Income Tax Appellate Tribunal - Nagpur
Shri Mitesh Gotulaji Bhangadiya, ... vs D.C.I.T Central Cir.2)1), Nagpur on 29 June, 2017
L.T.A.No.56 to 61 /Nag/ 2016 1.T.A.No,261 to 265/Nag/2016 Assessment Years:2007-08-2011-13 z 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. 56 TO 61/Nag/2016 Assessment Years:2007-08 TO 2012-13) ACIT CENTRAL CIR -- 2(1), 3®° FLOOR, ROOM NC. 312, AAYAKAR BHAWAN, CIVIL LINES, NAGPUR -- 440 001, Vs MITESH GOTULALII BHANGADIYA 20-2, HOUSE NO. 526, NEAR GATEWELL HOSPITAL, DHANTOLI, NAGPUR -- 440012 PAN: AERPB2503E (Appeifant) (Respondent) LT.A. Nos. 261 TO 265/Nag/2016 Assessment Years:2007-08 TO 2011-12) MITESH GOTULALJI BHANGADIYA 20-2, HOUSE NO. 526, NEAR GATEWELL HOSPITAL, ) | DHANTOLI, NAGPUR -- 440012 PAN: AERPB2503E Vs DCIT CENTRAL CIR -- 2(1), AAYAKAR BHAWAN, CIVIL LINES, NAGPUR - 440 001. (Appellant) (Respondent) Revenue by Shri A. R. Ninave Assessee by _ Shri K. P. Dewani Date of hearing 19/06/2047 Date of pronouncement 29/06/2017 ORDER
PER P.. K. BANSAL, V.P. All these cross appeals have been filed against the order of the CIT(A) dated 30/12/2015. The assessee in all the assessment years in its appeal has taken the following common grounds of appeal:
2, groun LT. A.No.56 ta 61/Nag/2016
1.T.4.No.261 to 265 /Nag/ 2016 Assessment Years: 2007-08-201 1-12 "The notice issued under Section 1534 of ET. Act, 4961 is itegal invalid and bad in law and consequent assessment framed thereupon is liable to be canceled.
2. ihe Learned CIT(A) ought to have directed io accept the income as Shown if return Bled Pursuance to notice u/s. 153A Of LT. Act 1061 and deleted the entire addition as made by the A.O. in the assessment famed.
J. lhe Learned CIT(A) erred in not accepting te prayer of assessee to adopt net receipt for determining the estimated income at the hands of GS5SE5S8 after excluding fhe recoveries made oy the Government Departments on account of material supplied sales tax and service lax ate.
4, The addition confirmed by fearned CITA) by adopting 18% of receipts is uryustified unwarranted and EXCESSIVE,
5. The learned CLIVA) erred jn upholding the part addition made by AO. by adopting 18% of receipts, é. ihe assessee denies ability to pay interest under section 2344, 234B and 234C of LT Act 2961. Without Prejudice, levy of interest under Section 2344, 2348 and LF4C Of ET. Act 1961 js unjustified, unwarranted and excessive, "
E18 The Revenue in its appeal for A.Y.07-08 has taken the following ds of appeal. Similar grounds are taken in A.Y.08-09 to except change in figures:
"l. Whether on the facts and circumstances of fe case and in law the ido CI (A) was right in thwarting the very PULPOSE Of search and seizure Provisions of the Act by ignoring seized incriminating documents and thereby directing the AQ to tax the income On presumed percentage based on surmisas.
2 Whether on the facts and CHCUMSEAIICES Of the case and in law the td. CIT(A) was right in not affording the opportunity fo the AO of being heard curing appellate Proceedings despite AO has Speciically asked of being 12013 L.T.A.No.56 ta 61/Nag / 27026 LT.A.Ao0,261 to 265 /Nag/2016 Assessment Years:2007-08-2011-12 heard vide his fetter dated 19.02.2015 and fhereby passing order in undue haste ignoring provisions of the Act.
3. Whether on the facts and in the circumstances of the case and in law, the La. CIT(A) was right in deleting the addition af Rs. 40,98, 887/- made on account of bogus sub- conttact payments?
¢. Whether on the facts and in the circumstances of the case and in law, the Lo. CIT(A) was justified in deleting the addition of Rs. 40.98 887/- made on account of bogus sub- contract payments without appreciating the fact reveated from the seized materials and statements recarded that the sub-contractors are only mame jenders and have hot executed any sub-contract?
4. Whether on the facts and circumstances of the CASE and in law the Ld. CIT(A) was right in hoiding that the incriminating dlaries seized from residence of the main Person of the group cannot be said to be beionging to Particular concern ignoring the documentary evidence and the admission of Shri Mitesh Shangdiva himself that the entries in the Glaries pertain to the details of cash flow of assessee group's business activity and the entries jn fhe diaries were not completely recorded in the books of account, &. Whether on the facts and in the circurnstances of the case and in law, the La CIT(A) was right in deleting the addition of Rs. 94,82,027/- being unaccounted income?
7. Whether on the facts and in the circumstances of the case and in jaw, the Ld. CIT(A) was justified in defeting the addition of Rs. 9482,027/- being unaccounted income without appreciating the evidences found and seized during te search and sefzure action?
8. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing AO fo adopt total income of the assessee at the rate of 16% gross receipt by ignoring the findings given by fhe AO regarding bogus sub-contractors, unaccounted income and Gratification payments?
L.7.4.N0,56 to 61/Nag/2016 1.7.A.No,261 to 265/Nag/2016 Assessment Years:2007-68-201 i-12 9 On the fact and circumstance of the case and in law fhe La. CITA) erred in accepting assessee's contention that various sub contractors used to keep deposit of money witharawn by them from bank with the assesses group for Safe custody which was recorded on the credit side of the incriminating diaries 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 Mere,
10. On the fact and circumstance of the case and in law the Ld. CIT(A) erred in accepting assessee's contention that fhe sub contractors kept their money for safe custody with the assessee group and amounts in smaif guanties were later withdrawn by them for meeting the expenses at sites by ignoring the fact that none of the ames of the sub contractors appeared on debit side of the facriminating diaries, ti, On the fact and circumstance of the case and in faw ihe La. CIT(A) erred in not calculating exact unexplained expenditure and unaccounted investment mentioned in seized incriminating diaries as well as infested cain of expenditure in various projects and directing the AO to GSSUME COtain Dercentage.
f2. On the fact and circumstance of the case and in law the La. CIT(A) erred in holding that having been accepted receipts from the assessee for assessing the income in the hands of sub contractors the Payments made by assessee Group f0 such sub contractors cannot pe treated as non genuine, ignoring the fact that sub contract Dayments were dsSES5@0 in the hands of the assessea Group as bogus sub contract payments and in the hands of the sub congractors brolective assessments were made by treating the entire Peceipls aS income as no contract was executed.
43. On the fact and circumstance of the case and in law the id. CITA) erred in observing that unaccounted Payments or unatowable expenses like gratification paid to various politicians and government employers Have no I.T.A.N0.56 to 61/Nag/2016
1.T.4.N0.261 to 265/Nag/2016 4ssessment Years:2007-08-2011-12 corroborative evidence on record to hold that assessee Aas made payments of any illegal gratifcation. The onus in on the assessee to prove that the payments were genuine and lncurred legaily. As the cash payments were nat recorded in the regutar books of account and as the assessee failed fo substantiate those payments, the CIT(A) ought to have upheld that the entire amount of Rs. 171.10 crores is unaccounted axpenditure.
if, On the fact and circumstance of the case and in iaur the Ld. CHA) erred in relying on the decision of Hon'ble HAT in Bhangdiya group of cases as at that time the information contained in incriminating diaries was not avaiable efther 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 EXDeCNngHture.
i5. On the fact and circumstance of the case and in law the id. CIT(A) ought to have appreciated the fact that in fhe case of assessee's group it is not feasible to estimate the net profit at 4 particular ratio as out of gross receipts of a/9 crores the assessee group made unaccounted Payments to the tune of Rs. 171 crores and hence spent anly Rs. 408 crores towards execution of contract work. Whatever profit was derived on execution of the contract work 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 the ASSESSEB,
46. On the fact and circumstance of the case and in law ihe Ld. CIT(A) failed 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 like section 40A(3), 40(a}fia}, 68, 69, 69C etc. and in the case of the assessee group addition u/s. &9C is applicable. * Fel For E.T.A.N0.56 to 61/Nag/2016 :
L.T.A,No.261 to 265/Nag/ 2016 ae Assessment Years: 2007-08-2011-12
3. Ground No. 1 & 2 taken by the assessee were not pressed during the course of hearing therefore, these grounds are dismissed as not pressed.
4. Ground Nos, 3 to 5 in assessee's appeal as well as ground nos. 1, 2 & 16 in Revenue's appeals relate to the common issue regarding the deletion of addition made On account of bogus sub-contract payment, deletion of addition being unaccounted income by the CIT(A) and sustaining the addition by CIT(A) by estimating the profit by adopting 16% of the gross receipts.
3. 'The facts and circumstances and issue involved in all the six years of the appeal are similar and identical therefore, ali these appeals are being disposed of by this consolidated order for the sake of convenience, The assessment year-wise details of date of filing of return, returned income assessed income and the section are jaid down as under:
S. NOJAY. Date of filing of = |Returned Assessed Income [Section return income (Rs.) |{Rs.) 1 2007-08 31.01.2013 4795480 16472525 153A, 2 2008-09 31.01.2013 9162970 13743360 1534 3 2009-10 31.01.2013 Be05660 14465371 153A 4 2010-11 31.91.2013 11308050 262827426 153A 5 2011-12 31.01.2013 355253400 F45949819 153A 3] 2012-13 03.12.2013 10421350 191024303 143 {3}
6. The facts of the case, in brief, are that Search and seizure operations were conducted in the réesidentia! premises of Shri Mitesh G. Bhanadiya on 19/7/2011, simultaneously search actions were carried out in other premises belonging to Bhanadiya Group including three Fox
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L.T.A.No.56 to G1/Nag/2016 "
eoolnateaet aig i residential-cum-business premises, one office and one residential premises which are spread across Nagpur, Amravati, Chandrapur, Wardha and Bhopal. Another seven premises at Nagpur, Chandrapur and Mumbai were also covered under section 133A of the L.T. Act. During the course of search, books of accounts and large number of incriminating documents and diaries were found and seized. 'Thereafter notices u/s 153A of the LT. Act dated 28/12/2012 were issued and served on assessee on 01/01/2013 requiring him to file the returns of income within 30 days fram the receipt of the notice. The assessee has filed the return for each of the assessment years in response to notice u/s 1534 declaring income as mentioned in the table given herein above.
6.1 The assessee i.e. Shri Mitesh Gotumal Bhangdiya is the key person of the group. His family consists of the follawing members:
Shri Mitesh G. Bhangdiya (MGB) + Megha (Wife of MGB) Kirtikumar (son) + Sonal (wife of Kirtikumar) shrikant (son) + Aarti (wife of Shrikant) Neha -- Daughter 4 Gesides, the business is handled by Shri Kirtikumar Bhangdiya (hereinafter referred to as KMB) and Shri Shrikant M Bhangdiya (hereinafter referred to as SMB). The. other important persons in the group are: Shri Sanjaykumar Rameshchandra Heda, husband of MGB's sister, Smt. Pradnya, residing at Amravati and smt., Manisha ©. Maniyar, widowed sister of MGB who lives with the MGB family.
6.2 41 The business concerns of the group (including those discovered as a result of the search action} are as follows --
I. M/s MG. Bhangdiya (AERPB2503E}, (Prop. MGB}; converted into @ company M/s M.K.S. Constro-venture Pvt, (AAHCM0383T) Ltd. from 01.04.2011.
- Zou I.T-A.N0.56 to 61/Nag/2016 fs | LT.A.No.261 to 265/Nag/2016 g _ Assessment Years:2007-08-2011-13
2. M/s Mahendra Construction, Prop. Shri Sanjay Heda (MC) (AADPH?109])
3. M/s Mahendra Construction 85 M.G. Bhangdiya (JV} (AANFM5658B)
4. M/s Kirtikumar M. Bhangdiya (Prop. KMB); converted into a company M/s M.K.S. Acme Buildcon Pvt. Ltd. (AAHCM0382K) from 01.04.2011. (AGYPB1659G) M/s KM, Bhangdiya & Mahendra Construction (IV) (AAKFK1820C) M/s Shrikant M., Bhangdiya (Prop. SMB)(ATCPB1337)) Mitcon Infraproject Pvt. Ltd. (MIPL) (AAGCM1868H) Lokshahi Publications Pyt. Ltd. (LPPL)(AABCL66731) MITZ Infraproject Pvt. Ltd. (AAGCM3047A) Sakshi Gruh Nirman Pyt. Ltd, (SGNPL)(AAOCS7974G) Balaji Stone Crusher & Infraventure Pyt, Ltd.(AADCB5273¢} MT pet os a oN:
6.3 The group has also entered into joint ventures. with various other civil cantractors of the city to secure some civil contracts. A few of them are listed below:
M/s M.G. Bhangdiya & Hitbhay Engg (JV) (AAOFM4745L) M/s M.G. Bhangdiya & S. S, Patil & Co. (JV)(ABIFS36451) M/s Darshan Construction Gv} (AAHFDO654N) M/s MR Dhoble as kK M Bnangdiya (JV)(AAPFM0622B) BPO es 6.4 The nature of the business of the group primarily is executing civil contracts. The group work mainly for Government departmenits fike M/s Vidarbha Irrigation Development Corporation and engaged in executing various contracts pertaining to the irrigation Projects in the State of Maharashtra. The evidences seized from the business and residential premises reveaj that the entire business activities are managed by Shri Mitesh Bhangdiya and his sons.
6.5 During the course of search operations severa! incriminating documents were found and seized from the residential premises of Shri Mitesh Bhangdiya. Item no. 1 to 65 of Annexure-B seized from his LT.A.No.56 to 61/Nag/ 2016 L1.A.No.264 ta 265/Nag/2016 Assessment Years: 2007-08-2011-12 residence are the diaries containing ledgers, daily cash books and bank baoks maintained by the Bhangdiya group.
6.6 Survey operations u/s 1334 were also conducted against the Bhangdiya Group on 17/02/2009. During the survey operations, it was noticed that the assessee group has inflated the expenses, especially sub-
contract expenses, to earn unaccounted income, The assessee Group has accepted the discrepancies and disclosed additional income of Rs.21,04,48,592/- for the period from AY 2006-07 to 2009-10. Apart from the above disclosure made during survey operations, the assesea Group has also made additional disclosure of Rs 26 Crore consequent to the search operations, as discussed in the subsequent paras below.
6.7 The Assessing Officer in para-5.1 of the assessment order has ™, highlighted the significance of diaries seized at Annexure B-1 to B-65.
j According to the Assessing Officer, the analysis of the entries in the diaries reveals that on receipt side various receipts including receipt from withdrawals from bank accounts of group entities and sub- contractors were recorded and on payment side entries of expenses like interest payments, repayment of loans, deposits into bank accounts, household expenses, personal expenses, payment to various Persons in cash and investment in properties are found recorded. The Assessing Officer also found that some of the entries made in the seized diaries were also found refiected in the regular books account maintained by the Bhangdiya group. A statement of Shri Mitesh Bhangdiya was recorded on oath on 20/07/2011. In his sworn statement recorded during the course of search action, Shri Mitesh Bhangdiya was confronted with the entries borne out from the seized diaries marked as B-i to B-65 and to explain the contents of these diaries. Shri Mitesh Bhangdiya in his reply to Q-30 of his statement recorded has submitted a
--i LT.8,.N0,56.to 61/Nag/2016 I.T.A.No0.261 to 265/Nag/ 2016 Assessment Years: 2007-08-2011-12 that the entries in the diaries and the ledger pertain to the business receipts and business expenditure but at present it is very difficult to state whether the entries recorded in the seized diaries are accounted in the regular books of account and the same can be explained only after verification of entries of diaries with the regular books of account maintained by the Bhangdiya group, However, in his reply to Q-38 of his statement recorded on 20/07/2011, Shri Mitesh Bhangdiya voluntarily offered additional unaccounted income of Rs.26 crores (twenty six crores) for the block period including the current financial year over and above the regular income declared in the returns of income filed for the assessment years falling within the block period in the hands of different assessees. During the course of assessment proceedings, Shri Mitesh Bhangdiya was summoned and his statement was again recorded on oath on 27/07/2013 by the Assessing Officer. Shri Mitesh Bhangdiya has confirmed his earlier statement made on cath on 20/07/2011 during the course of search action confirming the additional declaration of Rs.26 Crs. Shri Mitesh Bhangdiya in his statement recorded on 27/07/2013 by the Assessing Officer has clearly deposed that the seized diaries were primarily maintained by his father Shri Gotulalji Bhanddiya. The Assessing Officer has also recorded a fincing that the seized diaries contain payments made in cash for probable extraneous gratification to various politicians, government officers/officials which are recorded therein. Prima-facie the Assessing Officer has neither examined such parties referred in the order nor brought any corroborative evidence on record in support of his finding that the payments made in cash are for probable. extraneous gratification to various potiticlans and government officers/officials, despite ample time available.
Fox 1.7.A.No.56 to 61/Nag/2016 pn
1.T.4.No0.261 to 265/Nag/2016 Assessment Years: 2007-08-2011-12 6.8 The Assessing Officer had made efforts to match the entries of tax payment and receipts with the entries in the regular books of account of the Bhangdiya group. The Assessing Officer found instances where small amounts are found reflected both in the incriminating diaries and regular books of account.
6.9 The Assessing Officer noted that the assessee group has claimed huge expenses on account of sub-contract payments. During the AY 2009-07 to 2012-13 the Bhangdiya group has debited Rs.361 crores towards the sub-contract payments against the gross receipts aggregating to Rs.579 crores which constitutes 62% (not correct} of the gross receipts. On verification of bank accounts of the sub-contractors, the Assessing Officer found that payments were credited in the bank accounts of the sub-contractors through the cheques issued by the Bhangdiya group and the amounts were subsequently withdrawn in cash. The Assessing Officer "\ has further recorded a finding that such withdrawals from the sub- contractors accounts are found credited to the daily cash balance of the seized diaries which were utilized for unaccounted payments or unaccounied investments. Shri Mitesh Bhangdiya in his statement recorded on 14/09/2011 had admitted that the entries in the seized diaries marked as Annexure B-1 to B-65 pertain to daily cash handling of the group, and has reaffirmed in his subsequent statement dated 27/07/2013 recorded by the Assessing Officer. The cash withdrawn from the bank accounts of the sub-contractors and by them and kent with the assessea for safe custody and to be issued at various sites as per the requirements on behalf of such sub-contractors. The Assessing Officer concluded that these sub-contractors are name lenders, therefore, the payments made ta them is bogus expenditure. The Assessing Officer in his assessment order, though has discussed the issue of allowability or otherwise of the Fee
1.T.A.No.56 to 61/Nag/ 2016 E.T.A.No.261 to 265/Nag/ 2016 12 ~~ Assessment Years: 2007-08-2011-12 expenditure made to these sub-contractors u/s 69C but no such addition / disallowance finally has been made.
6.10 The Assessing Officer in his order noted that statements of 17 sub- contractors to whom payments have been made by Bhangdiya group under the head subcontract payments were recorded during the survey proceedings in which they have confessed that they were mere name lenders. The Assessing Officer has also reproduced the statements of couple of sub-contractors in the assessment order. The Assessing Officer has referred to the statements of 11 sub-contractors agreement for sub- contract and all income-tax matters of these sub-contractors were being handled by the Bhangdiya group. The Assessing Officer has aiso mentioned that the persons at sites were getting a small amounts ranging between Rs.15,000/- to 25,000/- at the sites as advance from the assessee group periocically in cash for making necessary expenses at sites or any other task assigned to them and the sub-contractors are also getting approximately Rs.15,000/- to 25,000/- per month. Thus, the Assessing Officer has concluded that the payments made to the sub- 4, contractors _ are bogus which were siphoned back by the Bhangdiya group as per the seized diaries.
6.11 The Assessing Officer had dene the scrutiny of entries made in the diaries seized at Annexure B-1 to 8-65 in the assessment order. The diaries are in the form of cash books which contained cash receipts on one side and cash payments on the other side of each page. The receipt side of the seized diaries contains the amounts withdrawn from the bank accounts of the sub-contractors, the amounts withdrawn from the bank accounts of the Bhangdiya group concerns and amounts and amounts received from individuals. The narration of the entries in same cases mention name and place of the banks and at some places names of some of the sub-contractors are also found reflected. The cash receipts from I.T.4,N0.56 to 61/Nag/2016 1.7.A.No.261 to 265/Nag/2016 [ae Assessment Years:2007-08-2011-12 the other concerns of the Bhangdiya group are also reflected along with their bank names and such entries of cash are also found reflected on the Payment side as well. The Assessing Officer observed from the seized diaries that there were cash transactions amongst the group concerns due to which some entries were found on both the sides. Thus, the Assessing Officer after considering the withdrawals from the bank accounts of the sub-contractors and the withdrawals made by Bhangdiya group concerns arrived at the financial year-wise unaccounted receipts as found credited in the seized diaries as under:
Financial Year Amount (in Crores) 2006-07 20.07 2007-08 36,12 2008-09 19.67 2009-10 44.34 2010-11 51,32 2011-12 11.00 Total } 182.52 6.12 According to the Assessing Officer, the Bhanediya group has claimed huge expenses towards sub-contract payments and after depositing the cheques in the respective bank accounts of the sub-
contractors, cash was allegediy withdrawn by the Bhangdiya group and draught into the diaries for utilizing the funds for unaccounted expenses such as gratification to politicians and government officers/officials, The Assessing Officer has further recorded a finding that the cash payments entered in the seized diaries are of various nature such as household expenditure, donation/charity, salaries to staff and domestic help, office expenditure, site expenditure, expenditure on machinery, Fle
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1.7.A.No.56 to 61/Nag/2016
- neinatrce gioco UM legal , payments to individuals, cash transfer, cash payments to group concerns and cash payments made § towards purchase of agricultural lands, payments towards transportation, petrol diesel expenses etc. The Assessing Officer in order to elucidate the modus-operandi has reproduced few scanned copies of pages from seized diaries and ledger in the assessment order. The unaccounted payments, according to the Assessing Officer, given in diaries, are computed financial year-wise as under:
Financial Year Amount (In Crores} 2006-07 7.99 2007-08 28.89 2008-09 19.71 2009-10 52.09 2010-11 50,33 2011-12 12.09 Total 171.10 6.13 The unaccounted receipts determined by the Assessing Officer financial year-wise are to the tune of Rs.182.52 crores. Therefore, the Assessing Officer has considered entire unaccounted receipts of Rs.182.52 crores for addition in the hands of various concerns of Bhangdiya group. The Assessing Officer gave a finding that efforts were made to link the cash withdrawais from the bank accounts of the subcontractors and the bank accounts of various concerns of Bhangdiya group which, according to the Assessing Officer, claimed bogus sub-
LT.A.NO.56 to 61/Nag/2016 LT.A.No.263 bo 265/Mag/2016 & 13 , "es Assessment Years: 2007-08-2011-17 contract payments with reference to that particular sub-contractor. The relevant finding givenis as under:
'since it was not feasible to correlate the withdrawals from all the sub-contractors of the assessee group with the fespective group concerns, 21 sub-contractors bank accounts were verified. it was noticed that cash withdrawals from the bank accounts of these sub-contractors were done immediately atter cheques were credited by the respective group concerns. These cash withdrawals were then entered on the feceipt side with bank names in the incriminating diaries in date wise manner, in view of this, cash withdrawals from the bank accounts of the subcontractors, as entered in the diaries, are added in the hands of respective group concerns in proportion fo the amounts cheques credited by the respective group concerns. Total of these verified cash withdrawals, to be added in the hands of respective group concerns, comes out fo be RS.54.4@ crores,"
6.14 Thus, according to the Assessing Officer, out of the tota! unaccounted receipts of Rs.182.50 Crs., a sum of Rs.54.40 Crs. is attributable to the amounts deposited in the bank accounts of the sub- contractors by account payee cheques by various concerns of Bhangadiya group which was subsequently withdrawn in cash, which is found reflected on receipt side of the seized diaries. This amount of Rs.54.40 Crs. has been added by the Assessing Officer in the hands of the respective group concerns of Bhangdiya group in proportion to the amount of cheques credited by the respective group concerns in the various assessment years falling in the block period. Based on such methodology, the Assessing Officer has made the addition in different assessment years falling within the block period in the case of the assessee.
FIA L.7.4.N0:56 to 61/Nag/2016 .7.A.N0.261 to 265/Nag/2016 nr Assessment Years: 2007-08-2011-13 ;
6.15 As regards to the balance amount of unaccounted income of RS.i28.12 Crs. (Rs.182.52 Crs.-Rs.54.40 Crs.}, the Assessing Officer in para 9.2 & 9.3 has recorded the following finding:
"With regard to the balance amount of Rs,128.12 Crores, efforts were made to correlate the cash withdrawals which were credited on the receipt side of the diaries with the bank accounts of the remaining subcontractors. It is essential to note that the assessee group is having more than 100 sub- contractors. Vide questionnaires issued. assessee group was specifically asked to produce the sub-contractors who have not appeared, along with their books of account and bank accounts for verification but, there was no cooperation from the assessee group. Further, the assessee group was asked fo expiain the entries in the diaries but no such explanation was offered. As the entries in the diaries were made giving Natration of either name of the bank or name of the bank along with the branches and as some of the sub-contractors are having bank accounts in the same bank and branch, it was difficult fo match the entries in the diaries with the Particular sub-contractor from whose account cash was withdrawn brought into the diaries.
in view of the above, and in view of the assessee's non-cogperation in tus matter, the only opinion left is to add the balance amount of Rs.128.12 Crore to the income of the group concerns on prorate Dasis ie. in the ratio of contract receipts shown by the group concern in the respective assessment years to ifie total turnover of the group concerns in that year,"
6.46 Itis thus sean from the above finding that the Assessing Officer has made the total addition of Rs.182.52 Crs. in the hands of various concerns of Bhangdiya group in various assessment years falling within the block period on prorate basis for want of proper correlation between the amounts credited in the seized diaries and tne withdrawals made fram the bank account of the sub-contractors. An addition of Rs.54.40 Crs. has been made on accatnt of entries of withdrawals from the bank account L.7.A.No.56 to 61/Nag/70i6 J LT -A.No.261 té 765/Nag/ 2016 }7 Assessmant Years:2007-08-2011-12 of sub-contractors recorded in the seized diaries in proportion to the cheque payments.
6.17 As regards to the balance addition of Rs.128.12 Crs., the Assessing Officer in his finding reproduced above has stated that efforts were made to correlate the cash withdrawals credited on the receipt side of the diaries with the bank accounts of the remaining sub-contractors but the same could not be accomplished, therefore, the Assessing Officer made the addition of Rs.128.12 Crs. in the hands of various group concerns on prorate basis in proportion to the contract receipts declared by such group concerns in various years falling within the block period.
7, When the matter went before the CIT(A}, the CIT(A) did not appreciate the method of making the addition by the Assessing Officer in respect of the gross receipt of Rs.182.52 crore but directed the Assessing Officer to compute the addition by estimating the profit by applying rate of 16% on the gross receipts of group concerns and allocated the income , so atrived among the various assessee group concerns including the i assessee. The CIT{A) while estimating the profit @i6% appreciated the ?% order of the Tribunal in the case of the assessee group in I.T.A.Nos. 268, 269 and 285/Nag/2012 in the case of the assessee dated 03/04/2013 for the assessment year 2006-07 to 2008-09 in which the Tribunal in consequence of the evidence found during the course of survey operation as well as recording the statement of various sub-contractors on which the Assessing Officer has retied while making the addition during the impugned assessment, directed the Assessing Officer to work out the income by applying net profit @12%. The CIT(A) has directed the Assessing Officer to adopt 16% of the gross receipts as the net profit for the block period of the search comprising of the assessment year 2007-08 to 1012-13 instead of 12% directed by the Tribunal keeping in view that FI 1,1.A.No.56 to 61/Nag/2016 LT.AcNo.261 ty 265/Nag/2016 oe Assessment Years:2007-B8-2011-12 ' the assessee had made the undisclosed investment found during the course of search in the assets and jewellery to the tune of Rs.26 crores and Rs.2.37 crores. To cover up the undisclosed investment in the immovable assets amounting to Rs.26 crores and in jewellery of Rs.2.37 crore respectively, the net profit was directed to be adopted @16% of the total turnover of Rs.579 crores which comes to Rs.92.62 crores ignoring the fact that the grass receipt of the assessee group includes the sum of Rs.50,00,98,566/- in respect of the sales tax and royalty which do not constitute of any profit element but are in fact the fiability to be discharged to the thirty party by observing as under:
"20.0 f have carefully considered the submissions of the AR of the appellant, the assessment order, the material on record, the remand report of the AO and the judicial decisions relied upon by the AR.
i2.0 On careful examination of the material facts, the following facts have emerged from the submissions of the AR of the appellant.
£2.14 fhe AR has contended that it was explained before the AO that the deduction like royalty, VAT, Work contract taxes, material supplied in respect to various works executed by assessee are fo the tune of Rs. 51.29 crores and no income could be said to have been earned in respect to such deduction for the purpose of determining the income in the case of assessee. The gross receipts before deduction are to the tune of Rs. 579 crores and the net receipt from it. the assessee possibly could have derived income from contract business are only to the tune of Rs. 527.71 crores. The estimated income declared by assessee in the various returns filed under section 153A of 17, Act 1961 is more than reasonable and thus there is no warrant or justification for Making any addition at the hands of assessee. The action of A.O, in not considering receipts at 527.71 crores ignoring the binding decision of Apex Court in the case of 8rif Bhushantal reported at 115 ITR 524 (SC) is unjustified.
LT.4.No.56 to 61/Nag/2016 T.T.A.NO.261 to 265/Nag/2016 J qo Assessment Years:2007-08-2011-12 4i.2 The AR has further pleaded that the assessee is engaged in the activity of execution of work for irrigation Department of Slate Government of Maharashtra. The work fas been allotted to the assessee group for executing the orders year after year on completion of the work allotted from ume to time. There is due PrOCeESS Of verification for execution of work before releasing of payment. In the case of GPSSESSE0 group execution of work and receipts for fhe same ate not in dispute, The work having been executed which was not in dispute a reasonable rate of brorit alone could be fable fo be assessed at the hands of assessea, The assessment of income at more than 40% of the receipts in no manner of consideration can be considered as reasonable.
41.3 The AR has enclosed details of the business income assessed by the A.O. in terms of percentage of gross receipts shown in the returas of income by vatious entities of the group. The various percentages of income as computed by the AR would indicate that the income assessed by ALO. is inconceivable to have been earned dan the business receipts received Dy assessee group. Therefore, according to the AR, the substantial addition made at the Aands of the various business entities of assessae group is excessive and unreasonable, Income from Contract Business ssessed by AO in % terms:
Particular AY AY AY AY AY Ay ay 2006- 2007 2008-09 2009-10 3010- 2011- 7012-13 oF 08 11 i?
M/s. MG Bhangdiys 11.79% 41.27% 35.60% 19.6004 27.46% 49,505 MKS Canstro Venture P. Ltd. O34% M/s. Mahendra Construction 10.78% 43.13% 25.44% 11.04%. 21,70% 33.05% 27.73% M/s. Mahendra Const. & M.G. Bhangdiya JV 49.53% 73.44% 17.69% 41,819, 16.0395 M/s. KM. Bhangdiya 11.97% 23.39% 36.7695 25.26% 15.22% 13.94% MES Acme Build P Ltd 10.28% M/s. M G Bhangdiya and 66.53% 11.98% 27.83% 0.00% Hitbhav Engg JV M/s. MG Bhangdiya and $$ PATILIV 54.82% 129.92% 13.18% M/S K M Bhangdiya J¥ 29.28% 39.52% Mitcon Infra Project P Ltd 10.07% 10.00% 10.00% Consolidated 12.36% 47.01% 74.36% 18.5295 34.25% 49.97% 44.590 £i.4 it i¢ seen that in the case of assessee group books of account were rejected in regular assessment framed Prior to FE, 1.7. ANG. 56 te 61/Nag/2016 J LT.A.No.261 to 265/Nag/2016 an Assessment Years: 2007-08-2011-17 J action under Section L341) of ET. Act 1961, The income returned by assessee is also an estimated basis being Percentage of net receipt received by each of the business entities of the assesses group. fhe appettant during the assessment proceedings Aas explained before the A.O. that the verification of the seized documents with reference to books of account loses fts relevance in as mutch as that the books of account have nat been relied upon by assessee at the time of declaration of income and thus it would be only fair to determine a reasonable mcome on estimated basis which Could be said to have been derived from the net business receipts received by various business entities of ASSESSES OFOUD.
1.5 in the case of assessee group, the assessments under Section I53A of LF Act 1067 ave been framed for assessinent years 2006-07 to assessment year 2012-13. The fature of activity being execution of government contracts was the same during aif the assessment years. ff assessment year 2006-07, the nature of work executed for Vidarbhg irrigation Development Corporation remains the same as jn fhe case of assessee for subsequent assessment years. The sub Contractors who have executed the works are also similar i? the various assessment yeas. Tite AO. in the case of assessee for assessment year 2006-07 hes accepted the income as shown in the return under section 153A of LT. Act 4961 at about 12% of the gross receipts. The A.O. having accepted the net profit of 12% an the receipts for assessment yeat 2006-07, ought not have made additions on different footings in the case of assessea group for subsequent GSSESSINCNE Years under the similar CHOUMSEANCES, 421.6 The perusal of the assessinent, order would make jt evident that the source of lacome of the various business entities of the group is only iff respect to execution of government contracts and it has no other Major activity of business where from the income is derived or generated The Aouings round in the seized documents are part of the Gross receipts received from the government department The various notings in the seized document are part of fhe gross receipts of contracts received by group entities is not disputed. The inference drawn by id. ALO. is that the entries in the seized document lead to inflating the sub contract FIZ.
L.T.A.We.56 to 61/Nag/ 2016 , LT.4.No.261 to 265/Nag/2016 "oy Assessment Years: 2007-08-2011-12 a beyments which Aave been utilized for icurring iiegal expenses, The aforesaid inference drawn by A.O. is without any finding of a fact nor, it has been corroborated with afly independent evidence. In the case of ASSESSEE NO corroborative evidence ar material was found during the course Of search or anything has been brought on record subsequently in the course of assessment proceedings fo establish that the notings made in the seized document are in relation to incurring of any illegal Expenses, fi,7 The AR has contended that the notings were Made in fhe seized document at the instance of Izte Shri Gotiulait Bhangdivya wha has expired in the month of Apri, 2011. hereforé, the assessee to the best of his ability has made efforts to explain the notings. The employees of assessee in whose handwritings the notings found in the seized document have been examined by A.O. in the course of assessment proceedings. The employees while admitting that writings belonged to them have also stated that the aforesaid notings fave been made at the instance of fate Shri Gotilalit Bhangdiya, The aforesaid independent statament recorded by AO. supports and substantiates the explanation submitted at the time of search and in the subsequent proceedings that the noungS ate in respect to movement of Money.
41.8 The perusal of the seized document woufed make it evident that it cannot be identified to one individual BUSINESS entity of assessee group, The transactions noted jn fhe seized document are of mixed nature being business, personal and investment. The document being not related to any one identified entity, the notings made cannot be held as unexplained credit to be apportioned ainongst the various business entities. In fact. even as per the A.O., the seized document does not belong fo any one assessable individuat, in the absence of seized document being identified to any one individual entity and same being not identified to any business ently, if cannot be held fo be as belonging ta business entity SO as to make estimated addition at the hands of VatiOUus business entities on proportionate basis of furnover of such group entifies.
42.9 The AO. in para 6 of the assessment order has ooserved that assessee group for AY. 2006-07 to 2012-17 LT.A.Na.56 to 61/Nag/2016 7 T.T.A.No,261 to 265/Nag/2016 ra) Assessment Years: 2007-08-201 1-13 os has debited &s.361 cores towards sub-contract payments out Of gross contract receipts from the Government aggregating to Rs.579 crores which is more than 62% of Goss receipts. itis seen that subcontract payments include Various other payments to associate concerns which are CONMGETED aS receipls in the case of associate concerns for making assessment fy fhe same A.O. The actual payment to outside subcontractors is Rs.263 crores only which is 45% of §f0SSs contract value. The finding of A.O. to the extent of sub- contract expenses at 62% is factually not correct £1.16 in assessment order at para 5.4, the AO. has discussed the significance of the diaries B-1 to 8-65 and has observed as under:
"The anaiysis of the entries in the diaries re veal that on receipt side various receipts inctudina receipts from withdrawals from bank accounts of croup entities ft sub-contractors were recorded and on payment side entries of expenses like interest payments, repayment Of loans, deposits into bank. accounts, house hold EXDENSES, Dersonal expenses, payments to various Persons in Cash, investment jin Properties etc. were recorded, For the FLY. 2006-01 to 2008-09 and 2011-12 the cash books and the ledgers inainly contain the cash receipts and the payment entries in cash, Jt is interesting fo observe that some of the entries in these diaries were also reflected in the feguar books of acCours maintained by the assessee group, ihe same para refers to the reply to question No. 30 of fhe deposition made by Shri Mitesh Bhangadiva on oath on LYO7/2011, wherein Shri Mitesh Bhangdiva Aas stated that seized documents are datails of cash flow. The A.O, at page G in the same paragraph has observed that fhey contain Probable extraneous gratifications. It is evident that A, O. has nO evidence on record for any illegal gratification but observation is made on inferences end Presumption, The observation of the AO at para §. 1 inf act Clearly expiain the nature of entries found nated in the seized document wherein the id. AO has recorded a finding that receipts are from hank accounts Of group entities and sub-contractors, On the face of such observations, the conclusion drawn by fhe id' AO.7
--, i.T.A.No,261 te 265/Nag/ 2016 EF Assessment Years: 2007-09-2011-17 [ie
1.T.A.No.56 to 61/Nag/2016 4 hoiding that credit entries are assessable income at the hands of assessee is unjustified iL41 the AO. at para 6 of assessment order has discussed the nature of sub-contracts. The A.O fas on enquires from bank accounts found that withdrawals made have been credited in daily cash balance of diaries. The AO. on inference fas observed that same are utilized for unaccounted payments, The 4.0. at Page i7 has observed that most of the sub-contractors are name fenders and are of eager means and some are employees. The names observed are Sil Kesharsingh Rotete and Firous Khan etc. It is seen that both individuals as observed are assessed by same AO. fhe income from sub-contract work done for aSSESSCC GFOUD has been accepted in the assessment framed U/S LEW BVISIC OF LT, Act 1961 on the same date. The receipts from assessee group faving been accapted for assessing ficome af the hands of such individuals, Payments made by the assessee group cannot be doubled as non genuine at the hands of assessee, Similarly A.O. has observed names of other sub- contractors. Out of names of subcontractors observed Shri Satjay Malani, Shri Chintaman MM. Nakade, Shri Vishaf Kachalwat, Shri Dwarkadas M. Bhutad3, Shri Dnyaneshwar Meshram and Shri Suresh Masram have been assessed u/s 153C by the same AO. The receipts from assessee group having been accanted for assessing the income in the hands of sub-contractors, the payments made by assessee group to SUCH Stib-contractors cannot be Coubted as non-genuine in the hands of various entities of the Shangdiva group.
£2.12 ihe A.O. at para 7 has made analysis of diaries Marked a5 8-1 to B-65. The A.O at bata 7.1 has categorically observed that receipt side contains amount witharawn from banks of assessee Group concems and individuals. The financial year wise receipts entered in these diaries were computed at 182.52 crores. it is pecufiar to note that fhe id. AO. a one hand has observed that withdrawals from bank account of business concerns and individuals which were found credited on left side of the diaries and at the same Hme he has concluded the same receipts of credits as unaccounted fncome of the group. The AR has contended that the id. A.O. has not doubted the deposits in the bank account of asSessee, infact, they are deposit af receipts which are
1.T.4.N0.56 to 61/Nag/2016 I.T.A.No. 262 to 265 /Nag/2016 Assessment Years: 2007-08-301 1-17 considered as income, therefore withdrawals Of such amount cannot again be assessed as income.
12,23 ihe A.O. in the assessment order has observed fhat the amount withdrawn from diaries is utiized for unaccounted payments or unallowable expenses like gratification paid ta various politicians and Government empioyees. However, the assessment order does not refer to afly corroborative evidence on record to hofd that aS5SCSS5C2 fas mage payments of any iWegal gratification. In fact A.O, at Page 9 has observed that payment made in cash is for Probable extraneous gratification which shows that this is a Probable view taken by the AO without oringing the issue to a logical conclusion. Therefore, the working made by A.O. at page 36 to 38 about analysis of Payments out of seized Gecuments are just adverse inference drawn on assumptions and is not based on any corroborative evidence on record, 11,14 The A.O. has made observation at para 7.3 as regards fo the quality of work executed by the assessee group and in Particular visit of A.O. to various sites where work is exectted by Bhangdiva group. The AR has comended that it is just an oral information obtained behind the back of assessee which has no evidentiary value. Assassee group has executed work a5 per standard parameters specified in the tenders atiotted to ihe assessee group. The State Go verninent has due process of verification as to quality and quantity of work executed before release of payments, In the case of GSSCSSCE SUCCESSIVE Works were allotted year affer year which itself demonstrates the fact that the State Government had no question as ta quality Of work executed by assessee Goud.
£2.25 The AO. in para 8 has discussed as to confronting of seized documants to assessee. The feplies submitted have been partly reproduced. It is seen that in the course of search, the statement of the Shri Mitesh Shangdiva was recorded on 4/07/2011 and the assessee in answer to question No.30 has explained that seized documents are details of cash flow and same has been reproduced in assessment order on page S$. During the assessment proceedings too, the assessee has explained that the diaries are fatings for movement of cash in reply to question No. 23 in the statement recorded or LYO7/2013, The assessee aif diong in the course of zt om ns
- a Fr] oe
7.T-A.No.56 to 61/Nag/2016 Bi LT.A.No.261 to 265/Nag/2016 a Assessment Years; 2007-08-2011-12 a assessment proceedings had explained that the seized documents are to be in the fature oF notings for movement oF fund. If was explained in the course of assessment Proceedings that the sub contractors on withdrawal of money from their bank accounts used to Keep in trust/safe custody the amounts which are found fo be noted in the seized documents. The explanation submitted by assessee was verified by the A.O. and it was found that the withdrawals made from the bank accounts of the sui contractors is on certain occasion credited in the Seized document. It was further explained that the amounts credited in the seized document being the amounts received from the sub contractors were remitted to the sites where such sub contractors were executing the work. The amount remitted Was through any representative of ihe subcontractor or aiiy PERSON going to various sites which are located at remote places. The seized documents contain notings in respect fo fandiing of cash by fate Shri Gotuiatiee Bhangaiva who has expired in Aprit 2018. The @SSE58C8 fff the course of assessment proceedings has explained as to how Aotings happened to be made in the seized document. In the case of assesseé, the statement of assessee was recorded on the Seized document and in particular questions were asked as regard to the names which had similarity with the names of some politicians, The assessee in the statement recorded on oath has clearly expisined that the notings made in tha seized documents Aad nothing to do with potitical leaders 4) as much a8 SUCH political leaders have no business fansaction with ary OF the business entities of Shangdiva group. 7He assessee in ius statement made in the Course of assessment Proceedings Aad deposed that the seized documents are jn respect to Movement Of cash with regard to activity of business, personal Cxpenses and investments mace by assessee. Thus, tha AR has contended that neither the Investigation Wing of the Department nor the AO. in a Span of almost more than three and fal' years have brought any evidence on record lo show that the various notings made in the seized documents ate in relation to any egal expenses incurrad by assessee group. The AR further contended that explanation submitted by asSessée was substantiated by submitting independent evidence of affidavits of sub-contractors fhat they Aad collected back the amounis deposited with late Shri Gotulatiee Bhangdiva. The various Persons who had submitted the
1.T_A.NWo.56 to 61/Nag/7016 LTiA.No:261 ta 265 /Nag/ 2016 Assessment Years:2007-08-201 L-i2 afidavits have not been cross examined subsequent to atidavits submitted nor any maternal or evidence on record fas been brought to distodge the averment inade in the AIGAVIES, therefore, the AR biéads that the contents of te aftidavits filed by sub-contractors fave gone un-rebutted and have to be taken as fue and correct. In this regard the appeliant has relied on the decision Of Hon'ble Apex Court in the case of Mehta Parekh reported at 30 TTR 181 (SC) + Wherein it has been held that: --
'No further documents or vouchers in relation to those entries were called for, nor was fhe presence of the deponents of the three affidavits considered necessary by efter party. The appetants took it that the affidavits of these parties wera enougl and neither the AAC. nor the ITO, who was present at the hearing of the aopes! before the AAG considered if MeCessary fo calf far tham i order to cross-examine them with reference to fhe Statements made by them jin their affidavits. Under these circumstances, it was hot open to the Revenie to challenge the correctness Of the cash entries or the Stalements made by those deponents in their atidavite. * | 1.16 The AO. has observed that the various sub contractors in the case af @S5€SSEC are name landers and bogus. The A.O. has fisted the names of such stb contractors at para 9.1 of the assessment order, In this regard. it is seen that the aforesaid sub COnLaCtOrs are also assessed by the ACH, Central Circle-2 Cl), Nagpur who is also the A.OL of assessee group. In cases of such sub-contractors notices under section 159C of ET. Act L961 were fssuied and returns were submitted by such sub contractors pursuance to fecefpt Of notice under sectiori L53C of ET. Act L961, The aasessments have been framed under section 153C OF LT. Act 1961 by the same AO. wherein fhe income returned in respect of business income shown arising to such sub- contractors out of receipt received from the GSSESSEE Group business receipts in the hands of sud-contractors for determining the income in the cases Of sub-contractors coufd AOb have concluded that the Payments made by assessee GfOUp f0 such sub contractors are Hogus.
FAS ee
1.T.4.No0.56 ta 61/Nag/ 2016 i.T.A.No.261 to 265/Nag /2016 37 ASs#ssrment Years: 2007-08-2011-13 I1.417 he AO. in the assessment order has observed fhat some of the sub-contractors are working as employees ke drivers/supervisors of the assessee Group. There is no Profibition for working as employee and also operating as sub-contractor. The AR in this regard fas submitted that the @SSES5SEE iN order to encourage his employees fas provided employees to be sub-contractor in order fo meke more personal gain by such employees. in view of above there is nothing which can be heid adversely in respect to such observation.
41.18 As regards to the adidition of Rs. 54.40 crores made by the AO on the hasis of the depositions of the sub- cortractors, the AR has contended that an opportunity of cross examination of such sub-contractors has not been giver fo the appellant which is in violation to the Principles of natural justice, The AR of the appellant in this regard has Placed reliance on the decision of Hon'ble Supreme Court in ihe case of M/s Andaman fimber Industries vs. Commissioner of Central Excise, Kolkata (Civ! Appeal No. 4228 of 2006). The Hon'ble Apex Court in this case fas held as under:
'According tO us, not allawing the assessee to cross examine the witness by the Adjudicating Authority though the statements of those witness were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violstion of Prncioles of natural Justice because of which the assessee was adversely affected, in View of the above, we are of the opinion that if the festimorny of thase two witness is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witness was the only basis of issuing the Show Cause Notice.
We, tfus, set aside the impugned order as passed Oy the Tribunal and allow this appeal"
The ratio laid down by the Hon'ble Apex Court is mutatis mutand) applicable to the facts and circumstances of the Present case of the appellant group.
FAG 1.T.A.No.56 to 61/Nag/2016 J 7 LT.A.No,.262 to 265/Nag/2016. ag Assessment Years:2007-08-2011-12 i 12.0 The AR of the appellant has submitted that ffl fhe dssessment framed various additions made até based on the seized documents trom B-1 to 8-65, It is further submitted that nOowNgS ON seized documents were expigined by apoellant by Blacing legal evidences on record The AR thus contended that i is settled position of law that in the absence of corroborative evidence on recard no adverse View can be taken in respect of notings found in the seized documerits, According to the AX, if the case of assessee for fotings Made. no adverse corroborative evidence was found in the course of search action or has been brought on record by the fd. AO during the Course of assessment Proceedings at the time of framing of assessment. The AR therefore. Pleaded that in the absence of any adverse corroborative evidence on record for Aotings on seized documents, addition made by AO on the basis of such Aouings are unjustified and unsustainabie in support of his contention, the AR has relied an the following judicial decisions:
1) (1978)115 ITR 524 (SC) Brij Bhushan Lal Parduman Kumar vs. CIT In this case the Hon'ble Apex Court has held as under:
Zt is true that ordinarily, when @ works contract és put through or complated by &@ contractor the fncome ar Profits derived by the contractor fom such contract is determined on the vale of the contract as @ whole and cannot be determined by considering several items that GO fo form such value Of the contract but in Ouf View where certain Sstores/material is supplied at fixed rates by the Department to fhe contractor Solely for being used or fixed or incorporated in the works undertaken on ferms and conditions mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/Material so. suppiiedt iherefore, since no element of Profit was involved in the turn OVEr represented Py the cost of stores/material supplied oy fhe MES. to the assessea fitms, the income or brofits derived by the assessee firms from stich Contracts wil! have to fe determined on the basis of fhe value of the contracts represented by the cash payments received by fhe assessee-7357
1.7.A.N0.261 ta 265/Nag/2016 [ae L.1.A.No.56 to 61/Nag/2016 o Assessment Years: 2007-08-27011-13 "= firms from the M.E.S. Department exclusive of the cost of the Mmaterial/stores received for being used, fixed or incorporated in the works undertaken by them,"
2) (41973) 92 TTR 90 (Mad.} Ci? vs. KS. Guruswami Gounder & KS.
Krishnaraju The Hon'ble Madras High Court fas held if the aSS€5500 Gave its tender on the dafinite understanding that the Department concerned is to supply the required materials for the construction of the buildings, the rates quoted by him would have been adjusted on that basis. Therefore, there is no question of the assessee Purchasing the materials required for the buiaings from outside and putting itself to a disadvantage. Admittedly, the materials supplied by the Departments had been used in the construction of the buidings and the assessee did not, in fact, earn any Profit in reietion thereto. We are not, therefore, in a position to say that the turnover represented by the cost of the materia} supplied, in any manner, contributed to the PYORE of the assessee, * 3} AIR 1998 (SC) 1406 Central Bureau of Investigation vs. V.C. Shukla & Ors.
J2. A conspectus of the above decisions makes it evident that even correct and authentic entries in books OF account cannot without independent evidence of their frustworthiness,; fix a liability upon a person, Keeping in view the above principles, even if we Proceed on the assumption that the entries made in MR 71/91 are correct and the entries in the other books and loose sheets (which we have already found to be not admissible in evidence under Section 34) are admissible under section 9 of the Act to support an inference about the formers correctness stiff those entries would not be sufficient fo charge Shri Advani and Shri Shukla with the accusations leveled against them for there is not an iots of independent evidence in support thereof In that view of the matter we need not discuss, delve into or decide "pon the contention raised by Mr, Altaf Ahmed in this regard. Suffice it P2E L.7T.A.No.56 to 61/Nag/ 2016 L.T.A.No,261 to 265/Nag/2016 i Assessment Yea rsi2007-08-2011-12 7 fo say that the statements of the four witnesses, who have admitted receipts of the PayYMENS as ShOwN against them in MR /1/91, can at best be Proof of reliability of the entries so far they are concerned and ne others, In other words, the statements of the above witnesses cannot be independent evidence under Section 34 as against the abhave two respondents, So far as Shri Advani is concemed Saction 34 would not come in aid of the Mrosecution for another reason aso."
4} (1965) 57 ITR S32(8C} Parimisetti Seetharamamima vs. CIT fhe Hon bie Apex Court has held as under:
'By ss, 3 and 4 the Act imposes a general liability to tax upon al! income. But the Act does pot Provide that whatever is received by @ person must be regarded as income liable to fax, Jn all cases in which a receipt js Soucin to be taxed as income, the burden lies upon the Department to Prove that it is within the taxinO provision. Where however 2 receipt is of the nature of income. the burden of toviding that it is not fexable because it fails within an exemption prov, by the act Hes upon the assessee,"
5) (2007) 294 ITR 49 ($c) Ci? vs. PV. Kalyanasundaram in this case the Hon'ble supreme Court has observed as under:
"The respondent assessee vide 2 registered sale deed dt 27"
Oct, 1998 purchased certain land at Brindavan Road, Fairlands, Salem for a sum of Rs.4.10 lakhs. During 2 search OF the office and residential premises of Polimer Nat Work, certain notes on loose sheets allegedly in the hands of the respondent were found and seized by the Department. In pis statement recorded on 8" Dec, 1998. the assessee subinitted fhat he could not remember as fo wily the notings had been made. The statement was further contitmed by another statement on 11" Dec, 1998. The Department also recorded ihe statement of the vendor Rajarathinam on a Dec, 1998 which f00 was confirmed on 11° Dec, 1998 in which he
--
L.T_A.No.56 to 61/Nag/2016 ;
1.T.ANo,.261, ta 265 /Nag/ 2016 31 Assessment Years: 2007-08-2041 1-12 : , admitted that he had in fact received a folal consideration of AS. 34.35 lakhs and that the sum of R&4.10 lakhs reflected in the sale deed had been received by Aim by way of a demand draft and the balance in cash. Rajarathinam however retracted from his statement on & Jan, 1999 and fled an affidavit deposing that the sale price was Rs.4.10 lakhs only and that His statements earlier given to the authorities were incorrect in a subsequent statement recorded on 2G" No v,, 2000 Rajarathinam again reverted to his earlier Portion and deposed that the sale price was Rs. 34,85 lakhs.
ttsierisesseneee AE CIT accordingly deleted the addition made. An appeal was thereafter Preferred by the Revenue against the order of the CIT before the Tribunal. The Tribunal in its order dt. 6" July, 2005 held that the notings on the loose pieces of paper on the basis of which the initial suspicion with regard to the undervaluation had been raised were vague and cotid not be relied Upon as it appeared that the total area with respect to the sale deeds and that reflected in the foose sheet was discrepant."
"When the assesse did not give an y expfanation to the notings found and at the same time the Revenue is able to corroborate the same with the statement of the Seller for the Purpose of determination of actual sale value. would the tower authority be justified in interfering with the same?
+. 8@ that as it may, we are of the opinon that the three questions reproduced above can, in no way, be called substantial questions of law. The fact as to the actual sale price of the property, the implication of the contradictory statements made by Rajarathinam or whether reliance could be placed on the loose sheets recovered in the course of the raid are all questions of fact. We therefore Had no infirmity in the order of the High Court Accordingly, we dismiss the appeal."
6) (1999) 237 ITR 570 (SC) CIT vs, Smt. P.K, Noorjahan "The Tribunal however, held that aven though the explanation about the nature and sources of the Purchase money was not satisfactory but in the facts and circumstances of fe case it I.T.A.No.56 to 61/Nag/2016 L.T.a.NG. 261 ta 265/Nag/ 2016 Assessment Years:700 7-08-2011-12 Was Not possible for the assessee to earn the amount invested in the properties and that by no stretch of imagination could be assessee be credited with having earned this income in the course of the assessment Year or was even in @ position to earn it for a decade ar more. The Tribunal took the view that although the explanation of the asSessee was liable to be rejected, $s. &9 of the Act conferred only a discretion an the ITO to deal with the investment as income of the assessee and that it did not make it mandatory on his part to deal with the investment as income of the aSSesSee@ aS soon as the latter's explanation happened to be rejected.
sitters, TS Clearly indicates that the intention of Parliament in enacting s. 69 was fo confer @ discretion on the ITO in the matter of treating the source of investment which Aas not been (satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged fo treat such source of investment as income in every case where the explanation offered by the assassee is found to be not Satisfactory, in the instant case, the Tribunal has held that the discretion had not been property exercised by the ITO and the AAC in taking into account the circumstances in Which the assessee was placed and the Tribunal has found that the sources of investments could not be treated as income Of te assesses.
The High Court has agreed with the said view of the Tribunal We also do not find any error in the sajc finding recorded by the Tribunal. There is thus no merit in these appeals and the Saine are accordingly dismissed. No order as to costs."
7) Bombay High Court order in ITA No.1224 of 2011 in the case of M/s. Supreme Industries Ltd.
"A search action was conducted on fhe respondent assessee and -- its directors. During the course of search, the officers of the document which reads as under;
Payment mode Cheque 65.00 Cash 33.00 96.00 Rate per sq. yard 2,019 Per Sq. mt. 2,414 F2g te 1.7.A.N0.56 to 61/Nag/2016 LT.A.No.261 to 265/Nag/2016 ce Assessment Years:2007-08-2011-12 Rate offered 1,500 per sq. mt. = 61,50,000 1,600 per sq. mt.
The Hor bie High Court observed as wader:
"The entries found in the seized document according to the THbunal cannot be relied upon in the absence of supporting documents, The revenue has not brought on record atiy evidence to show that the transaction for the purchase of plot was for Rs.98 lacs including cash payment of Rs.33 lacs, Thus, the appeal of the respondent assessea was sowed We note that the Tribunal has allowed the appeal on a finding @ fact. This finding by the Tribunal is reached taking into account the various evidences produced by the a5S@5568 to conclude that an amount of Rs.3? facs had in fact never changed hands. Consequently, section 69 of the Act would be inapplicable."
8) (2008)307TTRA37(Guj. } .
CIT vs. Maulikkumar kK, Shah fhe court has held as under:
"The assessee has hooked 35 shops as on the date of Search, On which the Department has charged 'on money' In the asst.
¥F. 1995-96, In his statement recorded under s. L324) S, denied to have charged any on-money. The notings on the selzed diary found from the premises of §. is the only material on the basis of which the AO has made fhe impugned additions. The AO has not brought any corroborative materia} on record fo prove that such sales were made and on-money' was received by the assessee outside the books of account, The AO has not examined aily purchaser to whom the sales of Shops were effected Onus heavily lay en the Revenue to prove with corroborative evidence that the entries in the seized diary actually represent the sales made by the @SSC5SEC, SuCH onus Has not been aischarged by the Revenue.
Mere entries in the seized material are not sufficient to prove ihat the assessee has indulged in such @ transaction. It js well-settled that if certsin documents were found from the possession of ihe assessee during the course Of search operation, burden les on the assessee to explain the nature of FIO
------
L.T.A.No.56 to 61/Naq/2016
1.T.A.No.261 to 265/Nag/2016 er Assessment Years: 2007-08-2011-12 7 transactions recorded in the said seized material Considering the facts and circumstances of the case if ffs entirety, we are of the considered view that the addition as made by the AO. Being based on mere presumptions ane ASsSuMpEONS ard without any corroborative evidence, cannot be sustzined and the said additions Aave rightly been deleted by the CIT (A) in ali the years under consideration. The Revenue's appeals, therefore, fail."
9) (2007) 293 ITR 43 (Del) CIT vs. S.M, Aggarwal in this case the court has held:
'Statement made by assessee's daughter cannot be said to be relevant or admissible evidence against the aSSCSSCE, SiNCe the assessee was not given any opportunity to cross examine fy a y lig 'Tf is well settled that the only person competent to give evidence on the truthfiiness of the cantents of the document is the writer thereof, So, untess and until the contents of the document are proved against a Person, the possession of the document or handwriting of that person, on such document by itself cannot prove the contents of the decument, These ara the findings of fact recorded by both the authorities ie. CIT; (A) and the Tribunal."
"The explanation tendered by the assessee that the account befongs to his daughter Smt. Saris Gupta was categorically denied by her and in view of her specific denial, there is no Justification to hold it otherwise."
'if the evidence collected against a person fas not been confronted against him then jt cannot be utilized against Aim. in the present case. the A.O. has taken into account the statement of Smt. Sarla Gupta and has utilized the same against the assessee but the fact remains that this statement was recorded behind the back of the assessee and no opportunity was given to hint fo cross-examine her."
"We have ourselves examined the contents of the document and afe unable to draw any Clear and positive conclusion on #7
---:
I.T.A.No.56 to 61/Nag/ 2016 , LT.A.NO.261 to 265/Nag/2016 | Pe Assessment Years:2007-08-2011-12 [ie the basis of figures noted on it. The fetter HS." 7.2 and 'p- Shop' cannot be explained and no material has been collected to explain the same, Likewise, the figures f00 are totally unexplained and on the basis of notings and Jottings, it cannot be said that these are the transactions carried aut by the assessee for advancing money or for faking money. Thus, in Our opinion, this is a dumb document."
10) (2008) 266 ITR 619 (Del. f CIT vs. Girish Chaudhary "The company and its directors were searched ont 801.2000 and a document marked as Annex. A-37 was found and seized, The said document contained the folio wing entries:
Annexure A-37 (Page 13) 'Cash RB- JL5G CR. 9.50 47.00 L6.50 57.50 JL5C 16,50 48.00"
the Hon'ble Delhi High Court following the decision af Apex Court in CBI Vs. VC. Shukla (£998) 35C€C 410 has hed 'similarly, the document Annex. A-37 recovered during the course of search in the present case is a dumb document and fead us nowhere. Thus, the Tribunal rightly deleted the addition of Rs.48 lakhs made by the AO on account of undisciosed income on the basis of seized material."
41) (2014) 39 CCH 034 {Ayd )(Tris.) Deputy CIT vs. K. Babu Rae The Hon'ble ITAT, Hyderabad Bench fas field as under:
"Guess work not possible in case of search assessment framed tS 143(3) or u/s 153%, without any proper material - AO Should have basis for assuming that expenditure incurred by assessee is out of undisclosed income - Unsubstantiated loose sheets cannot be considered as conchisive evidence to make any addition towards undisclosed income -- In instant CASE T.A. Nie. 56. to 61/Nag/2016 L.7T-A.No. 261 to 465 /Nag/2016 Assessment Years: 2067-08-2011-12 additions were made on basis of entries recorded in two note books seed ----- Entries in fote beck were unsubstantiated --On basis of same AQ conduded that figures mentioned therein are to be read by adding 3 2eras and assessed undisclosed income - Other than loose paper, AQ has not brought on record any corroborative material ar evidence - CIT(A) rightly concluded that jt cannot be acted upon and deleted addition - impugned order upheld - Reventie's appeal dismissed,"
"He observed that in the statement recorded on the date of s€arch, assessee admitted that the seized books contain details of day to day expenditure. In the statement recorded L/S I31 on 23/7/2008, the assessee further admitted that the Seized books contain receipts and Payments party related to him and partly related to others and the entries were written in coded form, He also admitted that these books were written by Ais managers and his two wives Smt Sridevi and Smit Rar,"
"Tax has to be collected on reat income put Het on hypothetical income. Unless those entries are independently corroborated with contemporaneous record, no adverse view can be taken by the Assessing Authority. No such direct independent eviderices have been brought fo demolish the contention of the assessee. As contended by the ASSESSEE NO assets fave been unearthed curing search, which is uftimate weapon Of the Dept., for making such addition on the basis of some mathematical calculation."
'As stated earlier these documents are prepared and Maintained by managers, there are hound to be mistakes which cannot fasten on the assessee to bay taxes on unearned income. During search and seizure proceedings, cash Rs.4 lakhs and the two diaries were recovered but no unaccounted assets found. AO did not mention any of such unaccounted assets found during search. In this background additions based on some entries in the diaries by affixing three zeroes for aif transactions is tolaily unjustified. There Should be some reasonable matching between the income and the assets or expenditure. that nexus is Cleatly lacking on the facts as brought on record."
FIR 3b ALS LTANG.56 to 61/Nag/2016 | L.V.A.N0.261 to 265/Nag/27016 ce Assessment Years! 2007-08-3011-12 7 'in the present case, the seized material (two note books) marked as KBR/A/O2 and KBR/A/04 wherein certzin entries are found recording various transactions pertaining to the assessee. These entries in the note book are unsubstantiated and an that basis the AO reached ta the conclusion that the figures mentioned therein are to be read by adding 3 zeras and thereby he came to conchide that there is undisclosed income in these 6 assessment years, In our opinion, the document recovered during the course of search was a dumb document and led nowhere. The CIT(A) nightly came to the conclusion that it cannot be acted upon and deleted the addition, "
'Other than the foose paper. the AQ Aas not brought on record any corroborative material or evidence to show that the inference made by him is correct. The CHT; (A) after taking the totality of the circumstances into consideration came to the conclusion that the addition made by the AO is not justified and the argument put forth by the assessee is supported by documentary evidence, This was not a case where relevant evidence had been ignored by the CIT(A) and their relevant evidence has been taken into consideration. The only test that was required to be applied was whether or the facts found and the state of evidence on record. the conclusion arrived at by the CIT(A}) was one which could be arrived by a reasonable person properly informed in law. Applying this test. it could fot be said that the decision recorded by the CIT{A}) one witch could not have been arrived at by a reasonable person Properly informed in law considering the state of evidence on record. Hence, in our considered opinion, the CITA) fas reached a correct conclusion in defeting the addition made by the AO on the basis of loose sheets,"
42) (2005) 92 TT (Ctk)} 464 Addl. CIT vs. Prasant Ahiuwaliz The Hon'ble ITAT Cuttack Bench has held -
'The AQ stated that these notings were in the handwriting of the assessee and therefore, he has to explain why the total of which comes to Rs. 755,000, were added in the income of the 74 LT. ANo.56 to 61/Nag/ 2016 L.7.A.No0.261 to 265/Nag/2016 ee Assessment Years:2007-08-2011-12 a assessee. If was submitted by the assessee during the course GF search itself that this is estimation of expenditure to be incurred for forthcoming period."
"No corroborative material has been brought on record by the AQ for rejecting the assessee's contention that jotting on the biece Of paper was an estimate and not actually expended. As Per our considered view, additions based on chit Papers and presumption of AO could not be sustained in the absence of aay corroborative mateHal or evidence brought on record. Supporting it."
'AS no corroborative material has been brought on record by the Department to reject the assessee's contention, we do rot find any reason on interfere in the order of the CT (A) for deleting the impugned addition" |
43) (2007) 106 173 (Ranchi} 422 ACIT vs. Ashok Kumar Vig Held:
"The CIT(A) has taken a clear-cut view that the AO did hot verity these so-called balances with? the parties whose names were found mentioned reTteessineseetereybcenraness ceessvausussvasseruscvedes accounts give ne indication regarding movement of amount. The parties show drastic reduction in the balances but how the payments were accounted for is not forthcoming from these entries. fie Authorised Representative has invited altention fo the fact that the AO did make enquiry, which the assessee Aas not disputed, However, the AO has not brought on record the result Of such an enquiry. The only plausible conclusion, under these circumstances, would be that the findings of such an exercise was favourable to the assesses. Coming to the applicability of provisions ofs. 132(4A} the assessee has explained the circumstances under which fis employee maintained these documents in the premises of MDSS. TRUS, fhe ownership is not disputed. However, there is no Presumption about the earning of income. The assessment is made under Chapter XIV-8. The AO cannot make addition on the basis of incomplete entries, The onus rests on the FATS 1,T.A.N0.56 to 61/Nag/ 2016 LTLWA.NG.261 to 265/Nag/2016 ete, Assessment Years: 2007-08-2011-12 ;
Revenue fo establish that the assassee was in receipt af money then the onus would automatically be shifted to the assessce to prove that the money has been disclosed in the account or the same is not Hable to tax, In the present case in hand, the AO has not been able to demonstrate with adequate evidence that the assessee received the amounts in two years as aifeged. These entries as recorded in 'PKC-60' do not clearly reveal that the assessee has earned income. The assessment of undisclosed income is under Chapter XIV-B and there is na scope of assumption or presumption while making assessment under this chapter. They are dumb documents on which retance cannot be placed, unless they are corroborated with other evidences. There is no infirmity in the order of CIT(A) in deleting the additions. - Rama Traders vs. ITO (1988) 32 TT? (Pat) (TM) 483 : (1988) 25 ITD 599 {Pat}tTM) and Kollipara Subba Rao vs. ITO (1990) 32 ITD 668 (Hyd) distinguished."
44) (2004) 91 TTI (Del.) 938 N.K. Mathan vs. Deputy CIT Haid:
"The document found and seized might raise strong suspicion, but i€ could not be held as 2 conclusive evidence without bringing some corroborative material on record.
crenmrieaesreres HEAVY ONUS lay upon the Revenue to prove that the document gives rise to undisclosed investment b iV tfie assessee".
'As regards interest, from mere Jottings or catculations it cannot be said that there was any Hability incurred by the assessee as he is aiso not found to have paid the amount fom his resources nor utilized the amount for his individual benefits. The Revenue did not examine these parties though the complete identity and particulars thereof were available before them Proof of payment has also noé been found. In case the calculations were made for interest fey were merely the cost estimates but cannot be said as a Payment in reality or a lability incurred by the assessea. In any event the burden was on the Revenue to show that the documents represented undisclosed income of the assessee. Without bringing any corroboratory evidence by the Revenue, this burden cannot be held to have been discharged. Under such I.T.A.Ne.56 to 61/Nag/2016 L.T.A.NMa.261 to 265/Nag/2016 Prey Assessment Years: 2007-08-2011-12 _ pecuiar citcumstances and the facts as emerging from record, the entries of Rs.1,65,000 could not have been treated as undisclosed income of the assessee for the block period. The addition so made is, therefore, directed to be deleted"
"The document found and seized might raise strong suspicion, but i€ could nat be held as a conciusive evidence without bringing some corroborative material on record. The document contained only the rough calculations and was silent about any investment. On the basis of such a dumb document, it cannot be said that there were investments made in fact by the assassee. Heavy onus fay upon the Revenue to prove that the document gives rise to undisclosed investment by the assessee. This onus has not been discharged, Accordingly no addition of undisclosed facome could be made on the basis of such a document"
£5. (2004) 89 TT) (Cal.) 917ICIT vs. West Bengal Trading Agency Heid:
'No positive material, direct or circumstantial. to establish that amount was received by assessee - Addition made on fhe basis of suspicion was rightly deleted by CITA)"
'lt was necessary for the AO to gather material either direct or circumstantial fo establish that the intention expressed itt the wary by K was actually implemented and that the ASSESSEE had received the money from K. The very receipt af money from K is doubtful and, therefore, the tax hability cannot be fastened on the assessee merely on the basis of suspicion, 7he CIT(A) was justified in deleting the addition"
46) (2008) 10 DTR (Del.) (Trib, } 507 Sonal Constructions vs, Deputy CIT Held:
'Presumption under §. 132(4) cannot be used in the assessment Proceedings to make an assessment of income.
PIF Assessment Years:2007-08-2011-12 i LT.A.No.56 to 61/Nag/2016 §j =.
LT.A.No,.261 ta 265/Nag/2016 4] One fails ta understand as to why the AO did not think fit to examine Vin the course of assessment Proceedings. So also, non-examination of S by the AO in the course of assessment proceedings wes fatal to the case of the Revenue. The seized documents were alone not sufficient to draw an VY definite conclusion regarding the existence of undisclosed income.
SPUR eee de fhe corroboration could have come in the form of OXGHUMATON OF V BFE Se veces ccccessscccsose The purchasers of the Property from the assessee could have been examined to find out if they had paid consideration over and above what has been recorded by the assessea in its books of account. The additions made cannot be sustained in law. - Shivani Properties (P) Lid. vs. Dy, CIT (TTA Nos. LIS7/DELL 999 and 4100/Del/2001, dt. 29" Dec., 2006) relied on,"
'It is observed that the writing made in the loose papers were treated by the A.O. as the actual investment made by the assessee and the actual raceipts of the sale of bropertias, We tind that the said documents Annex, AZ Pp. 2 and 29 are joose papers and not any books of account. Further. in the said document date-wise break-up of the alleged payments made or the alleged sales proceeds received are not recorded. From the said documents it cannot be said that the figures stated here in were the actual investment made by the assessee and actual sale proceeds received by the assessee. No corroborative evidence of the writing found to be made in the loose papers were found during the course of search, It is po doubt true that the seized document on which the imougned addition was made by the AO namely Annex. Ai pp. 2i and 29 did give out certain figures regarding the four Projects that the assessee had undertaken in the course of his business"
"The question that would fall for consideration is as fo whether this correlation afone was Sufficient fo make the impugned addition. In this connection, we have to first notice that the document in question was seized fom the residential! Premises of one of the partners of the assessee fitm, Ab the lime of search the statement of the partner was recorded He disowned any knowledge about the seized documents"
the Hon ble Supreme Court in a recent decision in the case of PR. Metrani vs. CIT (2006) 206 CTR (SC) 290 : (2006) 287 FIG LT.4.N0.56 te GL/Nag/2016 [i I.T.A.No.261 to 265/Nag/2016 4?
Assessment Years: 2007-05-2011-12 --ees LTR 209 (SC) has laid down that presumption under s. 1324) cannot be used in the assessment Proceedings to make an assessment of income"
"We are of the view that the seized document Al pp. 2i and 29 were alone not sufficient to draw any definite conctusion regarding the existence of undisclosed income. Jk was therefore not possible to draw any inference on the basis of fis document without proper corraboration. As already stated the corroboration could have come in the form of examination OF Mr, VK. Narang and Mr. 5.5. Sodhi The property could have deen got vatied by the DVO to find out the real investment in this property. The purchasers of the property from the assessee could have been examined to find out if they had paid consideration over and above what has been recorded by the assessee in its books of account."
'it is also pertinent to note that there was no attempt made by the AO even to make any enguity with the concerned flat purchasers from whom the on-money was alleged to be received by the assessee on the basis of the contents of the relevant seized documents. The allegation of the AO about the receipt of on-money from the flat purchasers thus was based on mere surmises and conjectures and in the absence of an yy evidence to corroborate the same, the addition made by Ain presuming the receipt of on-money, in our opinion, was not justified. In that view of the mater, we set aside the impugned order of the learned CIT(A) confirming the said addition and direct the AO to delete the same."
47) (1997) 59 T17 (Mumbai) 574 ACTT vs. Shailesh S. Shah Held:
As a result of search at assessee's premises on 26° August, 1987 certain loose papers were found and seized and one of fhase loose papers which has been marked as page No, 44 Which has been responsible for creating the contro versy under appeal before us fas the following details: (Details are as per the Entries repeated on page No. 3 & 4 of the order. , ALG L.T.A.No.56 te 61/Nay/2016 T.T.A.No.261 to 265/Nag/2016 oe Assessment Years! 2007-08-2611-12 7 "We are of the opinion that the AO has not invoked an Vv Of the deeming provisions of ss. 69 to 69D and. therefore, it is clear that these figures have been considered as assessea's income under ihe substantive provision of the If Act Under the substantive provision of IT Act. it is now settled law fhat every receipt is not necessarily or cannot necessarily be income in the Aands of the recipient and. therefore. the question whether any particular receipt is income or not depends on the nature of the receipt and true scope as well as the fact of the relevant faxiNG PFOVISIONS vvisccesececerecoces settled proposition, it follows that Revenue can tax only those receipts, which, first have been proved to be income in the hands of the recipients and secondly, the same have to be Proved 8s non-exempt from tax. We are, therefore, of the opinion that it is Revenue's onus, before assessing any receipt a$ taxable income; to proved that the receipt in the hands of the recipient is income and this can be proved or established anly on the basis of some material or evidence. This view finds support fram the decision of the Hon'ble Allahabad High Court in he case of Lachand Gopaidas vs. CIT."
"Tn view of the above discussions, facts and circumstances of the case as well as the settled principles of law, we are of the opinion that the conclusion arrived at by the AO was based purely on suspicions and the CIT(A) was justified in defeting the additions having been made only on suspicions. The order s, of the CIT{A) is upheld and the revenue's appeal is dismissed. Wil 45 regards to Departmental Representative plea refating fo consideration of assessee's explanation by the CIT {A} F submitted before him, without giving opportunity to AO, we have fourd that the CIT(A) has not based his decision on that explanation, rather had accepted the assessee's plea made before the AO to the effect that the figures on loose paper No, 44 were rough working of the firm. This plea is, therefore, rejected. "
£8) (2008) § DIR (Jab) (Trib) 202 ACIT vs. Satyapal Wassan fhe Hon ble Tribunal has held as under:
"Our view in this regard is supported by the decision of Hon'ble Supreme Court in Govind Saran Ganga Saran vs. CST L.¥.4.N0.56 toe 61/Nag/2016 1.7.A.No.261 to 265/Nag/2016 ey Assessment Years: 2007-08-2011-13 (1985) 155 ITR 144 (SC) wherein it was held that for the murpose of charging to tax, there should be four components to be satisfied. For the sake of convenience, we refer to the relevant headnotes form that decision:"
"The component which enter into the concent of @ fax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting fhe levy, the second is a clear indication of the Person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed and the fourth is the measure or value on which the rate will be apolied for computing the lax lability. If those components are not clearly and definitely ascertainable. it is difficult to Say fhat the levy exists in point of law. Any uncertainty or vagueness in the fegisiation scheme defining any of those components of the levy wil be fatal to its validity."
The first component shows that it is fiecessary to find out the flature of transaction which is the source of generating income. It has to be clearly spelt out as ta whether a Particular transaction is of income yielding nature as per IT law, Merely because 23 document is recovered from the body of @ Person, does not automatically lead to the inference ihat jt belonged to him. it is only for certain purposes that Presumption under s. 132(44) has been enacted and not for aii purposes including the assessment. Further, -- this Presumption is not conclusive. It is rebuttable.
"What amount of evidence one requires to rebut the evidence depends upon facts of each case. There is no figid rife in this behalf. Sometimes, mere statement of the assessee may be enough. Hon'ble Rajasthan High Court in Addt CIT ys. Thahtayamal Baichand 1977 CTR (Raj.) 219 + (2 980) 124 ITR fit (Raj.) observed "a mere statement of the assessee may be enough in some cases. it does not raise a question of law."
"The document and/or follow up investigation must establish the period of transaction before charge of income tax coufd be levied during the current assessment year"
LT.A.No.S6 ta 61/ Nag /2016 LLT.A.No261 to 265/Nag/2016 Assessment Years:!2007-08-2011-17 Hae "The A.O, has failed to Properly decode the figures mentioned ff the document as to whether fey are in thousands or in fen thousands ar in jakhs and what is the unit of these transactions, The document does not tel anything about this. dé could have bean done only by way of investigation. [t has fiat been done. Therefore, one cannot infer merely from the face of the document as to What is the total of those fansactions and whether they are in rupees or in KHOgIaINS oF something else. In the absence of Such proper decoding and clarification of number/ quantity involved, no charge of income fax can be levied"
"The above discussion also leads us to infer that a charge an the basis of document can be levied ony when the dacurment iS @ speaking one, "The speaking fom the document should be foud. Clear and Unambiguous in respect of aff the four components as described above. IF it is not $0, then document is only & dumb document. No charge can be levied on the hasis of dumb document"
tt was held in Neeng Syals case (supra) that where 2 document found during the course of search is open to more fan one Possibility of interpretation and does not prove conclusively that any premium was given by the assessee or received by the seller then no addition could be made in respect of premium paid or Purchase of plot. From this decision, it is Gear that the document must unmistakably reflect the transaction without Aeving any secone interpretation"
"The crux of these decisions is that @ document found during the course of search must be 3 Speaking one and without any second interpretation, must reflect aif fhe details about the transaction of the assessee in the relevant assessment year. Any gap in various components as mentioned in s. 4 of the IT Act must be filled up by the AO through investigations and correlations with other material found either during the course of the search or on investigation. As a result we hold that document No.7 is a non "Speaking document"
FAR,
--a
1.T.2.N0.56 to 61/Nag/2016
1.T.A,No.261 to 265/Nag/ 2016 46° Assessment Years:2007-08-2011-12 43.8 On perusal of the assessment orders of various entities Of Bhangdiya group, it is seen that the net Profit adopted by ihe learned AQ is quite at variance in each of the group entities, besides being abnormalty high. The following chart depicts the net profit adopted by the AO in various group concerns for the purpose of taxable profits:
Inco fro ontract Busin Assessed By AO in ° Particular AY AY AY AY AY AY AY 2006-07 2007-08 2008-09 2009-10 2010- 20li- 2012-13 di i?
M/s. MG Bhangdiya 12.79% 41.27% 35.60% 18.60% 27.46% 49.50% MKS Constro Venture P, Ltd. 9.54% M/s, Mahendra Construction 10.78% 43.13% 25.44% 11,0494 2l.7/9% 33.05% 27.72% Mis. Mahendra Const. & 6 M.G. Bhangdiya JV 49.53% 73.44% 17.69% 41.81% 16.03% M/s. K.M. Bhangdiya 41.97% 23.39% 26.76% 26.26% 15.22% 13.94% MKS Acme Build P Ltd 10.28% M/s. MG Bhangdiya and .
M/s. MG Bhangdiya and $5 PATIL IV 54.82% 129.92% 15.18% M/S KM Bhangdiya J¥ 25.28% 39,52% Mitcon Infra Project P Ltd 10.07% 10.00% 10.00% Consolidated for All Entities 12.36% 47.01% 74.36% 18.52% 34.25% 40.97% 44, 59% 14.0 it is quite manifest from the above that the income assessed by the id, AO for the purpose of taxation in respect Of various group concerns, engaged in the same business as contractors, is quite at variance. The income assessed by AO as perceniage receipts for various years varies from 9.34% tp
129. 92%, | 15.0 In view of the huge variance in the income assessed as percentage to receipts by the AO and various infirmities pointed out by the AR of the appellant in the order of the AO as discussed in the foregoing pata No. 12 of this order, the AR has vehemently objected to the income assessed by the AO in the hands of various entities of the group, including the present appellant. The AR thus has contended that income assessed by the AO in the assessment order is merely an estimation which is quite af the higher side looking fo the facts and circumstances of the case. The AR of the appellant in this regard has also relied on the decision of fhe Hon'ble ITAT, Naguur Sench, Nagpur in the case of the appellant and various group entities in LTA No. 268, LT_A.No.56 te 61/Nag/ 2016 "4 LT.A.NG.261 te 265/Nag/2016 co Assessment Years:2007-08-2011-12 269 & 285/Nag/2012 dated 03.04.2013. The AR of the appellant in this regard, has submitted that a survey action Was conducted on 17.07.2009 in the Bhangdiya group of cases, wherein the similar situation as payments to suib-
contractors was disputed and doubted by the AO. The Survey action comprises AY 2006-07 to AY 2008-09 which are also forming part of the block periods for the search action conducted on the assessee group on 19.07.2011. The AR has pleaded that the Hon'ble ITAT after having considered the similar activity of business and deficiencies in sub-contract payments found during the survey action conducted on 47.02.2009 has decided the appeals for AY 2006-07 to 2008- 09, The Hon'ble ITAT, Nagpur Bench, Nagpur after considering the impounded material has directed the AO to adopt the net profit @ 12% as against net Profit adopted by AO @ 14%, Therefore, the AR of the appellant vehemently contended that the nature of defects found in the course of search action are similar to that of the evidences impounded in the course of survey action, therefore, the net bront in ary case should not exceed @ 12% as adjudicated by the Hon'ble Jurisdictional ITAT, Nagpur Bench, Nagpur in the various group cases of assessee for AY 2006-97 to AY 2009-10, £6.0 On perusal of assessment order, remand report and evidence on record, it is seen that the entire addition made it the assessment framed is based on the seized documents invertorized as 8-1 to 65, The 4.0. fas analyzed the said documents and has found that the various amounts SHOWN 2 receipt in the said documents are withdrawals from bank accounts of assessee as well as from the bank aCCOUNS Of sub contractors. It is for this reason the conclusion has been drawn by A.O. that payments made to sub contractors are bogus. The AO. had examined 21 sub contractors as is evident from the assessment order and had identified 2 sum of Rs, 54.40 crores tif date of assessment to be credit entries in the seized document having nexus with withdrawals from fhe bank accounts of sub contractors. In the assessment order A,O. has computed total addition to be made at Res. 182,52 crores being credits in the seized documents. The sum of Rs 24.40 crores was added at the hands of respective assesses in the group on the basis of credits appearing in the bank accounts of sub contractors. A sum of Rs. 128.1? crores was assessed at the fands of various business entities of te FHA
1.T.A.No,56 to 61/Nag/2016 Y.T.A.No.261 to 265 /Nag/2016 Ba Assessment Years: 2007-08-2014-22 group if ratio of business receipt. The inethodology adopted by AO. while distributing the addition on estimate basis itself indicates that the books of account have not been accepted and fave been rejected while determining the assessable income at the hands of assessea, In the Case Of assessee jin regular assessment Proceedings hooks of account were rejected and income was estimated as net Profit percentage of business receipt at the hands of various business entities of adssessee group. in the course of remand Proceedings, the A.O. had made further exercise to identity the credit entries in ie dary having nexus with withdrawals from the bank accourits of sub contractors. The A.O. in the remand report has made general observation that the credit entries in the seized document are withdrawals fom the accounts of sub contractors. However in remand report AO specific amount/name of sub contractor has been identified by him as fo credit of whom it was in the seized document, The exercise in the remand proceedings was only fo demonstrate that the credit entries in the selzed document are in relation fo amounts withdrawn from the bank accounts of sub contractors, it is seen that the work executed by assessee Group is mainly in refation to work of various government organizations. The State Government has due Process of verification as regards to quality and quantty of work executed before release of Payment. in the case of assessee the work is allotted by Government year after year. This itself is demonstrative for the fact that the State Government has Ao question as to quality and Guantily of work executed by assessee. The execution of work is nat disputed by A.O. In the case of assessee work executed is undisputedly through sub contractors, in view of payments made by assessee to sub contractors cannot be outrightiy rejected as js being attempted by the fd. A.O. 46.2 On perusal of various observations made in the assessment order as regard to seized documents inventorized a5 B-2 to 8-65, if is evident that the aforesaid documents do not pertain to any one of the business entities of assessee group. The aforesaid seized document had been Maintained by fate Shri Gotutafi Bhangdiva on memorandum basis for inaking the notings in respect to hanaling of cash relating to activities of business. The receipt side of assessee's diary has been concluded by A.O. to be out of withdrawals fram the LT.A.No.56 ta 61/Nag/2016 L.T.A.No.264 to 265 /Nag/ 2015 Assessment Years: 2007-08-2011-12 bank account of assessee group as well as from fhe bark accounts of sub contractors. in the assessment order as weit as in the remand report submitted by A.O. there is no allegation that the receipt side of the diary contains any receipt over and above in respect to activities Of businass declared by assessee in the return of facome. In other words, the credits appearing are in fespect to activity of execution of fhe various works for irrigation Department and other GOVETUNCHE AGENCIES.
416.2 In the case of assessee much Prior to the date of search a acon LIZA Of LT, Act 1961 has taken Dlace on 17/2/2009. in the case of assessee Payments made fo various sub contractors was a matter of dispute by the A.O, pursuance to Survey proceedings. A.O. Nad alleged in the course Of survey proceedings that the expenditure claimed on account of Payment to sul contractor is bogus/inflated The regular assessinents have been framed in the case of assessee for the assessment years 2006-07 to 2008-09 wherein in the Payments made to sub contractor have not been accented and net profit rate was applied in regular assessment framed. Jn fact assessments framed subsequent to survey proceedings for assessment years 2006-07 to 2008-09 Mave again been framed as re-assessments for above stated assessment years in terms of provisions of section 1534 of ET. Act 1961, 46.3 The seized document is not bériaining to any single entily and it is record maintained in respect to movement of money by fate Shri Gotulafi Bhangdiva in the form of cash How, The aforesaid submission of assessee fias alsa heen affirmed by two employees in whase handwritings the seized documents are found to be writtan.
16.4 The analysis of income assessed by the AO in percentage terms in the various years falling in the block Period as under:
Income from Co ract Business Assessed By AQ in Particular AY AY AY AY AY AY 2006-07 2007- 2008-09 2009- 2010- .2014- 03 10 il 12 M/s. MG Bhangdiya 11.79% 41.37%) 35.60% 16.00% 27.46% 49.50% MKS Constra Venture PL Lid.
Mfs.-Mahendra Constniction 1.78% 43.13% 25.44% 11.045, 21.79% 33.05% 27.7305 FAS ce AY 2022-13 9.34% FUE
1.T.4.N0.56 to 61/Nag/2016 L.T.A.No, 261 to 265/Nag/2016 30 Assessment Years:2007-08-2011-123 M/s. Mahendra Const. & M6.
Shangdiva-J¥ 49.53% 73.44% 17.69% ALG1%. 16.03% Mis. KM. Bhangdiya 11.97% = 23.39% 26.78% 26.26% 15.22% {3 gang, MKS Acme Build P Ltd 10-28% M/s. MG Bhangdiya and Hitbhay 66.53% 11.98% 27.83% noO% Engg Jy M/s. MG Bhangdiya and SS .
PATIL JV S4.82%y 120970, 13. 1H MS KM Bhangdiva Jy 25.28% 39.92% Plitcon Infra Project P Ltd WO | i008 10.00% Consolidated 12.36% 47.01% 74.35% 18.52%. 34.2595 49,979, 44 59% The income assessed in various years by the Id. AQ varies from 9.34% to 129.92% and brings in absurdity in fICOMMe determined with reference to business receipts for various years under consideration. The above analysis also fully justifies, the determination of Micome should be at net profit rate Of receipts at the hands of appellant group.
L6,5 'he perusal of the assessment Order would make Hf evident that the source of facome of the various business entities of the various Group IS only in respect to execution of government contracts and it has no other major activity of business whera from the income fs derived or generated, The notings found in the seized documents are Part of the gross receipt received from the government department. The various noting in the seizac document are part of the GfOss feceipl of contract received by group entities is MOF disputed. The inference drawn by AO. is that the entrias in the seized document are by inflating the sub contract Payments which have beer utilized for incurting illegal expenses. In the case of @SSESS0E MG corroborative evidence or material was found during the course of search or anything has been brought on record subsequently in the course of aSSESSINENt proceedings fo establish that the notngs made in the seized document are in relation to incurring of any legal experises. Thus, the AR fas pleaded that the explanation submitted by assassee as fegatd to movement of Money noted by late Shri Gotulafiee Bhangdiva is plausible and reasonable explanation which pas been disbelieved/discarded for NO valid justification, I find substantial force in the submission of appellant.
16.6 The perusal of the seized document would make it evident that if cannot be identified to one individual business entity of assessee group. The transactions noted in the seized document ara of mixed nature being DUSIFIESS, Personal and investment. The document being not related to FaE L.T.A4.N0.56 to 61/Nag/ 2016 T.T.A.NO,2761-to 265 /Naq/2016 5] Assessment Years:2007-08-3014+12 any one identified entity, the AOUAGS Made cannot be het as unexpiagined credit to be apportioned amongst the various business entities, Jn fact even as per the ALO, the seized document does not belong to any one assessable individuar. fn the absence of seized document being identified to any one individual entity and same being not identified to any business entity, & cannot be held to be as befonging to business entity $a as to make estimated addition at the hands Of various business entities in proportion to the furnover, 16,7 The AO. at para 6 of the assessment order fas observed that the assessee group for AY 2006-07 to 2012-17 has debited Rs.361 cores fowards = sub-contract Payment out oF GOSS contract receipts = from the Government tofaling to Rs.579 crores which js more thet 62% of -- gross receipes. ff is seen that sub-contract Payments include various payment to associaie concerns which ae = considered = as --sreceipts inthe case of assocate concerns for making assessment by same AO. The attual payment to outside sub-contractors is RS.263 crores only which is 45% of gross contract vaive. The finding of A.O. to the extent of sub-contract CADENSES at 62% Is factually not correct.
48.8 In assessment order at bara 5.1, the ALO. has discussed the significance of the diaries BI to B65 and has observed as wider:
"The analysis of the entries in the diaries reveal that on receipt side various receints including receipts from withdrawals from Bank accounts of group entities and subcontractors were recorded and_on payment side entries of expenses like inferest Payinents, repayment Of loans, deposits into bank accounts, Aouse hold EXPENSES, Personal expenses pavments fo various Bersons it cash. investment jn properties ete. were recorded. For the F. ¥. 2006-07 to 2008-090 BAG 2011-12 the cash books and the ledgers mainty contain the cash receipts and the payment entries in cash. dt is interesting to observe that some of the entries in these diaries were also reflected in the reguiar books of accounts maintained by the assessee ofoup, * LT.A.No.56 to 61/Nag/2016 LT.A.No0.261 ta 265/Nag/2016 | Assessment Yea re: 2007 -03-2011-13 in the same para in answer to question No. 30 from the statement of Shri Mitesh Bhangadiva recorded on oath on 2Y/O7/2011 jf is evident that tf is Stated that seized documents are details of cash fow. The AO. at page 9 in the same Paragraph has observed that they contain probable extraneous gratifications. It is evident that A.O. has po evidence on record for any iiegal gratification Aut observation is made on inferences and Presumption. The observation at Para Sf infact clearly explain the nature of entries found noted in the seized document to he in the ature of cash flow. The AO. has also recorded that receipts are from bank accounts Of group entities and subcontractors. On the face of SUCH observation conclusion of A.O. holding that credit entries are assessaiie income at the hands of GSSESSC@ aS unexplained credits is unjustified 46.9 The AO. at para 6 of assessment order has discussed the nature of sub-contracts. The A.O. has on enquires from bank account found that withdrawals Made has been credited ia daily cash balance of diaries. The AO. on inference has observed that same are utilized for unaccounted payments, The A.O. at page i7 has observed that most of the sub- contractors are name fenders and ae of meager names and some are employees. The names observed are Shri Kesharsingh Rotela and Firous Khan éfc. it is seen that both individuals as observed are assessed by same A.O. Fhe income from sub-contract work done for assessee has been accepted in the assessment framed "l/s L4HGOVIS3C of IT. Act 1961 on the same date. fhe receipts Om assessee having been accepted for assessing income at the hands of such individuals, payment made by assessee cannot be doubled a5 non genuine at the fands af assessea Similarly AO. has observed hames of other subcontractors, Out of names of sub-contractors observed Shri sanjay Malani, ott Chintaman M. Nakade, Shri Vishal Rachalwar. Shri Owarkadas M. Bhutads, Shri Dnyaneshwar Meshram and Shri Suresh Masram have been assessed u/s 15350 by the same A.O. The receipts from assessee faving been accepted for assessing income at the fands of SUO-Contractors, payment made by assessee cannot be doubted as nor genuine at the ands of assessee .
FF .T.A.No,56 to 61/Nag/ 2016 ;
I.T.A.NO.261 to 265/Nag/2016 ct Assesement Years:2007-08-2011-12 § 16.20 The AO, at para 7 has made analysis of diaties marked on B1 to B65. AO. at bata 7.1 if is categorically observed that receipt side contains amount withdrawn from banks of assessee group concerns and individuals. The financial year wise receipis entered in these diaries were computed at 182,52 crores. It is strange that A.O. at one hand observed that withdrawals from bank account Of business concern and individuals is credited on left side of the diagties and at the same time he concluded the same as unaccounted lacome. The A.O. has not doubted the deposit in the bank account of assessee. In fact they are deposit of receipt which are considered as income withdrawals of such amount cannot again De assessed as income. This Clearly shows incorrect and unjustified approach for determining the income.
tl wey 26.21 The AO. has observed in various Part of assessment order that amount withdrawn from diaries is utilized for naccounted payment or unallowable expenses ike gratification paid fo various polticans and Government employees. The assessinent record does not show ay corroborative evidence on record to fold that a5$e5S62 Ags Made payment of any itegat gratification. In fact A. QO. at page 9 fas observed that payment made in cash is for Probable extraneous gratification which supports the submission nade hat assessee has nok paid any illegal gratification. Fhe conclusion of 4.0. is on assumptions and presumptions which are unjustified. The AO. although has computed payments out of seized documents out has not brought on record any corroborative evidence to support his inferences conclusion craw.
£6.12 The working made by A.O. at page 36 to 38 about analysis of payment out of seized documents are just adverse inference drawn on assumptions and is not based on any corroborative evidence on record 46,13 The A.O. at para & has observed as to confronting of seized documents to assessee, The frepiies submitted have been partly reproduced. It is seen that in the course Of search the statement of the assessee was recorded on LOU/O7/201 1 and assessee has expigined in answer to question No.3@ that stized documents are details of cash flow and same fias been reproduced in assessment order on Page 5, During the aie IT.4.No.56 to 61/Nag/2016 [i E I.T.A:Ne.261 to 265/Nag/2016 Fl Assessment Years!2007-08-2011-12 a assessment proceedings too, the assessee has explained that the diaties are hotings for movement of cash jn reply to question No, 23 in the sialement recorded on LHOF/2012. ihe assessee aif aiong in the course of assessment Proceedings had explained that the seized documents are to be in the nature of notings for movement of fund ff was explained in the course of @ssessinent proceedings that the $uD contractors on wilidrawal of money fom their bank accounts used to keep in trust/safe custody ihe amounts Which are found to be noted in the seized documents, The explanation submitted by assessee was verified by the AO. and it was found that the withdrawals made from the bank aCCOUS OF the suh contractors is on ceriain occasion credited in the seized document It was further explained that the amounts credited in the sejzed document being the amounts received from the sub contractors were remitted of the sub-contractor or GY person going to various sites WHICH are located at remote places, The seized document contains notings in respect to handing of cash bY late Shri Gotulahi Bhangdiya who has expired in Aprif 2011. The assessee in the course of assessment proceedings has ihe time of search continued to he ihe same in the course of assessment proceedings that the seized documents are in FESPECE tO Movement of cash with regard to activity of business, personal expenses and investments made by assessee, The Investigation Wing of the Devartment for the submitted by assessea Was substantiated by submitting independent evidence of atfidavits of sub-contractors that they flad collected back the GMOGUNS deposited with late Shri Gotiulalee Bhangdiya. The various Persons who had submitted the affidavits have not bean CfOss examined subsequent to affidavits submitted and por any Material or evidence an record has been brought to disiodge the averment Made in ihe affidavits. The contents of the affidavits fave gone untebutted and have to be taken as true and correct: The 751 LT.A.No.56 to 61/Naqg/2016 1.7. 4.No.261 to 265/Nag/2016 ct Assessment Years: 2007-08-2011-12 i aforesaid proposition is in fine with the jaw aid down by Hornble Apex Court in the case of Mehta Parekh reported at JOLTR 181 (SOC) wherein it has been held that:
'No further documents or vouchers in relation to those entries were called for, nor was the Presence of the deponents of the three affidavits considered necessary by either party. The ap ehants Look it that the affidavits Of these parties were enough and neither the AAC. nor the ITO, who was present at the heating of the appeal before the AAC considered it hecessary £0 calf for them in order to cross-examine them with reference to the statements made by them in their atfidavits. tinder ese circumstances, it was not ben to the Revenue to challenge the correctness of the cash entries or the statements made by those deponents in their arfidavits. "
16,14 The AO. has observed that the various sub contractors in the case of assessea are bogus. The A.O. has fisted the names of such sub contractors at para 92 of the assessment order, It is observed that the aforesaid Sub contractors are also assessed by the ACIT, Central Circle-2 (1), Nagpur who is also the AO. of aSsE8see group. ff cases of such sub Contractors notices under section L53C of LT. Act i961 were issued and returns were subrutted by such siub- contractors pursuance to receipt of Notice under section 159C OF LT, Act 1961. The assessmens Nave been framed under section 153C of LT. Act 1967 by the same A.O. wherein income returned in respect to business incame shown arising f0 such sub contractors out of receipt received from the assessee have been accepted. The A.O. faving accepted the business receipt at the hands of sub contractors for determining the income in the Cases Of sub contractors could fot Aave concluded that the Payments made by assessee to SUCH sub contractors are bogus.
Considering the entire evidence on record and tact that in the case of assassee books of account fave not heen accepted in the past assessment years, Lam of the considered opinion that assessee' s income in the case of assessee needs lo be estimated on the basis of business receipts and that would be most appropriate and reasonaile manner for FoR
1.T.A.No.56 to 61/Nag/2016 | L.T.4,No0.261.to 265/Nag/2016 Ate Assessment Years: 2007-08-2011-13 determination of income at the hands of assessee group. The addition made by AO, by referring to seized diaries fs unjustified and unsustainable for various reasons observed hereinabove, The income of assessea need to be determined at estimated percentage of businass receipt at the Aands of FESpeCtiVe assessee's of group.
IZ it is settled proposition of law fhat the income sought to be taxed should be in the nature of real income of assessee. The aforesaid Proposition (6 in line with the decision of Han'hie Apex Court in the case of Sanjeev Woolen Mills ys. Ci? reported at 279 ITR 434, In the case of assessee the A.O. has Made addition during the block Petiod to the tine of As.182.52 crores. The addition made is over and abave income offered by assessee in the retuin a5 additional income Of Rs.26 crores offered during the course of search and Rs. i} crores offered during the course of Survey proceedings for the years failing in the block period. In the course OF search assessee 1 Not found to have possessed any such huge undisclosed assets so as to justify assessment of such huge income at the hands of assessee. The addition made by A.O, OF such Auge income cannot be field fo be justified on Drinciple of real income as settled by Hon'ble Apex Court. The addition made by AO. thus js clearly excessive and unreasonane.
8.0 it is seen that in assessment framed in the case of M/s, Admane Construction Co. far OSSOSSINCH year 2005-06, AO. had made additions in respect to bogus labour payments, bogus sundry creditors and other disatiowances, In the appeal filed by such assessee before CIT (Appeals) if was held that ihe income needs to be determined at the estimated Percentage of business receipt towards civil construction and accordingly it was diracted fo aS5085 Net profit at 8% of the contract receipt. The department challenged the matter before the Honble ITAT séeking to sustain specific additions on account of bogus labour payments and bogus trade creditors The appeal filed by the revenue was dismissed by Hon'ble ITAT in ITA NO, 92/Nag/2012 vide order dated 01/05/2013. The appeal filed by the revenue against the order of ITAT has also been dismissed by the Hon'ble Bombay High Court, Nagpur Bench in ITA No. 134 of 2013 vide judgment dated OV12/2015. The ratio laid down in
---- | #53 L.T.A.No.56 to 61/MNag/2016 | I.T.A.No,.261 to 265/Nag/2016 wi Assessment Years: 2007-08-2011-13 -_ fhe aforesaid case fully supports the submission of the assessee that in the case of assessee determination Of income On estimated basis is most reasanable and rational manner for determining the tax hability at the hands of assessee I9.0 in the case of Shri Mitesh Shangéiva and Group, an action under section 1334 of LT. Act 1961 was also taken by the Department on 17.02.2009 Prior fo the date of search. In te course of survey under section 123A OF LF, Act 1961, the statements of various sub-contractors were recorded and the veritication of the records maintained by assessee group was undertaken by the A.O. having jurisdiction. In the course of survey action in pursuance to discussion with fhe A.O. and after considering the fact that no complete record was available with assessee as well as with the subcontractors executing te work, it was agreed fo offer additional income at Rs. II crores amongst the various business entities the Bhangdiva group for the FSSESSINENE YEAS ZOG6-O7 to 2009-
10. The aforesaid assessment years Covered by survey action are also forming the part of the block period which is assessed in terms of provisions of section 155A of 7. Act. 1961. In the Case of the assessee Group, prior to the date of Search, reguiar assessments were completad up fo assessment year 2008-09, In the regular assessments framed, the AO after consiaering the additional income offered at the time of ourvey Proceedings and the facts and CHCUMSLANCES On record including that payments Made to sub-contractors and various defects/mistakes as found during the course of survey, Aad estimated the net profit at 14% of the fet receipts computed at the time of assessment Proceedings. The aforesaid estimated addition made at the hands of assessee were subject matter of chattenge before CiT(Appeals), Nagpur. During the period while appellate proceedings were Pending, action under section L321) of LT. Act, 1961 had taken place at the business Premises of assessee group on 19. O87 2077. The CiT (Appeals) after noticing the fact as regard to action under section 132¢1 } O LT, Act. 1961 at the premises of aSSOSSCE ahd Considering the additional disclosure made by aSSessee group in the course of search Proceedings, had disinissed the appeal fled by assessee vide order dated 05.03.2012.
. JALT.A.N0,56 ta Gi/Nag/2016 @ L.7T.A.No.261 ta 265/Nag/2016 Be Assessment Years: 2007-05-2011-17 20.08 fhe order passed in the case of assessee in appelate proceedings was chatenged before Hon'ble ITAT, Nagpur Bench, Nagpur. The Hon'ble fTAT, after considering the entire material facts and evidence on record, conctuded that assessee group to be assessed af 12% of the receipts and thereby granted part relief in fhe cases of various GSSES50S Of Shangdiya group.
21,0 ff is thus seen that prior to Proceedings having been initiated under sectian t S21) OF LT. Act L964, an action under section 1334 of LT, Act 1961 had taken place at the business premises of assessee Of 17.02, 2009. Pursuance to action under section 1334 of LT. Act L961, 2 lump-sum amount was offered for taxation in fespect fo various assessinent years which ara also forming part of block period for the search. In the case of aSSOSSC€ DOOKS Of account were not accepted and were rejected in assessinent framed under section 243(3) of ET. Act 1961, It is a fact on record that G00ks Of account had not been accepted for the purpose of framing assessment at the hands of assessee. in view of the above verification of entries with reference to regular books of account looses relevance and has no bearing for determining assessable incame in the hands of assessea 22.0 in view of the above facts and arcumstances and Keeping in view of various infirmities and various judicial decisions as discussed in foregoing paras of this order and to meet ends of justica, to my considered opilon, it would be fait and reasonable to adopt the net profit @ 16% on the gross receipts of Rs.579 Crs. being the turnover of the various group concerns for the block period from AY 2007-08 fo AY 2012-13 in the respective years of the block and bring the same to the taxation on fhe guidelines determined by the Hon, ITAT, Nagpur Bench, Nagpur in ITA No.268, 269 & 285/Nag/2012 vide order Hd.O7,03.2013 on the similar activities of business as well as deficiencies found in the case of the appellant during the Course OF Survey action conducted at the premises of the appellant GOouUp Of I7.02.2009. The relevant facts as emanated fom Dara-4 of the order of the Hon ie ITAT in the case of the appellant are as under:
"4. Brief facts of the case are thata Survey u/s. 133A of the income Tax Act 1961 was carried out if the business a 755 L.T.A.No.56 to 61/Nag/ 2016 LT.A.No.27612 ko 265/Nag/2016 £ 50 Assessment Years:2007-08-2011-13 -
premises of the assesses and his associates on f7.02.2009, During the course of SUIVEY Operations if was found that most of the bills, vouchers and other evidence i support of the entries in the books of account ike labour charges, Material purchases, 'machine hire charges, site expenses, sub contract expenses, oif and lubricants, repairs and maintenance Gt. pertaining to this ALY. were not availzbia. Statement of Sri Mitesh Bhangadiva was recorded uncer section 133A and tuys. 131 of the Act on behalf of the assesse. In fhe statement GL24.02.2009 and 13.03. 2009, if response to various questions refating to the genuineness of the Payments fo third Party suO contractors and in respect to other defidencies, the assessee admitted additional income in Group cases of Rs. f1 crore and proportionately were allocated between aif the assessment years relating to these four assessee. For the year under consideration ie. for assessment year 2006-07 in case Of Sti Mithesh Bhangadiya, the additianal income was offered at R5.23,97,361/- 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 is order. The important contents of Submission recorded on 24-02-2009 and 13-3-2009 of Sr Mihesh Bhangadiva are incorporated in the order of the AO. In query of questian No. il, it was answered that during the course of Survey, & was noticed that there are certain discrepancies and omissions and to cover up aff such discrepancies we have made out mind fo offer additional income over and above the regular income. We are under the process to determine such additional income fo avoid iitigation and. to buy peace of mind Thereafter fn response fo question Nos. 18 & 19 of the Statement recorded On L3-3-2009. it was answered that the sub cortractors were awarded the su contract work by our firms as per contract hotes and the nature of sub contractors fas been that labour Charges and machine hire charges. The sub contractors by and farge iifterate and therefore, their books of accounts found fo be incomplete, without maintenance Of any bills and vouchers, The expenses incurred 6 iY ou firm fas been an the basis of the so called vouchers raised by them and therefore, there appears the discrepancies in the expenses Claimed. if was further stated that the assessea has admitted in his Previous statement recorded during the course of survey that there are certain discrepancies and anomaties in the sub contract expenses in their books of aCCOUS, fon availability I.T.A.No.56 to 61/Nag/2016 f I.T.A.No.261 to 265 /Mag/ 2016 Assessment Years:2007-08-2014-17 Of bils and vouchers for the Past three assessment years.
Accordingly, it was submitted that there were certain discrepancies and anomaties in the sub 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 firm and the five sister COnCEMNS i the assessment year 2006-07 ta 2009-10, The working of the additional income of As, ff crores wilf be done accordingly and the same will be shown. These part of the statements have been incorporated in the order of the AO as state above. fhereafter the AQ started scrutiny of the case. The AO noted that the aS5SESSCE has shown various expenses under the head labour & wages, Machine fire charges, site Expenses and sub corttract Expenses etc. on very higher side. which are not supported by vate vouchers. Neither any further evidence was filed) If was also observed by the AO that since tere are various deficiencies in accounts of sub contracts and the assessee Mas offered a sum of Rs. 23,97,361/- on account of discrepancies in respect to sub contract, therefore, he oroceeded to meke further addition on account of various deficiencies ie. in absence of bills and vouchers, excess Cain towards machinery hire charges, verification of applicability of provision of Section 194C and denial of alleged sub contractors regarding the sub contract given by the assessee, All these discrepancies are noted by the AQ in his order, Thereafter in para 7, the AO has observed that after having rejected the books of account OF the assessee under Section 145(3) of the Act, the profit of the assassee has to be estimated reasonably, The AO also observed that fhe assessee has declared net profit ratio Of &% and 7% of fhe total turnover in assessment years 2006-07 & 2007-08. Aftar offering additional income of RS.23,97,360/- for assessment year 2006-07, the results in revised net Profht comes to 12.87% of the contract receipts. However, this net profit was found by the AO on lower side. The AO noted that in one of tie group case namely, M/s. Mahendra Construction & MG.
Bhangadia (IV) , who had declared additional income af Rs.
137,47, 760/- in the Assessment Year 2007-08, which gives 2 net profit ratio of 13.84% of the net contract receipts. in view of these facts the AO adopted 14% net brofit. Thereafter the AQ completed the assessment and made addition of Rs.
30,142, 723/- against additional income shown by the F5E F5E i.T.A.NG, S55 to S1/Nag/ 2016 ;
L.T.A.No.262 ta 265/Nag/2016 | ae Assessment Years:2007-08-2011-12 ae GSSCSSCE BE RS. 23,97, 260/-, which resulted further addition of AS.6,15, 362/-,"
23.0 On the above material facts, the matter was carried over to CIT (A) Nagpur who has confirmed the net profit adopted @ 14% by the AO on ihe gross receipts ernanated from the records. On subsequent appeal the Hon ble ITAT, Nagpur Bench, Nagpur afer considering the above material Facts, has directed fe AO te adopt the net Protit @ 12% of the gross receipts, The relevant finding of the Honbie ITAT, Nagpur Bench, Nagpur in the case of the Bhangdiya group on the identical Material evidences impounded during the survey action is reproduced beiow for better appreciation of facts:
"7, After considering the submission and perusing the Material on record, we find that the assessee deserves fa succeed if his appeal in part. We noted for the year under consideration /.©. for assessment year 2006-07, the assessee''s NP rate comes to 12.87%, for assessment year 2007-08, the assessee's NP rate comes to If 53%, respectively. We also noted that if the NP rate of all the concerns are taken into consideration, then it is seen that all the aSSOSSCS Have shown government receipt at Rs, 258, 55,37,850/- and income on these contracts have been shown by these assessee at RG.6,49 57, 111/- which gives a NP rate of 6.38%. The assessee fas offered additional income deciared during the survey at RS. Lf, 03, 85,877/-, which Ves a NP rate of 4.27% and the total NP rate in ali these concerns comes fo 10.65%. OF course, the additional income of Rs il 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 & M.G. Bhangadia (7V) , the NP rate comes to £3.84% Le. for assessment year 2007-08 and this rate has been adopted by the AO and has applied the NP rate of 14% in aff the years in case of alf these GSSCSSES OF WHOM & survey Was conducted. In view, this approach of the AO was not correct approach. In case of M.G. Shangadiva, the NP rate of tree years come to 987% , Whereas in case of other ASSESSES 1.2, Sanjay Heda, M/s Mahendra Construction & MG. Bhangadiva (7V), the NP rate comes fo 9.50% and in case of M/s Mahendra Construction & M.G. Bhengadiva (IV) , the average NP rate of three years comes to 11.28% and if case
---- _ £58 L.T.A.No.56 to 61/Nag/2016 | LT.A.NO,261 to 265/Nag/ 2016 re Assessment Years:2007-08-2011-12 Of M/s KirtikumarBhangadiva, the NP rate comes fo 8.72% and in case of MG. Bhangadiva and M/s Mahendra Construction & M.G. Bhangadiya (JV) , the NP rate comes to 6.12%. in case of M.G. Bhangadiva and S.§. Patil & MG. Shangadiva, the NP of three years comes to 1£1,55%, As slated above, the average NP rate of aif the assesses for alf the three years comes to 10.65%. iherefore, in our view, 2 tational approach should have been adopted by the AO or by the learned CIT (A). For one case ie. M/s Mahendra Construction & M.G. Bhangadia (7V), the NP rate was 13.84% and if this rate is applied in alt 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 heads, which were not verifiable, therefore, the assessee and his group came forward to offer an additional income of Rs. {1 crore and the same has also Offered and due tax has been paid. Since as stated above. there are certain discrepancies, we are of the View, that if NP fate of 12% is adopted instead of 14 %, that will meet the and of Justice. We made it clear that where NP rate shown by the assessee ift any year is more than 12% then the more NP fate Shown by the assessee has to be taken as assessee has declared himself and in other years where NP rate shown by the assessee is lower than 12%, then 12% NP rate Aas to be faken, The AO will recomputed the income accordingly. For the sake of Clarification, in case of assessee for assessment year 2006-07, the NP rate comes to 12.87% after showing the addifional income, therefore, the income shown by the assessee has fo be accepted. However, for assessment years 2007-08 & 2008-09, the NP rate shown Y the assessee after additional income comes to 10.69% and 10.53%, The AO wilf adopt the rate of 12% and wif compute the incame accordingly. "
24,0 On carefid examination of records, it is found that the evidences surfaced from the material found ang seized in the course of search & seizure action conducted at the premises Of the appellant are identical and similar in Nature. The Honble ITAT, Nagpur Bench, Nagpur has delivered its judgement directing the AC to adopt 12% of the gross receipts as net profit and bring the same to tax. It is also vital fo mention that the block period for search comprises of 07 GSSeSSoNaG sere 5 ms es ew Fie Seve 2016 LT.A.Noa. 56 te 61/Nag/ ITA. Wo.zed te 2645,Naa sore Ae See oe Ycoare: JO0F-O8-2720114-12 Period comprises of aSSCSSMEGHE Years fe. AY 2006-07 fo 2009-16 in which the Hon bla ITAT fas delivered its Jucgment hts, the AY 2006 "O7 t0 2009-10 in the case Of the appellant Group are OvensopING fn fOS08CE OF survey ana search PYCOSEGHIGS Hailes fe secre. ef SOG eS aoe sfernier 4 Partie 23.0 The th AQ in para-G.4 of fis order Aas recorded 2 finding that statements af 17 SUO-COMfactOrs FO whom Payments Aave been made by Ghengdiva Oroup under the Aead sub-contract payments were recorded Guring fe survey EFOOGeHhiGSs as wel in which ifiey fave confessed that fey were mere name lenders. At page 2 & 3 of the @SSOSSIIONE order for ALY. 2007-08, dated 21/12/2009 question and answer of Shri Mitesh Bhangdiya from the statement recorded On LVO3/2009 during the Survey proceedings are reproduced Perusal of question answer reproduced in the said assessment order indicates that ouring survey Proceedings, # was found that sua-contractors were non "existent and some have denied Of Carrying out the full GUaNIL OF works. The SUO-Contractors had not kept proper record, A finding to that affect that tfiiree Of the sub-contractors have denied of carrying out the contract works is also found noted at Para 0. 7.1 of the said order. Thus the finding of the id AO that the {SSuC Of Payments to sub-contractors and the Genuineness of stuch Sub-contractors in question was similar to that in the survey proceedings conducted on 17/02/2000 Therefore, the facts and the circumstances and the Aature of evidences found ane seized during the course of search action and the survey action prior to search action in the Case of ihe appellant are similar. Therefore, the ratio of the decision of the Han, ITAT Nagpur Bench, Nagpur in the case Of the appellant for Survey appeas for AY 2006-07 to 2009-1 @ is mutatis-mutand applicable to the present appeals more particularly, when four assessment years ie. AY 2006-07 to 2009-10 pertaining to survey period are also forming the Part of the block period for ihe search action. The AO in Para-6.5 has mentioned that in the absence of some of the sub-contractors, the statament of ther father was recorded and based on such statements fas concluded that some of ihe sub-contractors were found to be employed with the Bhangdiva group as drivers ett. In this regard, it is vital to mention that the statement of father of the sub-contractor is not OF any consequence so far _- ae ae - 7 Zhe ee
1.T.A.N0.56 to 61/Nag/2016 | :
L.T.A.No.261 to 265 /Nag/20i6 el Assessment Years: 2007-08-2011-17 :
as the fansactions have been performed by the -- sub- contractors. Therefore, such statements are inadmissible under the law, It is also vital to mention that the Id. AO in the case of the appellant for AY 2006-07 has accepted the jacome declared by the appellant u/s 153A @ 12% of gross receipis under similar circumstances. Thus the Id AO having admitted the income declared by the appeliant @ 127% in AY 2006-07, is not justified in making huge additions in subsequent assessment years.
25.4 Since, the facts and circumstances in the years under appeal are similar to that of the facts and circumstances brought out by Hon'ble ITAT in its order as reproduced above for AY 2006-07 to 2008-09 wherein the Hon, TAT, Nagpur Bench, Nagpur has dealt with similar activities and Situations as found during the course of survey action covered by these years. The only material difference however is that in the years under appeal the search action has also resulted into detection of unaccounted assets to the tune of Rs. 26 Crs.
and unaccounted jewellery of Rs. 2.37 Ors . which had not been disclosed by the appellant group in their respective returns filed nor the sources for acquisition of such assets could be explained satisfactorily. Therefore, to cover up the investment in undisclosed assets and Jewellery, the net profit is directed to be adopted at the enhanced rate of 16% of gross receipts of Rs. 579-Crs . as against 12% determined by the Hon. ITAT because the issue of undisciosed investment fn assets and jewellery was not there before the Hon. Tribunal in the appeals against the orders passed Pursuant to the survey proceedings. But in the present appeals, the issues relating fo undisclosed investment in assets and jewellery are also involved, therefore, to cover up the undisclosed investment in SUCH assets and Jewellery to the tune of Rs.26 Crs. and Rs. 2.37 Crs., the net profit is directed to be adopted at enhanced rate of 16% of gross receipts of Rs. 579 Crs. of the group. Accoraingly, in the case of the appellant the total income is determined @ 16% of the gross receipts in each year.
25.2 Therefore, respectfully following the decision of Hon. fTAT, Nagpur Bench, Nagpur, fo my considered Opinion, if the facts and circumstances of the case, it would be fair and reasonable to meet the ends of justice to astimate the net profit on the total turnover of Rs. 579 Crs. on the guidelines 1.7. 4.No0.56:te G1/Nag/2016 L.T.A.No.261 to 265/Nag/2016 Assessment Years: 2007-08-20141-12 set in by Hon, ITAT in the case of the appellant on the similar 5@t Of facts. The facts and crcumsiances and the Mmateriaf evidences found and seized in the course of search action are similar to that of the evidences detected in the course of SUIVEY action as is evident fom the finding of the Aon. TA? in its order in the case of the appellant as reproduced above excépt that in the course of S€arct achon assets worth Rs.26 Crs. and Jewellery worth Rs.2.37 Crs. were found as undisclosed assets, Therefore. to cover up the undisclosed investment in the immovable assets of Rs. 26 Crs. and in jewellery of Rs. 2.37 Crs. the het profit is diracted to be adopted @ 16% of total turnover of Rs. 579 Crs. which comes fo Rs. 92.64 Crs. which in my considered opinion is the reasonable income which could be determined fom the activities of business of tHe assessee group for the block Period.
£25.37 In the case of GSSESSEE GOLD work received from Government is executed OY assessee itself or fhrough any of ihe sister concern. In the case of assessee Soup subsequent fo 133A proceedings on 17/2/2009 assessment were framed by estimating net profit on receipts for Asstt. Year 2006-07 to 2008-09. The assessment Proceedings initiated for Asstt. Year 2009-10 pursuance to SurVEY stood abated in view of action u/s 132{1) of LT. Act 1961 in ler of provision of sec. L53A (2) of ET. Act 1961. fn the regular assessment Proceedings for Asstt. Year 2006-07 to 2008-09 net income Was estimated on the receipts of GSSESSCe excluding the receipts for contract given to sister concern and offered as receipts at the hands of such sister concen. Similarly for estimating net profit at the hands of sister concern sum totaf of receipts from Government and from other sister concern were civbbed to determine féceipts on which net profit was estimated, The above methodology for determining receipts for determining income was accepted by assessee as weil A.O, i Assit. Year 2006-07 fo 2008-09 and such assessments have achieved finality in appellate Proceedings. £ therefore diract that receipts for estimating income be taken at the hands of various business entities as Per methodology adopted by A.O. for Asstt. Year 2006-07 to 2008-09 in regular assessment famed subsequent to 1324 Proceeding on 17/2/2009 and net POE at 16% be applied on such receipts of Rs. 579 crores for all the years falling within the block Period.
L.T.4.N0,56 to 61/Nag/2016
1.T.8,.N0.261 to 265/Nag/ 2016 7EX Assessment Years:2007-08-2011-12 [aa 26.0 The search & sefzure action resulted inia detection of undisclosed assets worth Rs,26 Crs., which, according to fhe AO, were neither disclosed in the returns filed nor the sources for acquisition of the same coud be explained satisfactorily. Therefore, the Id. AO has treated the same as uNdISCIOSEd assets, flowever, allowed the telescopic benefit of undisclosed assets against the undisdased income determined. The appellant has not filed ay additional evidence to explain the 'undisclosed assets, hence the same remains unexplained. However, since, the income directed to be determined @ 16% of GtOss receipts at Rs. 92.64 Crs. Covers up the undisclosed assets, therefore, the issue is not required to be revisited again.
427.0 During the course of search action, the gold jawellery studded with precious stones found from the residential bremises at Dhantoll, Nagpur was valued at Rs. 2,83, 00, 660/- by the Government approved vatuer. However, the jewellery declared by various family membars of the group in their respective balance sheet as on 31.03.2011 Was only to. the lune of RS . 25.38 737/-Shri Mitesh Bhangdivya in bis statement recorded u/s 132(4) on 20.07.2011 has admitted that the balance Jewellery of Rs, 2.37,61,923/- has not been accounted for in the regular books of account. Therefore, the excess jewellery found of Rs. 2,37,61, 923/5 according to the AQ, represents the unaccounted investmant in the Jewellery if te hands of the Bhangdiva group. However, since the unexplained investment in Jewellery is covered by the undisclosed income assessed in the hands of the Bhangdiya group, therefore, this issue also does pot required to be revisited during the appellate Proceedings as the Id. AO has a/so allowed the telescopic benefit af the same against the undisclosed income determined
29. Coming to the evidentiary vaiue of the impounded loose Sheet mentioned elsewhere, the Hon bie Supreme Court in the case of Common Cause (A Registered Society) and Others ys.
Union of India and Others in Writ Petition Civil Appeal No. 505 of 2015 has observed as under:-
16. With respect to the kind of materials witch have been placed on record. this Court in V.C. Shukla case
26.
1.T.A.No.56 to 61/Naqg/2016 L.T.A.Mo.261 to 265/Nag/2016 @ Assessment Years: 2007-08-2011-13 (supra) has dealt with the mattar though at the stage of discharge when investigation had bean completed but Same is relevant for the purpose of decision of ts case also, This Court has considered the entries in Jsin Mawala diaries, note books and file containing foose sheets of papers not in the form of "Books of Accounts"
and fas held that such entries in foose papers / sheats are irrelevant and not admissible under Section 34 of the Evidence Act, and that only where the entries are in the books of accourits requiarly kept, depending on the Aature of occupation, that those are admissible, i7, ft has further been jaid down in VC Shukla (Supra) as to the value of entries in the books of account, that such statement shalf not alone be sufficient evidence to charge any person with lability, even if they are relevant and admissible, and that they are only corroborative evidence. It has been hefd even then independent evidence is necessary as io frustworthiness of thase entries which is a requirement to fasten the liability.
The Hon Ble Supreme Court further observed:-
i? From a plain reading of the Section jt is manifest that to make an entry relevant thereunder jt must be shown that it has been made in a book, that book is a book of account and that book of account has been regularly kept in the course of business From the above Section it is also manifest that even if the above requirements ara fulfilled and the entry becomes admissible as / relevant evidence, still, the statement Made therein shail not alone be sufficient eviderice to charge any person with liability. Jt is thus seen that while the first part of the section Speaks of the relevancy of the entry as evidence, the second part Speaks, in a negative way, of its evidentiary value for charging @ person with a hability. It wiff therefore, be "necessary for us to first ascertain whether the entries in ihe documents, with which we are concemed, fulfil the requirements of the above section so as to be admissible in avidence and if this question is answered in the affirmative then only ifs Prebative value need be assessed, $2 RCO RAR NE BEE settee eS ewes LEK
----__ L.7.A.No.56 to 61/Nag/2016 I.T.A.NO.261 to 265/Nag/2016 Bape Assessment Years: 2007-08-2014-13 -
27. With respect to evidentiary value of regular account book, the Hon ble Supreme Court in the case OF VC Shukig £998 (3) SCC 410 has Ii down:-
"37. in Beni vy. Bisan Dayal if was observed that entries if books of account are not by themselves sufficient to charge any DErRsOn with lability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in is own books behind the back of the parties, There must be independent evidence of the fransaction to which the entries relate and in absence of such evidence no retief can de given to the Partly who relies upon such entries fo support Ais claim against another. Ip Hira Lal y. Ram Rakha the High Court while feégativing a contention that it having been praved that the books of accourit were regularly kept in the ordinary course of business and that, therefore, aif entries therein should pe considered to be relevant and to fave been proved, Said, that the rule as laid down in Section 24 of Tie Act that entries in the books of account reguiatly kept in the Course Of business are relevant whenever tAey refer to @ Matter in which the Court has to enquire was subject fo the salient proviso that such entries Shall not alone be sufficient evidence to charge ary person with Habilily. it is not. therefore, enough merely fo prove that the books have been regularly kept in the course of business and the entries therein are correct. Jf js further incumbent upon the person retying upon those entries to prove that they were jn accordance with ia . vr 2& Jit iS apparent From the aioresaid discussion that the loose sheet of papers are wholly irrelevant as evidence being fot admissible u/s. 34 so as to constiuie evidence with respect lo the transactions mentioned therein being of no evidentiary value.
8. The Revenue as well as assessee being aggrieved has come in appeal before us.
7&3 L.T.4.N0.56 to 61/Nag/2016 , nsec gaeraay ae
9. Learned D.R., before us, vehemently relied on the order of the Assessing Officer. By referring to the assessment order, it was pointed out that the Assessing Officer has made the addition on account of the disaliowance of bogus contract Payment in the case of the assessee for block years from assessment year 2007-08 to 2012-13 by following a procedure for addition on proportionate basis. During the course of search & seizure operation, diaries in Annexure B-1 to B-65 were found. Fram these diaries, it was noticed that the Bhangdiya Group had inflated the expenditure by making the cheque payment and subsequently withdrawing the cash from the bank account of the sub-contractor who were merely name ienders. The Assessing Officer noted the total amount received by the Bhangdiya Group noted on the receipt side was to the extent of Rs.i82.52 crores within the block period. The Assessing Officer, out of the said sum of Rs.54.46 crores found were the entries of ®, withdrawal from the bank account of sub-contractor recorded in the "seized diaries in Proportion ta the cheque payments. The Various F concerns of the dssessee group had made the payment by account payee cheque to the sub-contractor. The said sum belongs only to 21 sub- contractors out of the total more than 100 sub-centractors. The assessee has contended that cash withdrawn from the account of the sub- contractors, which is found reflected in the diaries, were kept with Late Gotulalji Bhangdiya, father of Mitesh Bhangdiya by such sub-contractors, which was being sent to various sites for the use of the sub-contractors as per the requirernent at the site, The Assessing Officer however, discarded the explanation filed by the assessee and took the view that all the 21 sub-contractors, which were duly examined by him, are mérely name lender and amount paid to them under the head sub-contracts are bogus Payment and correspondingly the receipt by way of withdrawal from the bank account of sub-contractor is liable to be added as unaccounted FEE I.T.4.N0.56 to 61/Nag/2016 soe Atel oats A det income in the hands of the various group concerns in various assessment years of the block period in Proportion to such payment. There are more than 100 sub-contractors. The Assessing Officer examined only 21 sub- contractors to which a sum of Rs.54.40 crores were correlated out of the sum of Rs.182.52 crores found on the receipt side of the diary. The Assessing Officer added the said sum of Rs.54.40 crores in the hands of the respective group concern of Bhangdiya Group in proportion to the amount of cheque credited by the respective group concern in the various assessment year falling in the block period. For the balance sum of Rs.128.12 crores, the Assessing Officer made his effort but cash withdrawal credited on the receipt side of the diaries could not be correlated with the bank accounts of the remaining sub-contractors. Therefore, the Assessing Officer added a sum of Rs.128.12 crores in the hands of the various group concern on pro-rata basis in Proportion to the contract receipt declared by such group concern in Various years falling _ within the biock period. It was pointed out that the said diaries, which \ accounted for cash received during the block period to the extent of j Rs.182,.52 crores from assessee's group concern as well as sub- contractors through withdrawal from their respective bank account, also contains the details of the expenditure. The Assessing Officer noted that the assessee has made unaccounted payment to the extent of Rs.171.10 crore during the biock period l.€. the assessment year 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13 to the extent of Rs.7.99 crores, Rs.28.89 crores, Rs.19.17 crores, Rs.52.09 crores, Rs.50,33 crores and Rs.12.09 crores. These Payments consist of the payment made towards Gratification etc. by mentioning 'sir/saheb', payment towards Hawala to Mumbai and. other destination, payment towards immovable properties transactions, payment towards house hold expenditure and other personal Expenses, payment towards the donation. Some of the payments made Pet
------=--_ LT.A.Na.56 to 61/Nag/2016 2 snd ait seh toaes gy tai were recorded in the books of account so far it relates to the expenses but part of the payments were not recorded in the books of account for which our attention was drawn towards the assessment order especially Para 5.1 in which the Assessing Officer made the analysis of entries ia the diary. It was pointed out that on the Payment side, entries of the expenses like interest payment, repayment of toan, deposit into bank account, house hold expenditure, personal expenses, payment to various Persons in cash and investment in Properties are found recorded. It is apparent from the diaries that the assessee's group made the payment to the sub-contractor during the aforesaid period to the extent of Rs.363 crores out of the receipt of Rs.579 crores. The part payment so made as Payment to the assessee group itself proves that the Payments to the sub-contractors were not genuine and therefore, the Assessing Officer Was Correct in law in making the addition to the extent of Rs.182.52 crore in the hands of the assessée and assessee's group concerns. The Cit, (A) = y\Was not correct in deleting the addition and directing the Assessing Officer fo make the addition by estimating the income by applying a net profit AS rate of 16%, 1G. Learned A.R., on the other hand, before us, vehemently contended that the assessee and assessee's group concerns ara executing the work of Irrigation Department and derives business receipts from State Government. The regular assessment. for years falling within the block period from assessment year 2006-07 tO 2008-09 have been completed by the Assessing Officer rejecting the book result by estimating the income. The returns for the block period in respect to notices issued u/s 153A have also been submitted declaring income on estimated hasis considering the income disclosed u/s 132(4) of Income Tax Act 1961. The Assessee has declared in the return filed in response to the notice issued FOE LT.A.No.261 0 265/Nag aoe Assessment Years: 2007-08-2011.12 u/s 153A of LT. Act net profit @12% of receipts from Government Department. Gross receipts as shown by assessee for declaring income have been accepted and not disputed. In the assessment framed, estimated additions considering the seized documents are computed and assessed in terms of contract receipts declared in return, The CIT(A}, after detailed discussion in his appellate order and submissions of assessee, has concluded that assessee is liable to be assessed at net profit of 16% of receipts resulting into uphoiding addition to the extent of 4% of receipts. The assessee is seeking relief in respect of the addition sustained by CIT(A) at 4% of the receipts from the Government, The only dispute on the basis of the seized documents: is the claim of expenditure by the assessee on account of sub-contract expenses, The Revenue has alleged that the Claim made by assessee jn respect to sub- contract expenses is bogus/inflated. {t was submitted that all the sub- contractors are assessed to Income Tax and are Submitting return of income declaring income derived from the contract receipt received from the assessee, In course of reguiar assessment proceedings, assessments were framed in respect to certain sub-contractors wherein income was estimated in assessment years 2007-08 @10% of contract receipts and in assessment year 2008-09 @8% of contract receipts. The CIT(A) in first appeai of sub-contractors had held in assessment year 2007-08 net income @8%. The LT.AT. in the case of sub-contractor Manish Tumpalliwar in L.T.A. No.333/Nag/2012 vide order Gated 05/02/2016 concluded that sub-contractor is liable to be assessed @5% of the receipts. Similarly in respect of all the sub-contractors, income is assessed from the payments received from assessee group. The income having been assessed on réceipts being payment made by assessee group as sub-contract charges by ITAT, Nagpur Bench, Nagpur, there is no case for holding that sub-contract expenses claimed by assessee are bogus. Not Te) ee a ™ 7 ZF aioe L.T.A.No. 56 to 61/Nag/2016 LT.A.No.261 to 265/Nag/2016 Mer Assessment Years:2007-08-2011-12 even this, the Assessing Officer in response to the assessment made u/s 153C for the sub-contractor has determined income accepting the receipts shown. by them being payment made by assessee group to such sub-
contractor. Once the Assessing Officer has accepted the receipts in the hands of sub-contractors and having determined income in the hands of sub-contractors ought not to have concluded that the payment made by aSSéssee in respect to sub-contract is bogus. In this regard our attention was drawn towards the assessment order framed u/s 153C read with section 143(3) in the case of sub-contractor. Jt was further submitted that the Assessing Officer has given a categorical finding that the sum of Rs.182.52 crores found noted in the diaries on the receipt side is the emount which represents the withdrawals made by the assessee group from their bank as well as by the sub-contractor from their bank. The sub-contractors have categorically stated in their affidavit during the assessment proceedings that they used to keep the money with assessee's father for safe custody and for expenses to be incurred. Once the amount as shown receipt in the diary has come out of the contract receipt as well as sub-contract réceipt an which the tax has already been paid, these receipts cannot be regarded to be unaccounted and no addition thereon can be made. In response to the notice issued u/s 1534, the assessee has made the additional disclosure to the extent of Rs.26 crores. Not only this, there has been survey Operation u/s 133A conducted against the assessee group on 17/02/2009 i.e. during the block Period. In the survey operation also there was allegation that the assessee has inflated the expenses especially contract expenses to earn unaccounted income, The statement of sub-contractors were recorded during the course of the survey. The assessee group has disclosed additional income due to certain discrepancies at Rs.11,04,48,592/- for Ffe es LT.A.NO.56 to 61/Nag/2016 I.T.A.No.261 to 265/Nag/2016 (eee Assessment Years: 2007-08-7011-12 7 the assessment year 2006-07 to 2009-10. The group-wise additional income disclosed by the assessee were as under:
Sr NojAssessee Concer Disclosure during Survey( in crores) I Mitesh Gotulalji Bhangdiya 0.66 2 Sanjay Rameshchandra Heda/ 1.08 Mahendra Construction 3 Mis Mahendra Construction &Mis 8.4 MG Bhangdiya IV 4 Kirti Kumar Bhangdiya 6.66 5 M/s M G Bhangdiya & Hitbhay 0.06 Engineers FV 6 M/s $8 Patil &Co and Ms MG 0.14 Bhangdiya TOTAL 111,06 Thus, it was contended that the assessee has surrendered, during the block period, a total sum of Rs.37 crores (11 crores+26 crores}, which the assessee has not set off against any expenditure. It was submitted that in the case of the assessee for the assessment year 2006-07 to 2008-09, TTAT, Nagpur Bench in 1.T.A.No.268, 269 and 285/Nag/2012 vide order dated 03/04/2013 has held that net income @12% would bereasonable income in respect of the Government receipt in the hands of the assessee.
In this regard our attention was drawn towards the order of the Tribunal filed before us, The Tribunal in the said decision has considered the order of the CIT(A) which in turn at page No.10 of the appellate order has noticed the action undertaken at the premises of the assessee u/s 132 of the Act on 19/07/2011. Thus, it was contended that the order passed by the Tribunal holding net profit @12% has been accepted by the Revenue F#)
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1.T.A.Mo.56 to 61/Nag/2016 assesment Yomestds 00ers (ae and has achieved finality. In view of this, CIT(A} was not correct in law in directing the Assessing Officer to estimate the income by applying a net profit rate @16%. The assessment for the assessment year 2006-07 has been framed subsequent to the search. The Assessing Officer has accepted the income as shown so aiso the receipt fram the Government Department. The Assessing Officer accepted the income @12% of the receipt and such assessment has achieved finality. The Assessing Officer ought to have concluded that net profit should be determined @12% of the receipt for subsequent year. In the assessment order of some of group concerns, net profit has been accepted by the Assessing Officer @10% and 12% in assessment framed U/S 153A of the Act. The CIT (A) estimated the net profit @16% theraby upholding addition te the extent of 4% of the receipts. Learned A.R. also placed reliance on provisions of section 44AD of Income Tax Act which provides rate of net profit at 8% to be applied in respect to civil construction. The statutory rate of Presumptive income is in respect of small contractors of turnover between Rs.40 lacs to 60 lacs in the impugned assessment year. The turnover of assessee being larger, the net profit could be assessed at lower than the f presumptive rate. Reliance was Placed by the Learned counsel for the assessee towards the decision IT. AT, Indore Bench in the case of M/s. S.K. Jain in 1.T.A.No.21/Ind/2013 order dated 17/04/2013. It was submitted that the said case was of [rrigation Contractor for Madhya Pradesh Government and there had also been search. In that Case during the assessment year 2008-09, the books were rejected. Labour expanses were held to be bogus and vouchers being in the nature of Kachcha voucher were also rejected. Turnover of business was Rs.162.68 crores. The net profit was estimated @8%. The Tribunal finally held that net profit @6.25% was reasonable. The facts and circumstances of that case were also similar to the case of the assessee therefore, the net profit 7 LT ANe der oe S/Newi20 16 Assessment Years: 2007-08-2011-12 shown by the assessee @12% was fair and reasonable. Reliance was also placed in the case of M/s. Chirag Infraprojects Pvt. Ltd. in which vide order dated 20/12/2013, the net profit rate of 9% has been held to he reasonable by the Settlement Commission In respect to Govt, receipts from State Government. In the case of assessee, the entire receipts from the State Government contract have been taken at Rs.579 crores therefore, the case of the assessee is Comparable to this case. The net profit receipt shown by the assessee @12% ought to have been accepted. It was further submitted that in the case of the assessee group, the contract has been taken at Rs.579 crores by applying net profit @16% by the CIT(A). Out of the said contract receipt, certain deductions have been made towards royalty, VAT and insurance premium, which according to Learned counsel for the assessee should not form part of the gross receipt. Reliance was placed in this regard on the decision of Hon'ble Supreme Court in the case of Brij Bhushanlal Parduman Kumar 115 ITR 324 (SC). Attention was invited Co the assessment order for the assessment year 2008-09 wherein the net profit was assessed after deducting the deduction on account of sales tax. Similarly, in the case of Shri Sanjay Heda, one of the group concern, in assessment year 2007-08 estimated the income on the net receipt after deducting the sales tax and royalty. Such method of determining the receipt on which net profit rate has been applied is also followed in assessment years 2006-07 and 2007-
08. Reliance was also placed in this regard on the decision of Hon'ble Delhi High Court in the case of Piyarelal Harsingh vs. CIT 252 ITR 739 (Del). If the VAT, royaity and insurance premium are iecluded, the net receipt of the group for the block period would be Rs.529.15 crores. Learned counsef for the assessee even contended that the assessee should be allowed the statutory allowance of the depreciation out of the profit estimated and confirmed by CIT(A). Statutory allowance has to be LES I.T.4,.N0,56 to $1/Nag/2016
1.T.A.No.261 to 265 /Nag/ 2016 Assessment Years: 2007-08-2011-15 § allowed in view of the Provisions of section 32 of the Act. It was further submitted that in order to honour the declaration made u/s 132(4), the entire group of assessee has surrendered Rs.26 crore and offered additional income in the return over and above 12% net profit income from business receipts. Thus, it was contended that income offered by the assessee being fair and reasonable, should be directed to be accepted.
11. We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below. We noted that the facts and the issue invalved in all 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 are that a search and seizure action u/s 132 of the Act was carried out in the Bhangdiya Group of cases on 19/07/2011. Simuitaneously, the business and residential premises of the assessee were also searched. During the course of search conducted, incriminating Papers and documents were found and seized. Shri Mitesh Gotumal Bhangdiya is the key person of the group. Shri Mitesh Bhangdiya has two sons namely Shri Kirtikumar M. Bhangdiya and Shri Srikant M. Bhangdiya and one daughter Neha. The business of the Bhangdiya group is being looked after by Shri Mitesh Bhangdiya and his two sons. The other key persons associated with the group are Shri Sanjay Rameshchandra Heda, husband of Mitesh Bhangdiya's sister, Smt. Pradnya, resident of Amravati and Smt. Manisha O. Maniyar, widowed sister of Shri Mitash Bhangdiya who lives with Bhangdiya family.
11.1 The main business concerns of the group (including those discovered as a result of the search action) are as follows --
Fe
1.T.A.No.56 to 61/Nag/2016 L.T.A.No.261 to 265/Nag/2016 FR Assessment Years: 2007-08-2011-13 _ M/s M.G. Bhangdiya (AERPB2503E), (Prop. MGB); converted into 4 company M/s M.K.S. Constro-venture -- Pyt.
(AAHCM03837) Ltd, from 01.04.2011,
2. M/s Mahendra Construction, Prop. Shri Sanjay Heda (MC) (AADPH7109]} |
3. M/s Mahendra Construction 85 M.G. Bhangdiya (QV) (AANFM5658B) |
4. M/s Kirtikumar M. Bhangdiya (Prop. KMB}; converted into a company M/s M.K.S. Acme Buildcon Pvt. Ltd. (AAHCM0382K)} from 01.04.2011, (AGYPB1659G} M/s K.M. Bhangdiya & Mahendra Construction (JV) (AAKFK1820C) M/s Shrikant M. Bhangdiya (Prop, SMB)(ATCPB1337)) Mitcon Infraproject Pvt. Ltd. (MIPL) (AAGCM1868H) Lokshahi Publications Pvt. Ltd. (LPPL)(AABCL66732) MITZ Infraproject Pvt. Ltd.(AAGCM3047A) Sakshi Gruh Nirman Pvt, Ltd. (SGNPL\(AAOCS7974G) Balaji Stone Crusher & Infraventure Pvt. Ltd.(AADCB5273C) oy un mi ON MH 11.2 The group has aiso entered into joint. ventures with various other civil contractors of the city to secure some civil contracts. A few of them are fisted below:
M/s M.G. Bhangdiya & Hitbhay Engg (V) (AAOFM47451) M/s M.G. Bhangdiya & S. S. Patil & Co. (JV}(ABIFS3645L) M/s Darshan Construction (WV) (AAHFD0654N) M/s M R Dhoble 85 KM Bhangdiya (V)(AAPFM0622B) Bone 11.3 The nature of the business of the Bhangdiya group Primarily is executing civil contracts. The group works mainly for Government departments Jike M/s Vidarbha Irrigation Development Corporation and has been engaged in executing various contracts pertaining to the irrigation projects in the state of Maharashtra. During the course of search operations incriminating documents were found and seized from the residential premises of Shri Mitesh Bhangdiya. Item no. 1 to 65 of Annexure-B seized from his residence are the diaries containing ledgers, daily cash books and bank books maintained by the Bhangdiya group, 36 FES LT.A.No.56 to 61/Nag/z016 pnelteaee oatmeal Cash books contained entries for the period from 26/07/2006 to 18/07/2011 and 27 diaries relate to the financial year 2006-07 to 2010-11 whereas the remaining two diaries were maintained for house hald and miscellaneous expenses. A statement of Shri Mitesh Bhangdiya was recorded on oath on 20.07.2011. In his sworn statement recorded during the course of search action, Shri Mitesh Bhangdiya was confronted with the entries borne cut from the seized diaries marked as B-i to B-65 and to explain the contents of these diaries, Shri Mitesh Bhangdiya in his statement recorded has submitted that the entries in the diaries and the ledger pertain to the business receipts and business expenditure. The Assessing Officer in the assessment order has recorded a finding that as per the item no. 1 to 65 of annexure-B, it is apparent that the amounts withdrawn from the bank accounts of the subcontractors were credited to the daily cash balance of Bhangdiya group which was confirmed by Shri Mitesh G. Bhangdiya in his statement dated 14/09/2011. The Assessing Officer has reproduced the statement of Shri Mitesh Bhangdiya recorded on 14/09/2021 in para 6 of the assessment order. The Assessing Officer in the assessment order has also recorded a finding that the seized documents being B-1 to B-65 contain entries of all expenses incurred by the Bhangdiya group in cash from F.Y, 2006-07 onwards and expenses incurred through the bank accounts from F.¥. 2009-10 onwards. Thus, the Assessing Officer found that the actual expenses incurred do not match with those shown to have been incurred in the books. The Assessing Officer thus concluded that the books of account of Shri M.G. Bhangdiya 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 receipt side various receipts including the withdrawal from the bank of the assessee group concerns were recorded and on payment side entries of expenses like interest I.T.A.No.56 ta 61/Nag/ 2016 L.T.A.No.261 to 265 /Nag/2016 & Assessment Years:2007-08-2011-12 payment, repayment of loan, deposit into bank dccount, household expenses, personal expenses, Payment to various persons in cash and investment in properties are found recorded. It was also noted by the Assessing Officer that some of the entries made in the seized diaries were faund reflected in the books of account maintained by the Bnangdiya Group. Statement of Mitesh Bhangdiya was recorded on 20/07/2011.
During the course of search, Mitesh Bhangdiya was confronted with the entries borne out from the seized diaries marked B-1 te B-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 it 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 reguiar books of account maintained by the Bhangdiya Group. Shri Mitesh Bhangdiya, reply to question No. 38, we noted voluntarily offered additionat unaccounted income of Rs.26 crores for the block period including the current financial year over and above the regular income declared in the return filed for the assessment year falling within the block period. The income so declared are summarized as under:
Ha EY iF Grand etal | (Rs.} AY Particular 6-07 4 AY S008 | AY 20de-o9 | ay 2ong-10 OY 2000-11 AY MLd2 AW M12-13 MS M.G, Bhangdiva fanteack Income as £383,90,275 Per original refom 22,06, 540 28,956,131 18,651,863 36,30, 742 543,168,322 PIS, 82707 ne + Additonal Income Gedaced durlng Sutvey Additional [Income Offered. Guring Search 23,97,%1 | 13,94,003f azna3tz | 1,50,936 $6,46,018 5,09 460 . 27, 18,952 576,81,678 255,17,293 4,27, 789 Contract Incame 4314,64,075 Berlared 45,597,591 45,00,000) 95,65,175 85,00, 00h) 11,90,00.000 97a, 0R000 = LT.A.No.56 to 61/Nag/2016 1.1.A.N0,261 to 265/Nag/2016 Assessment Years:200 7-08-2011-12 € Yerture P Lt Contract Incemie ag Per onginal saturn 183,76,274 182,758,473 Adtivonal Jocome Gedared during Survey Additonal. Inccutre Offered. Curing Search 164,74,827 164, 74,627 Conwact income Declared 347,50,000 347,50,000 is Mahendra Comitract Income as per original retum 36,77,656 125,40,053 26,48, 024 20,660,666 73,38,074 76,256,315 7,58, 408 466,20,174 Additional Income declared dunng Survey 40,410,096 49,07,076 A413 113,224 107 36, 33 Additional Income 'Offered During Search 26, 80,448 a7,72,873 18, 46,954 $3,246,110 128, 61,926 LOL, 73.685 O41 542 347,593,516 Contract Income Oectared 104,060,000 272,00, 006 32, 00,000 40,00,009 202,.00,000 178,00,000 34,00, 000 822,00 000 anggiva Jv ki, pee Mane onst, fe AG B Connect tricone as Per orginal résum IS7,47, 758 310,902,749 TiS. 14,447 358, 75,326 74,779,336 1617.07, 302 Additional tnecyrte declared during Survey 157,19,564 194,986,115 $92,693,099 B43,87,112 Additional Income Offered. Gunag Search a7, 16,620 190,24,580 172,22,664 619,64,164 Contract Income Berfared 314,67, t20 £ 504, 90,858 1465,00,060 P00, 000 2497,00,000 3080,58,578 | Cantract income as Ber onginad return 10;18,705 32,86, 7945 27,20,401 27 Of, 306 61,665,670 32,99, 24 186,010,141 Additional Income declared during Survey 14,12, 344 25,22,355 19,065,240 7,50;659 65,04, 717 Additional troorme 'Offered Burling Search &90,850 10,70,239 28,41,041 58,335,430 33,00, 766 133.36,226 Contract Income Declared 243049 67,00,000 57.00,000 57,0000 120,00,00 64,00,000 391,312,044 L.T.4.No0,56 to 61/Nag/ 2016 LT.A.No.261 ta 265 /Naq/2016 Assessment Years: 2007-08-201 1-12 MKS Acme Burld F | ud | COMDRACE Ine ae | Ber Ofginal sebum 44,70,653 653 " Additional Incoose | declared during us . Survey Additional Tacarne beara 9 16,23.347 | 36,29,3497 Contract Intome Declared 51,00,000 54,00,000 and Hitbhey Enag Jy Contact Income a5 .
Per origenal rebar - 26,34, 727 2,260,187 463,997 4,650,454 36,37, 905 Add Gonal (ieame ith Ed ct survey ung ' 563,583 30,344 . . 5,935,927 Additional Income Ofteréd Crurirg : - 3 Search ops - - 2,495,469 1,91,006. 3,80,475 Conbrart' lacone Declared - - 32,486,310 506009 4,643,997 6,000 49,12,407 hi in and SS PAIL av Contract lecome as per original sétoam . $65,929 477, 5b - . - 3,40 467 Addiponal Income Geclared during . . . .
Survey 6.07529 536,585 1440,515 Additional Income ehered During . - 40,006 40,000 Contract tneome Dectarad - 10, 67,852 13,.16,1390 42,000 - - 24,24,98?
M/S KM Bhangdiva H Contract income.as per origina! return 5,44,55] 4,32, 461 : 14,47,042 Addtlona! Income dectared during Survey Additonal lrscorre Sch paring 5,835,449 11.67,599 - 17,52,988 Contract Inpome Declared 11,00,000 21,060,000 - 32.00,000
1.T.A.NO.56 to 61/Nag/2016 L.T.A.No.261 to 265/Nag /2016 Assessment Years: 7007-08-2011-17 Misccn Infra Project P Ld Contract Income as Pér originat rebyen 60,35,000 43,98,425 53,20,054 157,57 480 Adddional Income declared curing SUITE Additenal Intame Offered Qunag Search 62,461,000 111,01 571 919,949 182,862,520 Contract Income Declared 12:3 O00 155, 00,000 62,40, 00%} 440,40, 000 Additional Jnoome offered in casas of fadividual Meesh Bhangdhya 7479,442 74, 79,442 Rirskumar Brangiva 4,060,000 30,00, 000 Sirikant Bhangdeys 73,060,000 35,00;/000 Mead sss 12,03.087 BO. 33,200 105, 38910 per original retum 68,99,901 249,065,656 414/85 ,.202 $15,454,094 1167,15,934 956,085,476 278,24, 505 F900,45, 752 AdItON Ticome Seriared during Survey 73,591,601 251,955,333 261, 28,068 513,153,590 1104,48,552 Additonal Income Offered During 5 26,860,443 54,753,584 29,07,203 323,02 342 122,948,083 636,14,524 216,65,435 2756,5 1,640 Contract {neame Decared 174,238,940 O92, 35,578 #05, 21,473 1052,40,000 2129,63, 597 113.00,000 434, 90,000 7451 78,002 Agdiotignal Incorie cases oF Idividuak 10,42,553 42,903,597 f 80,93,.2501 138, 79,442 249, 18,552 11.4 From the statement of Shri Mitesh Bhangdiya, it is apparent 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 recorded on 27/07/2013 Shri Mitesh Bhangdiya stated that these diaries were primarily maintained by his father Gotumal Bhangdiya.
The Assessing Officer, we noted, has also observed that these seized LT.A.No.56 to G1/Nag/2016 J
1.T.A.No.261 to 265 /Naq /2016 Assessment Years: 2007-08-20 11-12 diaries also contain the Payment made in cash for probable extraneous gratification to various persons including politicians, government officers/officials which are recorded along with their names, dates of Payment and amount paid. We noted that the Assessing Officer has not examined these persons for bringing the corroborative evidence on record in support of his finding that the cash has been paid by the assessea group for probable extraneous gratification. We noted that the Assessing Officer made an exercise to match the entries of the tay payment and receipt with the entries in the regular books of account of Bhangdiya Group. The Assessing Officer came to the conclusion that the receipts are predominantly withdrawals from the bank account by way of creating bogus sub-contract expenditure. The Assessing Officer found that the dssessee group hasdeducted a sum of Rs.361 crores. towards the sub- contract payment against the gross receipts aggregating to Rs.579 crores. It was found by him after verifying from 24 contractors that a sum of Rs.54.40 crore is attributable to the amount deposited in the bank account of the sub-contractor by account payee cheques by various concerns of Bhangdiya Group, which was Subsequently withdrawn in cash and is reflected on the receipt side of the seized diaries, The total amount so reflected in the diaries on the receipt side was computed at Rs.i8?.52 crore. The Assessing Officer added the said unaccounted amount of Rs.182.50 crore in the income of the assessee group concern. A sum of Rs.54.40 crore was added in Proportion to the amount of cheque credited by 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 same in proportion to the contract receipt shown by the group concern in the respective dssessment 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 diaries FE LT.A.No.56 to 61/Nag/2016 LT.A.No.261 to 265/Nag/2016 Bie Assessment Years: 2007-08-2051-13 found during the course of search as réceipt being withdrawal from the bank account of the group concern as well as from the bank account of the sub-contractor can be regarded to be the unaccounted income of the assessee, At the micro level, if we look into the nature of the receipt, it is not denied by the Revenue that the receipt has come from the bank account of the assessee group concern and part of the receipt and has come out of the cash withdrawn by the sub-contractor to whom the aSsessee group concern had mace the payment. The assessment has been made by the Assessing Officer u/s 153A in the case of the assessee as well as assessee'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 sub-contractor has submitted the return in response to the notice u/s 153C. The sub-contractor has shown the income from the contract receipt being amount paid to them by 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 the sub-contractor from the assessee as wall as the assessee group concern were not bogus but were the payment received by performing the obligation for a consideration entrusted on them under the sub-contract. This denotes that 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 by the Revenue, in our view, the Revenue, on the basis of the same facts in the case of the assesses, Cannot take the view that the payment made to the sub- contractor were bogus. Further it is not the case of the 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-
FG I.7.4.N0.56 to 61/Nag/ 2016 --_ seinen aninag ei contractor entered into the diaries found and seized during the course of the search. From the analysis of these diaries, the Assessing Officer has categorically given the finding that the diaries consist of the receipt being the withdrawal made by the sub-contractor as well 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 assessee has debited the amount paid to various Persons into his regular books of account and claimed the deduction SO that these expenses can be disaliowed by applying the explanation to section 37 of the Act. In fact the assessee has not claimed deduction of these expenses. The Assessing Officer added the receipt being amount withdrawn by the contractor as income of the assessee, The receipt in fact is coming out of the sub contract receipt of the sub-contractor as well aS assessee and group concerns, which has already been assessed to income tax by the Assessing Officer. The source of the receipt therefore, J is apparent. Where the nature and source of the receipt stands explained, it cannot be added to the income of the assesses. 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 disclosed to the department, can be added in the income of the assessee.
11.5 This is not the case of Revenue that these cash withdrawals are from the bank account which have not been disclosed to the Revenue or In which the assessee has deposited the cash outside 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 FES I.T.A.No.56 to 61/Nag/2016 a I,T.A.No.261 to 265/Naq/2016 ie Assesamerit Years: 2007-08-2011-13 and all 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 to our knowledge which may prove that the State Government has 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 cash receipt found recorded out of the cash withdrawal by the assessee or the contractor from their bank account. We also noted that the Assessing Officer has not only analyzed the receipt side of the diaries but has aiso analyzed the payment side of the diaries and found from the payment side that a sum of Rs.24.05 crore has been invested in the immovable Property outside the books of account and similarly, a sum of Rs.8.47 crore has been utilized as expenses outside the books of account. As regards to 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 conciusion, Even before us, no corroborative evidence were referred to and brought on record. Thus, the g outgoing/investment to the extent of Rs.32.52 crore 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 bank, the source. thereof cannot be regarded to be unexplained. We noted that in this case the dssessee as well as assessee group concern, during the course of search, surrendered a sum of Rs.26 crore and accordingly, filed the return in response to the notice u/s 153A. At the most the Assessing Officer could have made the addition in respect of the 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 shown in the diary is also coming out of the cash I.T.A.No.56 to 61/Nag/2016 J
1.T-A.No.261 to 265/Nag/2016 rao Assessmant Years: 2007-08-2011-12 2 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.
11.6 We noted that the business income assessed by the Assessing Officer in percentage of the gross receipt fn the hands of the various group concern varies from 9.34% to 129.92% as is apparent from the following chart: :
Particular AY 2006- AY 2007- TAY 2008- JAY 2008- [AY 2010- TAY 201 TAY 20> a? ag ag 10 il 12 13 M/s M.G. Bhangdiya 11.79% [41.27% [35.60% 18.60% 127 45% 149.50% I MKS Constra Venture F ) 934% 1 bed Mjs. Mahendea 10.78% 43.13% 25.44% Hi ba% |21.79% Th05m La da% Consthiction -
M/s. Mahendra Const. & 49.53% 173.44% 17. 69% [41.81% 116039; M.&. Bhangdiya J¥ , Fs. KM Bhangdiya 11.97% 735-3655 26.76% (26.26% 15.22% Tis 4% f MKS Acme Build Pita 10.28% M/S.M G Bhangdiya and 66.53% (11.98% 127 83% 10.00% Hitbhav Enag Jv M/s MG Bhangdiya and 54.82% |129.92% [13.1895 55 PATIL Jv M/S KM Bhangdya WV 25.25% (39.5255 Mitcon Infra Project P Ltd -|10.07% 10.00% |10.00% Consolidated 12-36% (47.01% "74-36% [18.52% [34.25% [49.87% laa GONG In the case of the assessee group the assessment u/s 153A have been framed for assessment yéar 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 ail the assessment years. In assessment year 2006-07, the FES
1.T.A.No.56 ta 61/Nag/2016 . -
___LT.A.Ne.261 to 265/Nag/2016 [Pe Assessment Years!2007-08-201 1-12 nature of the work executed for Vidarbha Irrigation Development Corporation remains the same as in the case of the assessae for Subsequent assessment years. The sub-contractors, who have executed the work, are also similar in various assessment years. The Assessing Officer, we noted, in the case of the dssessee group for the assessment year 2006-07, has accepted the income as shown by the assessee graup 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 assessee, The nature of the business of the assessee remains the same. No other business activity or the business were found from where the income is derived or generated. In various hoting in the seized documents i.e, diaries are part of the gross receipt of the contract receipt of the group Entity, is not disputed. The Assessing Officer, while Making the addition, observed that the amount withdrawn fram the diary is utilized for unaccounted payments which are not allowable like gratification paid to politician and Government officials. However, the Assessing Officer does not refer to any corroborative evidence on record to held that the assessee has made payment as illegal gratification. He has taker a view by observing that payment made in cash is probable extraneous gratification. During the course of search, statement of Shri Mitesh Bhangdiya was recorded on 20/07/2011 and he in answer to question No. 30 explained that the seized documents are details of cash flow. During the assessment proceedings Shri Mitesh Bhangdiya 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 expfained by him in the course of the assessment proceedings that the sub-contractors on the withdrawal of the money gave to his father for safe custody, the FB LT.AINo 261 te 26a; Noe ele nae Foi Assessment Years:2007-08-2011-12 | amount which are found to be noted in the seized documents. In the statement recorded, the assessee has clearly explained that the notings made in the seized documents has nothing te do with the political leaders as much as political leaders have no business transactions with Bhangdiya group. Even we noted that the Assessing Officer has 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 given by the assessee group. We noted that the Assessing Officer out of the sum of Rs.182.52 crores, added Rs.54.49 crores on the basis of deposition of the sub-contractor for which when the assessee has asked for the cross examination, the cross examination 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 ailow the cross examination of the witnesses, held as under:
"According to us, not allowing the assessee to cross examine the witness by the Adjudicating Authority fhough the statements of those witness were made the basis of the impugned order if a serious flaw which makes the order nutty inasmuch as if amounted to violation of Principles of natural justice because of which the assessee was adversely affected.
in view of the above, we are of the opinion thet if the féstimony of these two witness is discredited, there was no material with the Department on the basis of which ft could 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 Tribunal and allow this appeal"
Following the said decision of Hon'ble Supreme Court, the statement of the sub-contractor, in our view, cannot be relied on. Even otherwise also,
--_ a | FEE
1.T.A.N0,56 to 61/Nag /2016 nse t a el naes e/a we noted that no corroborative evidence being brought on record to prove that the receipts, which has been added by the Assessing Officer in the income of the assessee is the undisclosed income of the assessee. In fact the receipts for which the addition has been made by the Assessing Officer represents the Part of the gross receipts of the assessee and assessee group concern and the sub-contractor, which has duly been taxed to income tax, As pointed by us earlier, due to this addition, there has been huge variance in the income 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 that regular assessment came to be made as net profit percentage of receipts and which were also upheld in appellate proceedings and have achieved finality, The returns u/s 153A, have also been filed as percentage of receipts in this group entities. It will only appropriate to determine the income as percentage af réceipts as the same are available on record which are accepted by the assessee and the Revenue authorities without dispute.
11.7 We may mention that in the case of the assessee group, survey action was conducted on 17/02/2009 wherein under the similar situation, the payment to sub-contractor was disputed and doubted by the Assessing Officer. The survey action relates to the assessment year 2006- 07 to 2008-09, which are part of the block period for the search action conducted on 19/07/2011. The Assessing Officer while making the assessment applied a net profit @14% but when the matter reached to 'the Tribunal, the Tribunal! Nagpur Bench in I.T.A.Nos. 268, 269 and 285/Naq/2012 vide order dated 63/04/2013, 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%, FEE L.7.A.Na.56 te 61/Nag/ 2016 I.T.A.No.264 to 265/Nag/2016 qr.
Assessmant ¥ Gare: 2007-08-2011-13 There are also the similar type of defects found as have been found in the course of search. We noted the CIT(A} has in the impugned assessment years made in consequence of search, directed the Assessing Officer to estimate the profit @16% and not @12%. Even though the CIT{(A) was fully aware of that during the assessment year 2006-07 to 2009-10, the assessee group has surrendered additional income at Rs.1i crore and the Tribunal has directed the Assessing Officer to estimate the net profit @12%, The Tribunal in that order under Para 4 observed as under:
"4. Brief facts of the case are that a survey u/S. 133A of the income Tax Act, 1961 was carried out it the business prenuses of the assesses and his associates OF £7.02. 2009. Ouring the course of Survey operations it was found that most of the bills, vouchers and other evidence in support of the entries in the books of account ike labour charges, Material purchases, 'machine hire charges, site expenses, sub contract expenses, off and lubricants, fepairs and maintenance etc. pertaining to this A.Y. were not availible, Statement of Sri Mitesh Bhangadiya was recorded under section 1334 and u/s. i31 of the Act on behalf of the a5S8sse, in the statement dt.24.02.2009 and 12.03 2009, if response to various questions relating to the genuineness of the Payments fo third Parly sub contractors and in respect to other deficiencies, the assessee admitted additional income in Group Cases of Rs. 1} crore and proportionately were allocated between aff the assessment years relating to these four assessee. For the year under consideration i.e. for assessment year 2006-07 in case of Sri Mithesh Bhangadiya, the additional income was offered at RS.23,97,361/- besides the income shown originally af RS.22,623,910/-, 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 stuibmission recorded on 24-02-2009 arid 13-3-2009 of Sif Mithesh Bhangadiva are incorporated in the order of the AO. In query of question No. ii, '# was answered that during the course of Survey, it was noticed that there are certain discrepancies and omissions and fo cover up all such discrenancies we have Made out mind to offer additional income over and above the fegular income, We are under the process to determine such additional income FEF
1.T.A.No.56 to Gi/Mag/2016 I
1.T.A.NO.261 to 265/Nag/ 2016 ey Assessment Years:2007-08-2011-127 Mae to avoid Htigation and, to buy peace of mind. fhereatter 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 bean that fabour charges and machine hire charges. The sub contractors by and farge tiiterate 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 so 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 HS Previous statement recorded during the course of survey that there are certain discrepancies and anomalies in the Sub contract expenses in their books of accounts, fon availability Of bills and vouchers for the Past three assessment years. Accordingly, it was submitted that there were certain discrepancies and anamaties in the sub contract accounts, in books of accounts for assessment years 2006-07 ta 2009-10. The assessee declared the additional income of Rs. ii crore in their firm and the five sister concermns.in the assessment year 2006-07 to 2009-10. The working of the additional income of As. 11 crores will be done accordingly and the same wilf be shown. These part af the statements have been incorporated i the order of the AO as state above. Thereaftar the AO started scrutiny of the case. The AO noted that the assessee fas shown various expenses under the head labour & Wages, machine hire charges, site expenses and sub contract expenses etc. on very higher side. which are not supported by valid vouchers. Neither any further evidence was Hled. ft was aiso observed by the AO that since there are various deficiencies int accounts of sub contracts and the ASSESSCe fas offered a sum of Re. 23,97,361/- off account of discrepancies in respect to sub contract, therefore. he proceeded to make further addition on account of various deficiencies i.e. in absence of bills and vouchers, excess cain towards machinery hire charges, verification of applicability of provision of Section 194C and denial of avieged sub contractors regarding the sub contract Given by the assessée, Ail these discrepancies aré noted by the AO in his order. Thereafter in para 7, the AO has observed that after having rejected the books of account of the assessee under Section 145(3} of the Act. the Prot of the assessee has to be FAO oe * LT.A.No,56 to 61/Nag/27016 1.7.A.N0.261 to 265/Nag/2016 [em Assessment Years:2007-08-2011-17 J estimated reasonably. The AO also observed that the assessee has declared net profit ratia of 6% and 7% of the total turmover i 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 by the AO on lower side. The AO Aoted that in one of ihe group case namely, M/s, Mahendra Construction & MG. Shangadia (IV) , who had deckred additional income of Rs. L,5/,47, 760/- in the Assessment Year 2007-08, which gives @ net profit ratio of 13.84% of the net contract receipts. in view Of these facts the AO adopted 14% net profit, Thereafter fe AO completed the assessment and! made addition of Rs. 50,12. 722/- against additional income shown by the aSSe55e at RS, 23,97, 360/-, which resuited further addition of R5.6,15,362/-."
and ultimately under para 7 as reproduced hereunder, estimated net profit @12%:
'7. After considering the submission and perusing the material on record. we find that the a@SSeSse8 deserves to succeed in his appeal in part. We noted for the year under consideration 1.8. for assessment year 2006-07, the assessee's NP rate comes to 12.87% , for assessment year 2007-08, the assesses NP rate comes to 10. 53%, respectively. We also noted that if the NP rate of aff the Concens are taken into consideration, then jt is seen that aif the assesses fave shown government receipt at Rs.258. 22,37,850/- and income on fhese contracts have been shown Dy these assessee at RS.6,49 57 121/- which gives 2 NP rate of 6.38%. The assessee has offered additional income declared during the Survey at Rs, 11, 03,85,877/-, which gives a NP rate of 4.27% and the total NP rate in aff these CONCEMNS COMES fo 10.65%. Of course, the additional income of Rs. il crore or odd was segregated proportionately on the basis of contract receipts in the flands of each concern. In case of M/s Mahendra Construction & M.G. Bhangadia (IV) , the NP rate comes to 13.84% Le. for assessment year 2007-08 and this rate fas been adopted by the AO and has applied the NP rate of 14% in all the years in case of aif these ASSESSES Of WHOM a survey was conducted. In view, this approach of the AO was not correct approach, In case of MG Bhangadiva, the NP rate of
1.T.4.N0,56 to 61/Nag/ 2016 LT.A.No.261 to 265/Nag/ 20416 os Assessment Years:2007-08-7011-i2 :
three years come to 9.87% , whereas in case of other assesses 1é€. Sanjay Heda, M/s Mahendra Construction & M.G. Bhangadiya (IV) , the NP rate comes to 9.50% and in case of M/s Mahenora Construction & M.G. Bhangadiya CV) , the average NP rate of three years comes to 11.28% and in case Of M/S KirtkumarBhangadiva, the NP rate comes to 8.72% and in case of MG. Bhangadiya and M/s Mahendra Construction & M.G. Bhangadiya (JV) , the NP rate comes to 6.12%. in case of MG. Bhangadiva and S.S. Patit & MG.
Bhangadiva, the NP of. three years comes to 11.55%. As Stated above, the average NP rate of alf the assesses for alf the three years comes to 10.65%. Therefore, in our view, a rational approach should have been adopted by the AO or by the learned CIT (A) for one case ie M/s Mahendra Construction & M.G. Bhangadia (JV). the NP rate was 13.84% and if this rate is applied in aff other cases, which in our view, is not justified, However, there fs also no dispute that there were 50 many discrepancies in maintaining vouchers, bills, sub contracts accounts and other heads, which were not verifiable, therefore, the assessee and his group came forward to offer an additional income of Rs. 11 crore and the same has atso offered and due tax has been paid. Since as stated above, there aré certain discrepancies, we are of the view, that if NP rate of 12% is adopted instead of 14%, that will meat the end Of justice. We made it clear that where NP rate shown by the asSe5S80 if afiy year is more than 12% then the more NP rate shown fy the assassee has to be taken as assessee Aas declared himself and in other years where NP tate shown by the assessee is lower than 12%, then 12% NP rate has to be taken. The AO will recomputed the income accordingly. For fhe sake of clarification, in case of assessee for assessmant year 2006-07, the NP rate comes 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 addiGonal income comes to 10.69% and 10.53%. The AO will adopt the rate of 12% and will compute the income accordingly. * 11.8 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 Assessing Officer to estimate the net profit FIR 1.7.4.N0.56 to 61/Nag/2016 9 noanatcer alan during the black period @16% and for that he has given the reasons that there is material difference in the years under appeal i.e. search action Nas also resulted into detection of the unaccounted assets to the tune of Rs.26 crores and unaccounted jewellery of Rs.2.37 crores which has not been disclosed by the assessee group in their respective returns filed nor the source of such acquisition of such assets could be explained satisfactorily. We do not agree with such finding of CIT (A) a5 we noted that during the block period, the assessee has surrendered Rs.11 crore during the course of survey for the assessment year 2006-07 to 2008-09 and further during search a sum of Rs.26 crore was surrendered. Thus, a sum Of Rs.3/ crore was available 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 is only Rs.28.37 crore, which is much fess and is duly covered by the disclosure of Rs.37 crore during the block period made by the assessee, Rs.11 crore during the survey and Rs.26 crore during the block period, 4 Even otherwise also, the Assessing Officer, we noted, has gathered the finformation of unaccounted assets and unaccounted jewellery out of the ' documents found during the course of search which shows the utilization of the amount which the assessee has received by way of withdrawal from the bank account of the Group Concern as well as from the bank account of the sub-contractor which cannot be regarded to be undisclosed. We, therefore, do not 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 aSS5essee, are of the view that the estimation of the income by the CIT(A) is at a FAIS LT.A.No.56 ta 61/Nag/2016 | LT. A-No, 261 to 265/Nag/2016 Assessment Years:2007-08-2011-123 -
higher side and is not 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 estimated and returned by the assessee group in their respective returns filed in response to the notice issued u/s 153A and u/s 139 of the Income Tax Act.
12. In the result, the appeals of the Revenue are dismissed whereas the appeals of the assessee are partly allowed.
(Order pronounced in the open court on 29/06/2017 ee ~ 6) (AMARJIT SINGH) ( P. K, BANSAL ) « te Judicia] Member Vice Prasident Dated:29/06/2017 *Singh Copy of the order forwarded to:
1. The Appellant 2, The Respondent
3. Concemed CIT \:
4. The CIT{A} . §\ 5, DR, sopt. Registrar --e A. Mad Erie were data ve As aha 4 sis teag SG wy : PUP, Ire nero " » Mura! ae "SIMUL © Nagpwr Bench