it cannot at all result into belief of escapement of income or assessment without establishing and quantifying the escapement of tax in reasons itself. In the case of assessee both business receipts and income from other sources are liable to the same rate of 30% tax, and the Assessing Officer, in the reasons, has not specified that any expense debited by the assessee to its Profit & Loss Account is bogus or inflated expenditure or otherwise not allowable under any provision of the Act. Assessee had duly recognised the amount of Rs. 3.46 crore as its income in its audited accounts and consequently, had offered the same to tax in its ITR which stood accepted.
There is no allegation in the reason that any income chargeable to tax has been under assessed or assessed at too low a rate or made the subject of excessive relief under the Act or excessive loss or depreciation allowance or any other allowance has been computed in the original assessment order dated 17/10/2012.
12. Thus, we are inclined to allow ground No.2 and 3, and conclude that the assumption of jurisdiction u/s 147 of the Act was vitiated and same goes to the root of assessment u/s 143(3)/148 of the Act, making it illegal. The assessment 30 ITA No.248/Del/2016 Inderjit Mehta Construction P. Ltd. vs. ACIT so framed is liable to be quashed. The adjudication of the other grounds raised becomes academic and, as such, they are left open.
13. In the result, the appeal of the assessee is allowed and impugned re-
assessment is quashed.
Order pronounced in the open court on 23.01.2024.
Sd/- Sd/-
(M. BALAGANESH) (ANUBHAV SHARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 23rd January, 2024.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asstt. Registrar, ITAT, New Delhi
31