Income Tax Appellate Tribunal - Gauhati
M/S. Pusphas Construction (P) Ltd.,, ... vs Deputy Commisioner Of Income Tax, ... on 8 February, 2024
| आयकर अपीलीय अिधकरण ायपीठ, गुवाहाटी|
IN THE INCOME TAX APPELLATE TRIBUNAL
"GUWAHATI" BENCH, GUWAHATI
(Heard from Kolkata Benches through web-based video conferencing platform)
BEFORE DR. MANISH BORAD, HON'BLE ACCOUNTANT MEMBER
&
SHRI SONJOY SARMA, HON'BLE JUDICIAL MEMBER
I.T.A. No. 42/GTY/2022
Assessment Year: 2017-18
Deputy Commissioner of Income Pushpas Construction Private
Tax, Circle-I, Guwahati Vs Limited
1A, Pusp Enclave
Mother Teresa Road
Bhaskar Nagar
Assam - 781021
[PAN: AAECP9269P]
अपीलाथ / (Appellant) यथ / (Respondent)
I.T.A. No. 31/GTY/2022
Assessment Year: 2017-18
Pushpas Construction Private Deputy Commissioner of Income
Limited Vs Tax, Circle-I, Guwahati
1A, Pusp Enclave
Mother Teresa Road
Bhaskar Nagar
Assam - 781021
[PAN: AAECP9269P]
अपीलाथ / (Appellant) यथ / (Respondent)
I.T.A. No. 32/GTY/2022
Assessment Year: 2018-19
Pushpas Construction Private Deputy Commissioner of Income
Limited Vs Tax, Circle-I, Guwahati
1A, Pusp Enclave
Mother Teresa Road
Bhaskar Nagar
Assam - 781021
[PAN: AAECP9269P]
I.T.A. No. 42/GTY/2022
Assessment Year: 2017-18
I.T.A. No. 31/GTY/2022
Assessment Year: 2017-18
I.T.A. No. 32/GTY/2022
Assessment Year: 2018-19
Pushpas Construction Private Limited
2
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri Ramesh Goenka, Advocate
Revenue by : Shri Arun Bhowmick, JCIT, D/R
सुनवाई की तारीख/ Date of Hearing : 13/12/2023
घोषणा की तारीख / Date of Pronouncement: 08/02/2024
आदे श/O R D E R
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The above captioned cross appeals for Assessment Year 2017-18 and assessee's appeal for Assessment Year 2018-19 are directed against the order of the learned Commissioner of Income Tax (Appeals), Central, NER, Guwahati, (hereinafter referred to as the 'ld. CIT(A)') dt. 29.07.2022, passed u/s.250 of the Income Tax Act, 1961 (in short 'the Act').
2. I.T.A. NO. 42/GAU/2022; Assessment Year 2017-18 The revenue has raised the following grounds of appeal: -
(i) That the learned CIT(Appeals) has erred in resorting to calculate income on estimate basis.
(ii) That the learned CIT(Appeals) has erred in deleting the addition made by AO U/s. 68 to the tune of Rs. 39,95,24,110/-.
3. I.T.A. NO. 31/GAU/2022; Assessment Year 2017-18 The assessee has raised the following grounds of appeal: -
(i) That the Ld. CIT(A) erred in law as well as on facts in making addition of an amount of Rs.1,91,40,955/- to the total income of the I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 3 appellant on the basis of estimation of short fall in net profit by applying an arbitrary net profit rate in the absence of any material to show that the market/trading conditions of these assessment years were same and/or comparable."
3. I.T.A. NO. 32/GAU/2022; Assessment Year 2018-19 The assessee has raised the following grounds of appeal: -
"1. That neither the ld. Assessing Officer was justified in making the addition of Rs.37,86,023/- u/s 69A of the Income Tax Act, 1961 on account of unexplained cash and charging to tax u/s 115BBE of the Income Tax Act, 1961 nor the ld. CIT(A) was justified in confirming the aforesaid addition.
2. That the aforesaid addition of Rs. 37,86,023/- made U/s. 69A of the Income Tax Act, 1961 by the Id. Assessing Officer and sustained by the Id. CIT(A) is contrary to the materials on record, based on irrelevant considerations and noon-consideration of relevant material and therefore not sustainable either in facts or in law.
3. That the Id. Assessing Officer as well as the Id, CIT(A), ignored the fact that the entire funds available with the appellant were withdrawn from banks and therefore on the facts of the case, no addition U/s. 69A of the Income Tax Act, 1961 was unwarranted.
4. That the appellant craves leave to submit and/or alter any other ground/s on or before the hearing of the appeal."
4. First, we take up the cross-appeals for Assessment Year 2017-18.
5. Facts in brief are that the assessee is a private limited company engaged in the business of construction of roads, bridges, etc. mainly under contract or sub-contract with the Indian Railways and the Public Works Division (PWD), Assam as well as in Real Estate activities. During the I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 4 previous year relevant to the assessment year under appeal, the Respondent was engaged in doing contract work at more than 40 sites, most of which were located in remote areas. Since the sites were located at remote areas, most of the Respondent's suppliers of sand, stone chips and other necessary materials used in construction work are villagers/tribal people who are resident of those areas. The labourers working in these projects are also from remote areas.
5. A survey action was undertaken at the business premises of the assessee u/s 133A of the Act on 06/03/2018 and thereafter by the investigation wing Guwahati on 15/03/2018. The scrutiny proceedings were carried out for Assessment Year 2018-19 by validly issuing of notice u/s 143(2) and 143(1) of the Act. During the course of assessment proceedings for Assessment Year 2018-19, the ld. Assessing Officer noticed that there was a huge opening balance of sundry creditors at Rs.39,95,24,110/-. On the basis of certain information and also taking necessary approval from the competent authorities the assessment for Assessment Year 2017-18 selected for reassessment u/s 147 of the Act and accordingly notice u/s 148 of the Act was issued for Assessment Year 2017- 18 on 26/03/2021 through ITBA. Even though detailed questionnaire on the basis of reasons recorded were issued but there was no compliance on the part of the assessee. Finally show cause notice was issued as to why the sundry creditors of Rs.39,95,24,110/- standing in the books as on 31/03/2017 be not treated as bogus claim. Again there was no compliance and the ld. Assessing Officer came to the conclusion that the alleged sundry creditors are bogus and assessee has deliberately failed to comply to the I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 5 statutory notices served upon him and further assessee is unable to explain the nature and source of the sundry creditors. Accordingly provisions of Section 68 r.w.s. 115BBE of the Act were invoked and addition for unexplained sundry creditors was made at Rs.39,95,24,110/-.
6. Aggrieved the assessee preferred appeal before the ld. CIT(A) and firstly the reason for non-compliance before the Assessing Officer was stated to be on account of the fact that the assessment proceedings for Assessment Year 2018-19 was in progress and assessee was making necessary compliances to various information is called for. However, the assessee was completely unaware about the information called for Assessment Year 2017-18 and he was under the bonafide belief that he is making necessary compliances before the revenue authorities for Assessment Year 2018-19. Further it was submitted that the ld. Assessing Officer has not challenged the gross revenue achieved by the assessee company from the construction business and considering the fact that the assessee company is operating mainly in remote areas and funds for completion/part completion of work undertaken is received in the subsequent financial years, there ought to be huge outstanding. It was submitted that the alleged sundry creditors outstanding as on 31/03/2017 have been repaid in the subsequent financial year and they are all genuine creditors from whom the assessee has purchased the goods or services and also includes outstanding liabilities for various expenses. Before the ld. CIT(A), assessee placed the following details in order to explain the nature and source of the alleged sum:-
I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 6
(i) "The assessing officer completely overlooked/ignored the following facts which have got a direct bearing of the Respondent assessee's case: -
(a) The sundry creditors of Rs. 39,95,24,110/- included Rs.
9,47,79,175/- of opening balance, which cannot be added in the A.Y. 2017- 18 which is under appeal;
(b) The expenses relating to these sundry creditors have all been allowed as the Respondent's business income has been accepted as shown.
(c) There is no finding that the expenses relating to these sundry creditors are not genuine and/or are bogus.
(d) These creditors include expenses relating to purchase of goods and services, salary payable, directors' remuneration, purchase of capital assets etc. which all have been accepted.
(e) A perusal of the ledger accounts of the sundry creditors would show that the payments made to them during the previous year relevant to the assessment year under appeal have all been accepted as genuine. Only the outstanding balance has been added U/s .68 of the Act. This is contrary to the materials on record.
(f) Many of the same sundry creditors have been dealing with the Respondent assessee since last several years and their transactions have been accepted by the department all through.
Thus, the addition made is contrary to the materials on record, without proper enquiry, based on irrelevant considerations and non-consideration of relevant material/facts.
11. The Respondent assessee also contended before the CIT(A) that the provisions of section 68 of the Act do not apply unless the "sum" which is found credited in the books of an assessee is by way of a cheque or cash. In support of its contention, the Respondent assessee relied upon the following case laws: -
I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 7
(a) C.I.T. Vs. P. Mohanakala (2007) 291 ITR 278 (SC)
(b) H.H. Sri Rama Verma Vs. C.I.T. (1991) 187 ITR 308 (SC)
(c) V.R. Global Energy (P) Ltd. Vs. I.T.O. (2018) 407 ITR 145 (Madras)
(d) Jatia Investment Co. Vs. C.I.T. (1994) 206 ITR 718 (Cal)
(e) I.T.O. Vs. Zexus Air Services (P.) Ltd. (2021) 189 ITD 434 (Delhi-Trib)
12. It was also submitted that the entire sundry creditors as on 31.03.2017 being the consequence of Journal entry passed for purchase of goods/services and not due to the receipt of any "sum" of money either by cheque or cash, the provisions of section 68 of the Act did not apply in the case of the Respondent assessee."
7. The ld. CIT(A) after considering the submissions filed by the ld. Counsel for the assessee and also taking into consideration various judicial pronouncements referred and relied on by the assessee, on one hand deleted the addition made u/s 68 of the Act made by the ld. Assessing Officer but simultaneously estimated the profits of the assessee at a higher rate thereby sustaining the addition at Rs.1,91,40,955/-. Since the order of the ld. CIT(A) is very detailed and exhaustive crux of the observations and the findings is summarised below:-
"13. In appeal the learned CIT(A) after dealing with the various issues raised in the assessment order and contentions of the Respondent assessee raised before him passed a very reasoned order extensively dealing with the issues before him: -
I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 8
(i) The learned CIT(A) has given a categorical finding that the aggregate amount of Rs. 39,95,24,110/- which has been added U/s.68 of the Act on account of outstanding balances of Sundry Creditors as on 31.03.2017 included the opening balances of sundry creditors;
cost of materials purchased during the year; contract charges; outstanding on account of capital goods purchases; unpaid directors' remuneration, etc. (Page 189, 190 & 191 of CIT(A)'s Order)
(ii) The learned CIT(A) held that Section 68 is inapplicable when any sum of money was not received from sundry creditors. In fact, what has been shown as credit in the Sundry Creditors account is only the corresponding value of goods or services and nothing else. In the absence of receipt of any sum of money, the provisions of section 68 of the Act could not have been invoked by the assessing officer. The learned CIT(A) has placed reliance on the following judicial pronouncements: -
(a) V.R. Global Energy (P) Ltd. Vs. I.T.O. (2018) 407 ITR 145 (Madras)
(b) Jatia Investment Co. Vs. C.I.T. (1994) 206 ITR 718 (Cal)
(c) I.T.O. Vs. Anand Enterprises Ltd.
In ITA No. 1614/Kol/2016 dated 26.09.2018
(d) A.C.I.T. Vs. Mahendra Kumar Agarwal (2011) 142 TTJ 35 (Jaipur-Trib)
(e) Abhijeet Enterprises Ltd. Vs. I.T.O. In ITA No. 308/Kol/2017 dated 27.03.2019
(f) H.H. Sri Rama Verma Vs. C.I.T. (1991) 187 ITR 308 (SC)
(g) Manoj Aggarwal Vs. D.C.I.T. (2008) 113 ITD 377 (Delhi) (S.B.) I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 9 (Pages - 184 to 218 of CIT*(A)'s order)
(iii) The learned CIT(A) has further held that the addition of Rs.39,95,24,110/- made U/s.68 of the Act is against the Principles of Real income. The resultant net profit rate after addition of Rs.39,95,24,110/- would be unrealistic, given the fact that the appellant is a contractor. According to the learned CIT(A), the net profit as per profit & loss account was Rs.6,33,25,723/- and with the addition of Rs.39,95,24,110/- the net profit would be escalated to Rs.46,28,49,833/- which on the gross receipts of Rs.79,75,39,806/- would come to 58.03% which is whimsical and absurd.
(Pages 268 to 305 of CIT(A)'s order)
(iv) The learned CIT(A) has further held that the law is trite and clear that where sales have been accepted, the corresponding purchases cannot be disbelieved and it is reasonable in such cases to estimate a reasonable proportion of profit with respect to the purchases. This proposition is further apt, especially to the present case, where the appellant had executed government works/contracts where the payments are released only after verification of actual work executed.
(Pages 372 to 376 of the CIT(A)'s order.
(v) In this case, during the course of assessment proceedings, the Assessing Officer did not conduct any independent third-party enquiry. Subsequently, even during the Remand Proceedings, when the enquiries were made by the AO, the Sundry Creditors to whom summons were issued by the Assessing Officer duly appeared before the Assessing Officer and confirmed their business transactions with the Appellant in their respective statements recorded on oath. Thus, the Assessing Officer remained only suspicious as to the mode of subsequent payments to these sundry Creditors and did not bring I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 10 any material on record to assail any fact on the subject matter. In any case, the issue is bereft of any tangible / adverse material.
(Page 404 of the CIT(A)'s order)
(vi) Finally, after holding that the impugned addition of Rs.39,95,24,110/- made U/s.68 of the Act by the assessing officer, was not correct under the law as well as on facts, the learned CIT(A) went on to estimate the shortfall in the profit of the appellant by taking average net profit of five assessment years i.e. assessment years2016-2017 to 2021-2022, which according to him came to 10.30% as against net profit rate for the assessment year 2017-2018 which is under appeal came to 7.73%. Thus, he worked the short fall of net profit at 2.57% (10.30% - 7.73%) for the assessment year 2017-18. He thereafter, took into account the disclosure of additional income of Rs.1,50,00,000/- by the respondent in the assessment year 2018-19 and adjusted the net profit rate for the assessment year by 2.23%. He, therefore, worked out the average of two percentage figures of short fall i.e. 2.57% plus 2.23% which came 2.40% and worked out the amount of short fall on the total turnover of Rs.79,75,39,806/- which came to Rs.1,91,40,955/-. He, therefore, sustained the addition to the extent of Rs.1,91,40,955/- out of the total addition of Rs.39,95,24,110/- made by the assessing officer. He, further held that this addition of Rs.1,91,40,955/- will be liable to be taxed as business income of the Respondent assessee and will not be subjected to tax under section 115BBE of the Act.
(Pages 441 and 442 of CIT(A)'s order)"
8. Since the ld. CIT(A) has partly allowed the assessee's appeal, both the revenue as well as the assessee are in appeal before us.
I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 11
9. So far as the revenue's appeal in ITA No. 42/GTY/2022 is concerned, the grievance of the revenue is that the ld. CIT(A) erred in deleting the addition made u/s 68 of the Act and resorting to calculate income on estimate basis.
10. The ld. D/R vehemently argued referring to the assessment order and submitted that the assessee did not file any detail of the sundry creditors outstanding as on 31/03/2017. Even when sufficient opportunity was granted, the assessee failed to appear. He also submitted that in light of the provisions of Section 68 of the Act, the onus was on the assessee to discharge its liability of explaining the nature and source of the credit entries appearing in its books which in this case is the sundry creditors balance. He also submitted that rather than sustaining the addition u/s 68 of the Act, the ld. CIT(A) erred in estimating the profits.
11. On the other hand, the ld. Counsel for the assessee, so far as the addition under section 68 of the Act is concerned, heavily relied on the finding of the ld. CIT(A) stating that after examining the facts of the case and also the factual position that the assessee had paid the outstanding sundry creditor in the subsequent financial year and the alleged sum of sundry creditors mainly included the outstanding liability towards goods, services and other expenses which are required for the purpose of achieving the business turnover. So far as the estimation of profits is concerned, it was stated that there are I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 12 certain calculation mistakes in the finding of the ld. CIT(A) for arriving at the net profit rate. He stated that while computing the net profit rate, the ld. CIT(A) has taken into consideration the net profit rate from Assessment Year 2016-17 to 2021-22 but failed to consider the fact that for Assessment Year 2018-19, the net profit included the income disclosed during the course of survey which was a special item for Assessment Year 2018-19 and has resulted in an increased net profit rate.
12. We have heard rival contentions, perused the records placed before us and carefully gone through the decisions relied upon by the ld. CIT(A) in the impugned order. We observe that the issue arising in the instant appeal relating to addition u/s 68 of the Act for outstanding sundry creditors as on 31/03/2017, came into notice of the revenue authorities while carrying out the assessment proceedings for Assessment Year 2018-19. The assessee is into the construction business and turnover for Assessment Year 2017-18 is to the tune of Rs.79.75 Crores which is a substantial increase in comparison to the preceding Assessment Year 2016-17 where the turnover was Rs.41.21 Crores. There is no dispute at the end of the revenue authorities about the gross turnover achieved by the assessee. For carrying out the business work and to achieve the business turnover, expenditure has to be incurred which were mainly towards purchase of material, labour, direct and indirect expenses and other statutory liabilities. The I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 13 books of accounts of the assessee are duly audited and have not been rejected by the Assessing Officer while concluding the assessment for the Assessment Year 2017-18. The only reason for making the impugned addition primarily appears to be non-compliance by the assessee during the assessment proceedings. It is not so that the assessee is not carrying out regular business activity. It was subjected to survey and assessment for Assessment Year 2018-19 were already being carried out. Before the ld. CIT(A), assessee filed complete details of outstanding sundry creditors and also placed documentary evidences to prove that almost the total amount of outstanding sundry creditors stands paid in the next financial year and the same included various vendors which regularly supply goods and services to the assessee. The ld. CIT(A) has incorporated these details in the impugned order which also includes the breakup of the alleged sum and the same rates as under:-
"17. The learned CIT(A) has dealt with the nature and character of the Sundry Creditors at pages 189, 190 & 191 of his order which are re- produced below: -
"From a perusal of the above Certificate, Dated 14/06/2022, (the complete copy of which is annexed with this Order as Annexure-1) the following facts are conspicuously evident:
1. That, the aggregate amount of Rs. 39,95,24,110/- which has been added on account of outstanding balances of Sundry Creditors (as on 31/03/2017), included an amount of Rs. 3,96,48,266/- which is I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 14 ascribed to the opening balance (as on 31/03/2016) of Sundry Creditors.
2. That, in view of Para 1 (supra), the outstanding balances of Sundry Creditors (as on 31/03/2017) which pertained to the transactions entered into by the Appellant during Financial Year 2016- 17 (i.e. Assessment Year 2016-17) was Rs. 35,98,75,844/- (i.e. Rs. 39,95,24,110/- minus Rs. 3,96,48,266/-).
3. That, the aforesaid amount of Rs. 35,98,75,844/- (refer Para 2 supra), being the outstanding balances of Sundry Creditors (as on 31/03/2017), which pertained to the transactions entered into by the Appellant during the Financial Year 2016-17 (i.e. Assessment Year 2016-17) was ascribed to :
a. Rs. 29,30,38,765/-, being amount included in the outstanding balances of Sundry Creditors (as on 31/03/2017), towards "Cost of Material purchased from the Parties" during the Financial Year 2016-17.
It is noted that in the impugned Assessment Order passed by the Assessing Officer for the above Assessment Year, there is no adverse observation by the Assessing Officer with respect to the expense claimed by the Appellant with respect to the purchases made from these Parties. Thus, it is evident that the Assessing Officer had accepted the business transactions of the Appellant entered into with these Parties during the Financial Year 2016-17, but, on the contrary, added the outstanding balances of Sundry Creditors (as on 31/03/2017) of the corresponding Parties from whom material was purchased.
b. Rs. 3,32,99,492/-, being amount included in the outstanding balances of Sundry Creditors (as on 31/03/2017), towards "Contractor Charges paid to Parties" during the Financial Year 2016-17.
It is also noted that in the impugned Assessment Order passed by the Assessment Order for the above Assessment Year, there is no adverse I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 15 observation with respect to the expense claimed by the Appellant with respect to the contractual charges paid by the Appellant to these Parties. Thus, it is evident that the AO had accepted the claim of contractor charges incurred by the Appellant to these Parties during the Financial Year 2016-17 but, on the contrary, added the outstanding balances of Sundry Creditors (as on 31/03/2017) of the corresponding Parties to whom contractor charges were paid.
c. Rs. 3,29,98,690/-, being amount included in the outstanding balances of Sundry Creditors (as on 31/03/2017) towards "Capital Commitment" i.e. Parties from whom Capital Goods/Assets were purchased" during the FY 2016-17 It is also noted that in the impugned Assessment Order passed by the Assessing Officer for the above Assessment Year, there is no adverse observation with respect to the claim of depreciation on account of fresh additions made to the fixed assets. Thus, it is evident that the Assessing Officer had accepted the additions made to the fixed assets by the Appellant during the Financial Year 2016-17 but, on the contrary, added the outstanding balances of Sundry Creditors (as on 31/03/2017) of the corresponding Parties from whom these fixed assets were purchased.
d. Rs. 2,39,380/-, being amount included in the outstanding balances of Sundry Creditors (as on 31/03/2017) towards "Unpaid Director Remuneration for FY 2016-17"
It is also noted that in the impugned Assessment Order passed by the Assessing Officer for the above Assessment Year, there is no adverse observation with respect to the Director Remuneration claimed by the Appellant. Thus, it is evident that the Assessing Officer had accepted the claim of Director Remuneration for the Financial Year 2016-17 but, on the contrary, added the outstanding balances of Sundry Creditors (as on 31/03/2017) on account of Director Remuneration payable.
4. That, the aggregate amount of Rs. 35,95,76,327/- (i.e. total of amounts stated at Para 3(a), Para 3(b), Para 3(c) and Para 3(d) supra), included in the outstanding balances of Sundry Creditors (as on I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 16 31/03/2017) in the Audited Balance Sheet of the Appellant on 31/03/2017, was on account of the expenses (both Capital as well as Revenue, incurred by the Appellant during the impugned Financial Year 2016-17 (i.e. Assessment Year 2017-18) itself.
5. That, for the balance amount of Rs. 2,99,517/- [i.e. Rs. 35,98,75,844/- (as per Para 3 supra) minus Rs. 35,95,76,327/- (as per Para 4 supra)], no details can be culled from the aforesaid Certificate of the Auditor, Dated 14/06/2022."
13. From perusal of the above finding of the ld. CIT(A) we notice that the alleged sum includes opening balance as on 01/04/2016 not paid till the close of the year and the sundry creditors accumulated during the year. As far as the opening balance of Rs.3,96,48,266/- is concerned, the same being opening balance pertaining to preceding year, cannot be brought to tax u/s 68 of the Act. So far as the remaining amount is concerned, complete details have been filed about the various parties from whom the assessee has purchased material during the year, contract charges, capital commitments, sundry creditors for capital goods, sundry creditors towards unpaid directors' remuneration etc. The finding of the ld. CIT(A) for deleting the impugned addition u/s 68 of the Act is firmly on the strength of factual analysis of the financial data and documents explaining the transactions of purchase and incurring of expenditure during the year. One cannot ignore the fact that for achieving the business turnover relating to construction business expenses have to be incurred towards purchase of material towards direct and indirect expenses. It is also an I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 17 admitted fact that payments for the sales/turnover are normally received after the necessary verification of the awarder for the contract work completed. The funds are normally released at a later date. This fact is well known to the vendors who supply goods and services to such contractors. Maybe some advance amount is given but final payments are made only after receiving the funds from the debtors. Same is the situation in the instant case where Gross Receipts are from contract work majorly awarded by Government and genuine expenses towards purchases and other unpaid expenditure outstanding as on the close of the year took the shape of sundry creditors which have been subsequently repaid. The ld. CIT(A) has observed at some places that in absence of actual receipt of money during the year, Section 68 of the Act should not have been invoked. But we are not supporting this finding of the ld. CIT(A), since every credit entry in books is subject to pass the rigours of Section 68 of the Act. However, but even on the factual aspect we are satisfied that the assessee has successfully explained the nature and source of the alleged sum and has also explained the genuineness of the transactions which in this case is for purchase of goods and services. Genuineness is also proved on the strength of the business turnover, net profit offered to tax and the audited financial statements. We, therefore, find no merit in the finding of the ld. Assessing Officer making the addition for unexplained cash credit u/s 68 of the Act of I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 18 unexplained sundry creditor amounting to Rs. 39,95,24,110/-. Finding of ld. CIT(A) deleting alleged addition u/s 68 of the Act is confirmed. Accordingly, all grounds of appeal raised by the revenue is hereby dismissed.
14. In the result appeal of the revenue is dismissed
15. The second issue for our consideration is estimation of profit by the ld. CIT(A). The Assessing Officer made addition for unsecured sundry creditors. The ld. CIT(A) on one hand deleted the addition made u/s 68 of the Act but on the other hand made an addition of Rs.1,91,40,995/- by estimating the income of the assessee over and above the income declared in the income tax return. The ld. CIT(A) while estimating the income and making the impugned addition of Rs.1,91,40,995/- has given the finding appearing at page 441 and 442 of the impugned order which reads as under:-
"Estimation of the Shortfall in the case of the Appellant It is clear from a conspectus of the Remand Report and the allied material that no proof, either of the receipt of goods or of the receipt of services from Sundry Creditors have been furnished by the Appellant before the Assessing Officer during the assessment proceedings or even during the remand proceedings. Further, the Appellant has not stated the specific mode and manner of payments, if any, made by the Appellant to these Sundry Creditors. From a perusal of the observations contained in the Remand Report, the Sundry Creditors, who had responded to the Summons issued by the AO, have stated that they had received payments in cash and that too after 2, 3, 4 or even 5 years, as the case may be. The Assessing Officer, in his Remand Report, has also remarked that the Creditors were introduced to inflate the expenses and, thereby, to reduce the Total Income. Accordingly, it I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 19 can be reasonably inferred that the returned Total Income and the Net Profit declared by the Appellant from Contractual Business may be less than the actual Total Income and the Net Profit of the Appellant.
In this case, the copies of the Audited Annual Accounts in the case of the Appellant were perused for the Financial Year 2016-17 to Financial Year 2020-21. On a perusal of the Audited Annual Accounts of the Appellant, the year-wise position which emerged in respect of the Turnover, Net Profit (before and after excluding other incomes) etc. of the Appellant is tabulated as hereunder:
Assessment Particulars Year 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Turnover 42,21,19,510 79,75,39,806 67,20,55,954 69,82,36,410 83,83,40,870 73,33,22,837 Net profit as per P & L A/c 2,39,67,331 6,33,25,723 14,18,46,191 7,86,50,339 10,98,48,629 8,17,89,283 Other Incomes 14,26,677 16,86,591 3,02,63,503 2,34,35,534 4,54,43,641 3,58,66,117 Net Profit (Excluding Other Incomes) 2,25,40,654 6,16,39,132 11,15,82,688 5,52,14,805 6,44,04,988 4,59,23,166 Net Profit Rate 5.68 7.94 21.11 11.26 13.10 11.15 Net Profit Rate (Excluding Other Incomes) 5.34 7.73 16.60 7.91 7.68 6.26 To arrive at a reason trick able rate for estimation of the Net Profit Rate of the Appellant, the Average Net Profit Rate (excluding Other Incomes), of the Appellant, for the period of AY 2016-17 to AY 2021-22 was calculated. It is noteworthy to state that the comparative Financials of some preceding Financial Years (being FY 2013-14 & FY 2014-15) were excluded since the Turnover of the Appellant during these Financial Years was not in commensuration with the Turnover of the appellant for the Financial Years as referred in the Table, per supra. As seen in the Table above, the Average Net Profit Rate (excluding Other Incomes), of the Appellant, for the period of AY 2016-17 to AY 2021-22 comes to 10.30% whereas, for the Assessment Year, under Appeal, the Net Profit Rate (Excluding Other Incomes), comes to 7.73%. Thus, for the impugned Assessment Year 2017-18 (under Appeal), there is a shortfall in the Net Profit Rate, in comparison to the Average Net Profit Rate and, hence, the shortfall (in terms of percentage) comes to 2.57% (i.e. 10.30% minus 7.73%).
The other method for calculation of a reasonable rate for estimation of the Net Profit Rate of the Appellant could be based on the Additional Income offered by the Appellant during the subsequent Assessment I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 20 Year i.e. Assessment Year 2018-19. During the subsequent Assessment Year i.e. Assessment Year 2018-19, to account for the possible leakage of Revenue, the Appellant offered for taxation an Additional Income of Rs. 1,50,00,000/- on a Turnover of Rs. 67,20,55,954/-. The ratio of this Additional Income offered by the Appellant for taxation to that of the Turnover of the Appellant i.e. the shortfall in terms of percentage for the Assessment Year 2018-19 comes to 2.23% (i.e. Rs. 1,50,00,000/- divided by Rs. 67,20,55,954/-). Thus, to account for the possible leakages of Revenue for the Assessment Year 2018-19, the shortfall in terms of percentage of Additional Income to the Turnover of the Appellant, which was accepted by the Assessing Officer, is 2.23%.
Taking an average of the aforesaid two percentage figures of shortfalls i.e. 2.57% and 2.23%, the average percentage figure of the estimated shortfall comes to 2.40% (2.57% plus 2.23% = 4.80%; then 4.80% divided by 2). If this average percentage of shortfall i.e. 2.40% is applied to the Turnover of the Appellant for the Assessment Year 2017-18, the amount of shortfall comes to Rs. 1,91,40,955/- (i.e. 2.40% of Rs. 79,75,39,806/-).
Accordingly, in the case of the Appellant, for the impugned Assessment Year 2017-18, the Amount of Rs. 1,91,40,955/- (i.e. 2.40% of Rs. 79,75,39,806/-), which is based on an average of two Net Profits Rates, as discussed above, seems to be a reasonable estimate to account for the possible revenue leakage for the Assessment Year 2017-18. Hence, in view of the discussion above, notwithstanding anything stated supra in this Appeal Order, the addition of the amount of Rs. 1,91,40,955/-, out of the amount of Rs. 39,95,24,110/- added by the Assessing Officer is, hereby, sustained.
The Addition of Rs. 1,91,40,955/- (as per preceding para) will be liable to be taxed at Business Income of the Appellant and will Not be subjected to Tax under Section 115BBE of the Act"
16. The ld. Counsel for the assessee submitted that if the calculation of the average net profit rate worked out by the ld. CIT(A) is examined it can be noticed that for Assessment Year 2018-19, the net profit rate has been arrived after taking into consideration the additional income I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 21 of Rs. 1.50 Crores offered during the course of survey. If this amount is excluded, the net profit rate will come down and thereafter if the average net profit rate is calculated it will arrive at 8.59 %. The assessee has already declared net profit rate of 7.73% and so the shortfall is only 0.86% and only to this extent the addition may be sustained.
17. On the other hand, the ld. D/R vehemently argued supporting the findings of the ld. CIT(A).
18. We have heard rival contentions and produce the material placed on record. The assessee is aggrieved with finding of the ld. CIT(A) making addition to the net profit rate at Rs.1,91,40,955/-. We notice that the turnover of the assessee company during the year under consideration is Rs.79.75 Crores. Survey action was undertaken during the financial year 2017-18 relevant to Assessment Year 2018-19. The Assessing Officer made addition for unsecured sundry creditors appearing in the audited balance sheet as on 31/03/2017, which has been deleted by the ld. CIT(A). However, while deleting the addition u/s 68 of the Act, the ld. CIT(A) has estimated the profits of the assessee by taking into account the average net profit rate for Assessment Year 2016-17 to 2021-22. The ld. CIT(A) applied the net profit rate as 10.30% as against 7.73% declared by the assessee.
19. In course of the hearing, it has been submitted by the ld. Counsel for the assessee that the average net profit for the five I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 22 assessment years i.e. assessment years 2016-17 to 2021-22 would be 8.59% (5.34 + 7.73 + 16.60 + 7.91 + 7.68 + 6.26 = 51.52/6) and not 10.30 as taken by the learned CIT(A). Thus, the shortfall in average net profit would be 0.86% and not 2.57% as determined by the ld. CIT(A). Secondly, the A/R has submitted that the net profit rate of 16.60% shown for the assessment year 2018-19 in the chart is on higher side because it includes additional income of Rs.1,50,00,000/- offered by the respondent assessee in the assessment year 2018-19 during search. Hence, the normal net profit rate for the assessment year 2018-19 after excluding this additional income of Rs.1,50,00,000/- would come down to 14.20%. Taking this normal rate of net profit for the assessment year 2018-19, the average rate of net profit for the assessment years 2016-17 to 2021-22 will come to 8.19% (5.34 + 7.73 + 14.20 + 7.91 + 7.68 + 6.26 = 49.12/6). Thus, the short fall would work out to .46% (8.19 - 7.73). The ld. Counsel for the assessee prayed for necessary relief.
20. We have examined the above submissions of the ld. Counsel for the assessee and find merit in the same. Firstly even if the net profit rate of 16.60% for Assessment Year 2018-19 is considered, the average net profit rate for Assessment Year 2016-17 to 2021-22 will come to 8.59%. Now, prima facie it seems that the ld. CIT(A) has inadvertently taken a wrong figure to come up at the average net profit rate of 10.30%. Further we find that for Assessment Year 2018-19, a survey I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 23 action was undertaken and assessee offered additional income of Rs.1.50 Crores. This additional income was over and above the normal net profit earned by the assessee on the business turnover and is certainly a special item and for the purpose of calculating the net profit rate needs to be excluded. On exclusion of the additional income of Rs.1.50 Crores, for the purpose of calculating the net profit rate for Assessment Year 2018-19, the net profit rate would come down to 14.20% as against 16.60% considered by the ld. CIT(A). Now applying the reduced net profit rate of 14.20% in the formula for calculating the average net profit rate for Assessment Year 2016-17 to 2021-22, the final average net profit rate would be 8.19%. We are thus of the considered view that considering the remand report given by the Assessing Officer and certain inflated expenses, though a plausible reason of estimating the income of the assessee over and above the income declared by it exists, but the same cannot exceed 0.46% considering the net profit offered by the assessee during the period for Assessment Year 2016-17 to 2021-22 which interalia takes into consideration the income of the preceding year and subsequent years. We accordingly estimate the net profit rate for the year @ 8.19% as against 7.73% declared in the audited books and for the said increase of 0.46%, an addition of Rs.36,68,683/- is sustained in the hands of the assessee. The addition sustained by us at Rs.36,68,683/- is purely on income from business and is not liable to be taxed u/s 115BBE of the I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 24 Act. Accordingly the sole ground raised by the assessee is hereby partly allowed.
21. In the result appeal of the assessee is partly allowed.
22. Now, we take up the assessee's appeal in ITA No. 32/GTY/2022 for Assessment Year 2018-19.
23. The sole issue for our consideration is against the finding of the ld. CIT(A) confirming the action of the Assessing Officer of making addition of unexplained cash at Rs. 37,86,023/- u/s 69A r.w.s. 115BBE of the Act. The issue raised above pertains to Assessment Year 2018-19 for which return was filed on 31/10/2018 declaring income of Rs.15,41,30,680/-. It also included the additional income of Rs.1.50 Crores, offered during the course of survey on 15/03/2018. The facts relating to the issue in hand is that cash amounting to Rs.43,18,000/- was found at the office premises. During the course of assessment proceedings, the accountant of the assessee was asked to explain the source of cash so found. It was submitted by him that there was a cash withdrawal on 13th & 14th March, 2018. Further on perusal of the cash book available on the date of survey it was noticed that cash amounting to Rs.44,70,000/- was disbursed but the cash sent to the sites was only Rs.6,83,977/-. During the course of assessment proceedings this issue was again examined by the Assessing Officer. It was submitted before him during the course of assessment proceedings that though there was an entry of cash payment in the I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 25 books towards various expenses of labour charges but the cash was actually not paid at the site and it was scheduled to be paid on the subsequent date. The ld. Assessing Officer was not satisfied and he was of the considered view that there was unaccounted payment of cash of Rs.37,86,023/- at the sites and the same deserves to be added u/s 69A of the Act. Aggrieved, the assessee preferred appeal before the ld. CIT(A) stating the details of cash withdrawal and accounting entries but failed to satisfy the ld. CIT(A).
24. Aggrieved, the assessee is in appeal before this Tribunal.
25. The ld. Counsel for the assessee submitted that there was cash withdrawal from various bank accounts prior to the date of survey and this amount was withdrawn for making payment at various sites where the construction/ contract work awarded by Railways and Public Works Department (PWD) has been carried out. It is also submitted that the cash vouchers of Rs. 44,70,000/- were prepared on 14/03/2018 and the cash was to be sent at various work sites for making necessary payments but prior to that survey was undertaken. He also submitted that the assessee has also offered additional business income of Rs.1.50 Crores against which the assessee deserves a telescoping benefit for the alleged addition u/s 69A of the Act.
26. On the other hand, the ld. D/R eminently argued supporting the order of the lower authorities.
I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 26
27. We have heard rival contentions and perused the material placed before us. The issue raised by the assessee is against the addition of unexplained cash u/s 69A r.w.s. 115BBE of the Act. We notice that during the course of survey conducted at the premises of the assessee on 15/03/2018, undisclosed income of Rs.1.50 Crore, was offered as additional business income. It also remains an undisputed fact that prior to the date of survey on 15/03/2018 during the period from 12/03/2018 to 14/03/2018, assessee withdrew Rs.96,00,000/- from various bank accounts held by it and the details are as under:-
Name of Bank Account No Date Amount Cheque No. HDFC 07578710000052 12.03.2018 9,00,000 001430 SBI 31165554905 12.03.2018 9,00,000 355988 Punjab & Sind Bank 08541100000806 12.03.2018 6,00,000 000624 Axis Bank 911020021612467 12.03.2018 9,00,000 066479 HDFC (CC) 07578710000052 13.03.2018 9,00,000 001432 SBI 31165554905 13.03.2018 9,00,000 355989 Axis Bank 911020021612467 13.03.2018 9,00,000 066480 HDFC 07578710000052 14.03.2018 9,00,000 001551 SBI 31165554905 14.03.2018 9,00,000 355990 Punjab & Sind Bank 08541100000806 14.03.2018 9,00,000 000625 Axis Bank 911020021612467 14.03.2018 9,00,000 066481 Total 96,00,000
28. We also notice that as on the date of survey, physical cash was found at Rs.43,18,000/-. It is also an admitted fact that 97% of the turnover of the assessee company is from execution of contract work I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 27 awarded by Public Works Department and Indian Railways. We also notice that during the course of survey cash vouchers of Rs.44,70,000/- were found which were prepared for various site offices. The basis of the impugned addition was that ld. Assessing Officer found that in the cash book, the balance was Rs.50,01,977/- and the cash in hand was Rs.43,18,000/- which meant that Rs.6,83,977/- has been spent for payments but there were cash vouchers of Rs.44,70,000/- at the business premises. The ld. Assessing Officer thus concluded that the assessee has utilized unaccounted cash to make the payment. We, however, on perusal of the details filed by the assessee find that there was sufficient cash in hand available with the assessee at the time of survey. The cash voucher of Rs.44,70,000/- were actually prepared for the assessee's own sites remotely located where there is no proper facility to prepare the vouchers and, therefore, the vouchers are prepared in advance and the person who goes to make payments at the sites carries those vouchers along with cash. It is a matter of sheer coincidence that when the vouchers were prepared on 14/03/2018 and the payment was due to be made for the labours at sites, the survey was undertaken. We thus find merit in the said contention of the ld. Counsel for the assessee and considering the overall surrounding circumstances which includes withdrawals of cash from various bank accounts, contract work mainly for the Government companies, a fair net profit rate consistently offered and also considering the additional I.T.A. No. 42/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 31/GTY/2022 Assessment Year: 2017-18 I.T.A. No. 32/GTY/2022 Assessment Year: 2018-19 Pushpas Construction Private Limited 28 business income offered by the assessee at Rs.1.50 Crores, we are of the view that the addition of Rs.37,86,023/- u/s 69A r.w.s. 115BBE of the Act deserves to be deleted. Accordingly, Ground Nos. 1, 2 & 3 raised by the assessee are allowed.
29. Ground No. 4 is general in nature and needs no adjudication.
30. In the result:-
ITA No. & Assessment Year Result
I.T.A. No. 42/GTY/2022 Dismissed
Assessment Year: 2017-18
I.T.A. No. 31/GTY/2022 Partly Allowed
Assessment Year: 2017-18
I.T.A. No. 32/GTY/2022 Allowed
Assessment Year: 2018-19
Order pronounced in the Court on 8th February, 2024.
Sd/- Sd/-
(SONJOY SARMA) (DR. MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Kolkata, Dated 08/02/2024
*SC SrPs
I.T.A. No. 42/GTY/2022
Assessment Year: 2017-18
I.T.A. No. 31/GTY/2022
Assessment Year: 2017-18
I.T.A. No. 32/GTY/2022
Assessment Year: 2018-19
Pushpas Construction Private Limited
29
आदे श की ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. थ / The Respondent
3. संबंिधत आयकर आयु / Concerned Pr. CIT
4. आयकर आयु (अपील)/ The CIT(A)-
5. िवभागीय ितिनिध ,आयकर अपीलीय अिधकरण, गुवाहाटी /DR,ITAT, Guwahati,
6. गाड फाईल /Guard file.
आदे शानु सार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Guwahati