Income Tax Appellate Tribunal - Jabalpur
Assistant Commissioner Of Income Tax ... vs M/S. Tirupati Build-Con Pvt. Ltd., ... on 28 June, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
"DB" BENCH, JABALPUR
BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT
AND
SHRI M. BALAGANESH, ACCOUNTANT MEMBER
ITA No.82/JAB/2019
(Assessment Year: 2007-08)
ITO, Vs. Tirupati Buildcon Pvt Ltd,
Ward-Shahdol Opp. Railway Station,
Burhar, Dist- Shahdol(MP)
(Appellant) (Respondent)
PAN: AACCT0370R
IT(SS) A Nos.5 to 10/JAB/2018
(Assessment Years:2009-10 to 2014-15)
and
ITA No.22/JAB/2018 (Assessment Year: 2015-16)
ACIT (Central), Vs. Tirupati Buildcon Pvt Ltd,
Jabalpur Opp. Railway Station,
Burhar, Dist- Shahdol(MP)
(Appellant) (Respondent)
PAN: AACCT0370R
Assessee by : ShriK. P. Dewani, Adv
Revenue by: Smt Manisha Kinnu, CIT DR
Date of Hearing 25/06/2024
Date of pronouncement 28/06/2024
ORDER
PER M. BALAGANESH, A. M.:
1. These are the bunch of appeals filed by the assessee and the revenue against the order of the ld CIT(A) for AYs 2009-10 to 2015-16 as under:-
ITA NO/ AY CIT CIT order AO order AO order
IT(SS)A No dated dated
05/JAB/2018 2009- CIT(A)-1, 22.11.2017 DCIT 23.12.2016 153A r.w.s. 143(3)
10 Jabalpur (Central)
06/JAB/2018 2010- CIT(A)-1, 22.11.2017 DCIT 23.12.2016 153A r.w.s. 143(3)
ITA No.82/JAB/2019
IT(SS) A Nos.5 to 10/JAB/2018
ITA No.22/JAB/2018
TirupatiBuildconPvt Ltd.
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11 Jabalpur (Central)
07/JAB/2018 2011- CIT(A)-1, 22.11.2017 DCIT 23.12.2016 153A r.w.s. 143(3)
12 Jabalpur (Central)
08/JAB/2018 2012- CIT(A)-1, 22.11.2017 DCIT 23.12.2016 153A r.w.s. 143(3)
13 Jabalpur (Central)
09/JAB/2018 2013- CIT(A)-1, 23.11.2017 DCIT 23.12.2016 153A r.w.s. 143(3)
14 Jabalpur (Central)
10/JAB/2018 2014- CIT(A)-1, 23.11.2017 DCIT 23.12.2016 153A r.w.s. 143(3)
15 Jabalpur (Central)
22/JAB/2018 2015- CIT(A)-1, 23.11.2017 DCIT 23.12.2016 153A r.w.s. 143(3)
16 Jabalpur (Central)
82/JAB/2019 2007- CIT(A)- 15/07/2019 ITO, 19.12.2012 143(3)/ 147
08 15, Ward-
Kolkata 1(3),
Kolkata
1.1. As most of the issues involved in all these appeals are identical, they are taken together and disposed of by this common order for the sake of convenience.
2. Deduction U/s 80IA of the Act Ground No. 1 for AY 2009-10 Ground No. 1 for AY 2010-11 Ground No. 1 for AY 2011-12 Ground No. 1 for AY 2012-13 Ground No. 1 for AY 2013-14 Ground No. 1 for AY 2007-08 We have heard the rival submissions and perused the material available on record. The assessee is a part of Singhania Group on which search action u/s 132(1) of the Act was carried out on 16.10.2014. The main business concerns of the group are M/s. Tirupati Buildcon Pvt. Ltd., M/s. Shivangi Oil Pvt Ltd. and M/s. Tirupati Construction. The assessee is engaged in the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.-3-
activities of development of infrastructure projects as developer from the year 2004 onwards. The assessee claimed deduction u/s 80IA of the Actin the original return of income commencing from AY 2005-06 onwards and the said claim has been duly accepted by the ld AO as under:-
AY 2005-06 and 2006-07 accepted u/s 143(1) of the Act AY 2007-08 accepted u/s 143(3) of the Act AY 2008-09 accepted u/s 143(1) of the Act AY 2009-10 is the 5th year of claim of deduction u/s 80IA of the Act.
2.1. The deduction u/s 80IA(4) of the Act is eligible for any enterprise carrying on business of either developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. An amendment was brought by Finance Act 2007 with retrospective effect form 01.04.2000 by way of an Explanation to section 80IA(13) of the Act which reads as under:-
"For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of work contract awarded by any person (including the Central or State Government and executed by the undertaking or enterprise referred to in sub-section (1)."
2.2. According to the ld AO, the assessee herein is merely executing works contract of getting contracts. Even as per the Form 26AS, the company has got contracts from various state government departments like Rural Road ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
-4-Development, Public Works Department (PWD), Pradhan Mantri Gram Sadak Yojana (PMGSY) etc merely to complete certain projects. According to the ld AO, the assessee is not at all engaged in any infrastructure development activity. The assessee company does not bear any business risk at all and has been getting funds from concerned Government departments in regular tranches. Accordingly, the assessee would have to be construed only as works contractor and would be hit by the Explanation to section 80IA(13) of the Act. Further, the ld AO observed that the assessee had not maintained separate books of account for its eligible and non eligible business which is evident from the Tally data found during the course of search in the premises of the assessee.
2.3. The assessee on its part submitted that it is a developer of infrastructure projects and eligible for deduction u/s 80IA(4) of the Act and had maintained regular books of account duly audited by Chartered Accountants. The audited financial statements along with audit report in Form 10CCB had been duly submitted along with return of income and the quantum of deduction u/s 80IA(4) of the Act had been duly certified by the Chartered Accountants. The deduction has been claimed in respect of profits derived from various development of infrastructure facilities being roads for the State Govt of Madhya Pradesh and National Highway Authority of India (NHAI). It was also submitted by the assessee that deduction u/s 80IA of the Act was indeed allowed by the ld Additional CIT, Range-1, Kolkata u/s 143(3) of the Act dated 16.12.2011 for the A.Y. ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
-5-2009-10 after examining the claim extensively with the relevant agreements and documents. The assessee also placed reliance on the CBDT Circular No. 4 of 2010 dated 18.05.2010 wherein, it had been clarified that widening of existing roads by constructing additional lane as part of highway project by an undertaking would be regarded as new infrastructure facilities for the purpose of section 80IA(4) of the Act. The assessee has developed in terms of agreement with the state Government. The work executed has resulted into development of infrastructure project. The assessee possesses huge plants and equipment that were deployed for the development of project in addition to possessing technical management/ human resources as a condition for grant of development project. The copy of bidding documents for procurement of the contract are enclosed in pages 78 to 190 of the paper book Vol-1. The copy of various certificates issued by the concerned Government departments are enclosed in pages 51 to 77 of the paper book Vol-1 clearly stating that the assessee has executed infrastructure development work with all the technical specifications thereon. Apart from this, the assessee had enclosed the complete evidences with regard to construction/ up gradation of rural roads under PMGSY in Dindori District, Shahdol District, Umaria District. Pursuant to widening of two lanes in NH 59A (Indore-Betul Road), widening to two lanes in NH78 under NH Dn. Shahdol, widening to two lanes at NH-78 under NHDn. Shahdol and widening to two lanes at NH-78 pursuant to agreement entered into MPRRDA and PWD. The letter of ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
-6-acceptance and all the correspondence with MPRRDA and PWD are enclosed in pages 1 to 227 of the PB Vol-1. The assessee had also carried out asphalting and construction of bridges and culverts 26 nos at Dindori by pass road at Dindori, gross drainage work in Umaria District, widening to two lanes in Sagar-Kanpur Road, cross drainage work in Anuppur District and widening to two lanes at Tara-Premnagar pursuant to agreement entered into with PWD and Rural Engineering Services, as the case may be. The various correspondence and certificates in this regard are enclosed in pages 29 to 33 of the Paper Book Vol-1. The assessee had also carried out construction of Dureha-Kapuri-Madatola-Dharampura Road at Rewa, construction/ up gradation of rural roads under PMGSY in Dindhori District, Shahdol District and Umaria District for various package numbers, cross drainage work for various package I Umaria and Annupur District, widening to two lanes in Sagar-Kanpur Road in different stretch of kms, widening to two lanes Tata Premnagar road for different stretch of kms and construction of Ratanpur-Kenda- kenochi road for different stretch of kms pursuant to agreement entered into with PWD and MPRRDA, Rural Engineering services, as the case may be. The certificates and correspondence in this regard are enclosed in pages 44 to 50 of the Paper Book Vol -1. On perusal of these documents and contract documents, the scope of work of assessee company could be briefly summarized as under:-
"i) Assessee company has to take possession of all parts of site for executing the development projects. Assessee company is responsible for safety of all injuries at the site.ITA No.82/JAB/2019
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-7-ii) Access to site by the Engineers or any other authorized person has also been provided. The site is under entire control and possession of assessee company.
iii) Assessee company has all risk of loss or damages to physical properties and personal injury and death which arises during and in consequence of performance of development contract.
iv) Assessee company after development of project has to handover the site to Government and has to obtain completion certificate from the Engineer as to completion of the project.
v) Assessee company has to prepare drawings/operating manual "as built" and has to supply the same to the Engineer for approval.
vi) Assessee company has defect liability period ranging upto 5 years during which it has to have maintenance of developed project.
vii) Scope of work as defined in contract clearly demonstrates work to be development of project.
viii) No material is being supplied by Government for making of roads. Assessee has to make own investment to build the road.
ix) Assessee company has to deploy machinery and labour to be developer of project, possess requisite skill eligible for being developer of project."
2.4. The aforesaid scope of work clearly proved that the assessee company is only a developer of infrastructure project. It is pertinent to note that a certificate has been issued by Engineer in Chief in MP Rural Road ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
-8-Development Authority, Bhopal dated 18.11.2016 wherein, activity of the assessee has been certified as developer of roads. Similar certificate issued by the Executive Engineer PWD National Highway Division, Bhopal dated 17.11.2016 also states that the activity of assessee to be certified as development of roads. The assessee in the instant case has claimed deduction u/s 80IA of the Act in respect of Burhar Unit and profits derived thereon could be easily deducible from the manner in which the books of account are maintained by the assessee. Hence, the profits derived by the eligible undertaking could easily be worked out for the purpose of claiming deduction u/s 80IA(4) of the Act.
2.5. The assessee also pleaded before the ld. CIT(A) that since the deduction u/s 80IA(4) of the Act had been granted to the assessee in AY 2009-10 u/s 143(3) of the Act itself, same cannot be disturbed in the search assessment framed u/s 153A of the Act unless there is any incriminating material found during the course of search contrary to the said claim of deduction. Admittedly, there is no incriminating material found in any manner whatsoever which could assist the revenue to disturb the claim of deduction u/s 80IA(4) of the Act in respect of completed assessments. It was pleaded that the assessment years 2009-10 to 2013- 14 would fall under the category of unabated/ completed assessments as on the date of search on 16.10.2014.
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-9-2.6.The ld CIT(A) on verification of the entire agreements, certificates issued by the concerned Government Departments and also taking due cognizance of the fact that there was no incriminating material found during the course of search to disturb to claim the deduction u/s 80IA of the Act, granted relief to the assessee by observing as under:-
"7.2.3.DECISION:- 1 have carefully considered the submission put forth & the documents furnished on behalf of the appellant, perused the facts of the case and the observation of the AO in the impugned assessment order and other material brought on record. In these grounds of appeal, the appellant's claim of deduction under section 801A(4) of Income Tax Act, 1961 has been disallowed by the A.O. as discussed at para 6.9 of the assessment order. The A.O. has concluded that the project executed by the appellant is in the nature of works contract and in view of provisions of section 80IA(13) of Income Tax Act 1961, the appellant is not eligible for grant of deduction under section 801A(4) of I.T. Act 1961. In the case of appellant, it is seen that the appellant company is engaged in development of roads and complete details as to development of roads as well as terms of contract were placed before the A.O.in the course of assessment proceedings. The perusal of various contracts indicates that the appellant company is engaged in development of rural roads under the Pradhan Mantri Gram Sadak Yojana including maintenance of the same in terms of agreement with the State Government. The appellant company in the course of assessment proceedings has submitted a certificate issued by Engineer in Chief of Madhya Pradesh Rural Roads Development Authority, Bhopal (M.P.) dated 18/11/2016 to show that the appellant company was engaged in development of roads and maintenance of such roads after construction under various packages as indicated in the certificate. The aforesaid certificate issued by the authority is reproduced hereunder for ready reference:
"MADHYA PRADESH RURAL ROAD DEVELOPMENT AUTHORITY (AN AGENCY OF PANCHYAT & RURAL DEVELOPMENT DEPARTMENT, GOVT. OF M.P.) ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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Block-II, 5th Floor, Paryavas Bhawan, Arera Hills, Bhopal M.P.-462
011.
No.23386/FA/MPRRDA/2016 Bhopal, Date: 18/11/2016 To Whomsoever it may concern
MP Rural Road Development Authority is an Agency of Govt. of MP, Panchayat & Rural; Development Department constituted for implementation of Pradhan Mantri Gram Sadak Yojna in the State. The objective of PMGSY is to provide all weather connectivity to unconnected rural habitations. M/s. Tirupati Build-Con Private Limited Burhar Distt. Shahdol (M.P.) was awarded work of construction and development of rural roads/CDs and their maintenance for five years after construction under the project in package no.MP 4404, MP 3809, MP 1208, MP 1209, MP 1251, MP 1252, MP 1253, MP 1214, MP 1215, MP 1216, MP 1217, MP 3821, MP 1231, MP 4423, MP 4424, MP 4418, MP 44-1-31 and MP 44-1-34.
This certificate is issued on the request of contractor Sd/-
(M.K. Gupta) Engineer-in-Chief M.P. Rural Road Development Authority Bhopal (M.P.)"
The aforesaid certificate clearly indicates that the appellant company is engaged in the development of roads and its maintenance for various packages as observed in the said certificate. The receipt shown in the profit and loss account is also in respect to amount received from the Government for execution of various development projects which are observed in the certificate issued by Madhya Pradesh Rural Roads Development Authority reproduced hereinabove.
7.2.4 The Executive Engineer, Public Works Department, National Highway Division, Bhopal has issued certificate to the appellant company on 17/11/2016 wherein also it has been certified that the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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appellant company has executed projects of infrastructure development of roads and its maintenance successfully in respect to projects observed in such certificate. The aforesaid certificate is reproduced hereunder for ready reference:
"Office of the Executive Engineer PWD, NH Division Bhopal TO WHOM IT MAY CONCERN Under the Ministry of Road Transport and Highways, PWD National Highway Madhya Pradesh is a wing under which the project of Infrastructure Development and Maintenance of declared various National Highways Projects are executed and above referred works were awarded to Tirupati Build-Con Private Limited, Burhar for the same purpose ie Development and Maintenance of 3 years of National Highway Roads Project being Constructed and Development in mode of Contracts.
M/s. Tirupati Buildcon Pvt. Ltd. has successfully completed the projects under NH-78, NH-86, NH-59A for Development Works.
Sd/-17/11/2016 Executive Engineer, PWD, National Highway Division, Bhopal M.P."
The receipts from this project have been shown in the profit and loss account of the respective assessment year for which deduction under section 801A of L.T. Act 1961 has been claimed by appellant company.
7.2.5 The appellant company had submitted various contract agreements entered into with the Government Authorities before the A.O. and has submitted the same before me also. The appellant company hasinvited attention to one of the contract data in respect to work executed for development of roads. The contract data contains various terms and conditions as regard to execution of development projects and it is seen from the contract data in terms of clause 21, the appellant has taken possession of all parts of the sites in order to execute the development projects. In fact it is mandatory for the appellant company to take possession of site from the date specified in the contract data and delay in days for giving possession is a compensation event in terms of the contract for execution of infrastructure projects. It is seen from Clause 19 of the contract data ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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that the appellant company is responsible for the entire safety of all of the activities at site and is also responsible for loss or damage to the physical property and personal injury and death which may arise in consequence of the performance of contract during the tenure of development of infrastructure projects. The appellant company has executed the development of roads as to performance of various activities which included the development of roads and it consists of earthwork, GSB, WMM/WBM, DBM/BM/OGPC, BC/SDBC/Seal Coat and all allied culverts like Hume Pipe Culvert, Slab Culvert, Box Culverts, Minor Bridge and Major Bridge varies with the width of the road. Roadside drains, traffic signage and utility shifting etc. are the major source of road construction, which varies with the type of road. These roads generally have 3-5 years of maintenance contracts after the period of construction. It is seen from Clause 58 that appellant company after development of roads projects has to prepare the drawings and operating maintenance manual giving details of "As Built in respect to infra structure projects for approval of the Engineer of the Government. The aforesaid document along with the developed site has to be handed over to the Engineer of the Government Department to obtain certificate of completion as per Clause 55 & 56. The aforesaid obligation as well as execution of the project clearly makes the appellant company in the domain of being developer of infrastructure projects.
7.2.6 It is seen from the contract that all the risk and gain are that of developer in execution of development project. The developer has to procure various materials including consumable which would require for making development of roads. No material is being supplied by the Government Department for execution of development project. The grant of development project is also with a stipulation that company must possess minimum requirement as regard to plant and machinery for execution of development works. The company should also possess required technical and human resources in order to be eligible for development project to be granted by Government. The aforesaid condition/stipulation strengthens the submission of the appellant company that the contract given by the Government is not merely a works contract. As per contract appellant has to carry out set of activities to develop infrastructure project using its technical expertise, technical and other skilled and non skilled man power and its plant & machineries to execute projects, on this count itself it cannot be said ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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that appellant is merely a work contractor. The facts and evidence on record clearly indicates that the contract executed by the appellant company is not a mere contract for providing labours which is in the nature of works contract In view of above conclusion of the A.O that the contract executed by the appellant company is in the nature of work contract is unjustified.
7.2.7 The issue as to contract being in the nature of work contract or a contract being in the nature of development has been dealt with at length by recent order of Hon'ble ITAT, Kolkata Bench, Kolkata in the case of M/s. Simplex Infrastructure Ltd in ITA No. 2777/Kol/2013 vide order dated 10/3/2017. The relevant findings as recorded in the judgement are reproduced hereunder for ready reference:
"3. The facts in brief are that assessee in the present case is a Limited Company and engaged in the business of contract work as observed from the assessment order. During the year under consideration, assessee has claimed deduction u/s 80-1A of the Act in respect of the following projects:-ITA No.82/JAB/2019
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3.1 The aforesaid projects were awarded by Central / State Government / Local Authority / Statutory Body on turnkey basis. The Assessing Officer, during the course of assessment proceedings observed that assessee is acting as a contractor. Accordingly, AO opined that assessee is executing the projects as works contractor within the meaning of Explanation to Sec. 80IA of the Act. On question by the AO for the non-deduction of deduction under section 801A of the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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Act, the assessee submitted that the writ petition has been filed challenging explanation to Section 801A of the Act in the Hon'ble jurisdictional High Court and further requested not to consider the effect of the explanation to Section 801A of the Act till the disposal of writ petition. However, the AO observed that no further details was submitted by the assessee Hence, AO disallowed the deduction claim u/s 80-IA(4) for an amount of Rs. 1598,85,0511/- and added to the total income of assessee
4. Aggrieved, assessee preferred an appeal before the LdCIT(A) who has Allowed the deduction under section 80-IA of the Act by observing as under:-
"Now, keeping in view the scheme of the tax holiday under sec. 80-Ia and the provisions of the Act, the details furnished in respect of the work carried out by the appellant company during the year under consideration have been perused. The nature of work executed, including work relating to ports, air-ports, highway ad municipal corporation, all coming in the category of infrastructure facility from the perusal of the terms and conditions of all the agreements, it is abundantly clear that it is not a case where the appellant was provided with the establishment and materials required to execute the work, which happens in case of works contract where the contractor gets the material and other requisites from the client and all he has to do is employ labour. The appellant in the given case was to procure raw material, make arrangements for power, water, plant & machinery, obtain statutory clearances etc., and conduct all the other activities needed for construction to bring into existence an infrastructure facility. Further it was exposed to various risks like risk of damage of property, risk of accidents etc. therefore, having regard to the fact, and emerging legal position, in my view, the Assessing Officer was not justified in holding that the appellant company was merely executing works contract and therefore it was not entitled for the tax holiday benefit under section 80-IA(4) of the Act.
It my also be noted here that in the case of Patel Engineering Ltd. V. Commissioner 2004] 84 TTJ (Mum) 646, the Mumbai Bench of the Tribunal has held that the enterprise must carry on the business of (a) developing, or
(b) maintaining and operating or (c) developing, maintaining and operating any infrastructure facility. It is not necessary that the entire infrastructure project is to be developed by one enterprise. In another ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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case of CIT v. Bharat Udyog Ld. [2008] 24 SOT 412 (Mum), it has been held that if an assessee is engaged in developing infrastructure facility (ie road) but not engaged in "operating and maintaining" said facility, it can claim the benefits of deduction under section 80-IA. The ratio laid down in the reported cases are squarely applicable to the facts of the appellant"s case and hence the appellant being a developer of infrastructure facility discussed above is entitled for deduction under sec. 80-I of the Act.
It is also observed that there Hon'ble jurisdictional ITAT 'B' Bench, Kolkata in the cases of M/s Simplex Som Datta Builders J.V. vs. ITO Ward 33(4), Kolkata in Appeal No. 1684/Kol/2011 for AY 2007-08 and in the case of M/s Simplex Subhas J.V. vs. ITO Ward 33(4) Kolkata in Appeal No. 1685/Kol/2011 for AY 2007-08, respectively vide their order dated 18.06.2013, held in para 11 & 12 of the order while deciding on the issue having identical set of facts of the cases that the assessee were entitled to get the benefit deduction u/s. 80IA of the Act as claimed them.
In the light of the above discussion and findings, perusing the facts of the case and respectfully following the principles laid down in various factual pronouncements relied upon by the appellant on the issue as discussed above, it is held that the appellant company is engaged in development of infrastructure projects. Therefore, the appellant had acted as developer of the infrastructure facilities and has not acted merely as a work contractor, hence, it was entitled to get deduction under sec 80-IA(4) of the Act as claimed by the appellant. The Assessing Officer is, thus, directed to allow the same accordingly. Hence, these grounds of appeal of the appellant are allowed."
Being aggrieved by this, Revenue has come up in appeal before us on the following grounds of appeal.
5. Before us both the parties relied in the order authorities below as favourable to them."
"6. We have heard rival contentions and perused the materials available on record. At the outset we find that the instant issue is already covered in favour of assessee in its own case by the order of Hon'ble Kolkata Tribunal in ITA No2168/Kol/2013 vide order dated 08.02.2017. The relevant extract of the orderis reproduced below:
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"6. We have heard rival contentions and perused the materials available on record. From the foregoing discussion we find that the provisions of Section 80- IA of the Act applies to the enterprise carrying on the business of
(i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfills all the following conditions, namely:-
(a) It is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;
(b) It has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;
(c) It has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995.
Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.
6.1 From the above it is clear in order to avail deduction u/s 80-IA all the following conditions should be satisfied:
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(ii) There exists an agreement with the Central Government, State Government, Local authority or any other statutory body and
(iii) Pursuant to the agreement specified in point (ii) the company engages itself in any of the following activities.
(a) Development of infrastructure facility
(b) Operation and maintenance of infrastructure facility
(c) Development, operation and maintenance of infrastructure facility 6.2 Now the assessee in the given case is a company which, pursuant to agreements with various Government bodies, engaged itself in the development of infrastructure facility as defined in the Explanation to sub section 4 of section 80-IA These set of facts have not been disputed by the AO. The Ld. AO disallowed the claim on the ground that the assessee has challenged the provisions of explanation to section 801A of the Act to the Hon'ble High Court and the Court has restrained to enforce the demand that may be raised in pursuance to the explanation to section 801A of the Act. There is no direction to keep the assessment proceedings under abeyance. The AO treated the assessee as a mere works contractor conducting mere civil construction and hence as per the explanation to section 80-IA(13), the deduction is not available to him. However on examination of the records we find that the assessee has withdrawn the appeal filed before the Hon'ble High Court.
At this juncture attention in this regard is firstly invited to the provisions of explanation of Section 80-IA of the Act as produced below:
"For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1)."
From a plain reading of the above it is clear that deduction u/s 80-IA does not apply to works contract Now the relevant question arises before us for adjudication is that what constitutes a works contract. Section 80-IA nowhere defines the term "works contract", hence the natural meaning of ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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the word shall apply As per the Oxford dictionary the term "work" means application of effort to a purpose or use of energy. Thus going by the dictionary meaning we may say that a works contract is a contract which involves effort or in other words labour of the contractor. Further as per the Black's Law Dictionary, the term "work" means labour or in other words physical and mental exertion to attain an end esp. as controlled by and for the benefit of the employer. Thus as per Blacks's Law also a works contract is a labour contract under which the contractor merely employs his labour as per the directions of the contractee. Further, attention is invited to relevant extracts of section 194C of the IT Act:
"(iv) "work" shall include-
(a) Advertising;
(b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) Carriage of goods or passengers by any mode of transport other than by railways;
(d) Catering,
(e) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."
Thus as per section 194C also, "works contract" does not include a contract wherein the contractor in addition to employing labour, procures material from a third party. Thus, contracts involving mere labour of the contractor are included in the purview of "works contract". Further, attention is invited to the judgment of the Supreme Court in case of Associated Cement Co. Ltd. vs. CIT (201 ITR 435], wherein the Hon'ble Court while interpreting the term 'work' u/s 194C held that "Words 'any work' in sub-s. (1) of s. 194C means any work including supply of labour to carry out work and is not intended to be confined to or restricted to works contract, therefore, a person who credits to the account of or pays to a contractor any sum payable on behalf of ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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organizations specified in s. 194C(1) for carrying out any work (including supply of labour for carrying out any work) is liable to deduct income-tax as required under that sub-section. The words in the sub-sections (1) of 194C `on income comprised therein' appearing immediately after the words 'deduct an amount equal to two per cent of such sum as income- tax' from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract, but deduction is to be made out of payments made to the contractor."
6.3 We see no reason to curtail or to cut down the meaning of the plain words used in the section "Any work" means any work and not a "workscontract", which has a special connotation in the tax law. Indeed in the sub-section the "work" referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the Legislature that the "work" in the sub-section is not intended to be confined to or restricted to "works contract". The issue before the Supreme Court in the aforesaid case was whether the term "work" used in section 194C needs to be restricted to "works contract" The Apex Court laid out that the term "work" used in section 194C need not be restricted to "works contracts"
(Le. labour contracts) because the sub-section expressly includes supply of labour to carry out work. In other words, it is implied that works contract means supply of labour to carry out work. Thus from the above we may say that a works contract constitutes a contract under which the contractor is merely employing his efforts or labour. Under such a contract, the contractee provides the material and other requisites (a complete infrastructure) needed to carry out the desired work to the contractor who by applying his labour to the said material turns the material into a desired product. Further, attention is invited to the memorandum explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.) 292 at page 312, which reads as under:
"Section 80-1A, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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persons who merely execute the civil construction work or any other works contract."
Accordingly, it is proposed to clarify that the provisions of section 80- IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, Le., carries out the civil construction work he will be eligible for tax benefit under section 80- IA of the Act. In contrast to this, a person who enters into a contract with another person (ie, undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA. This amendment will take retrospective effect from 1st April 2000 and will accordingly apply in relation to the assessment year 2000-01 and subsequent years. The Explanatory Memorandum clearly lays out that purpose of extending tax benefit u/s 80-IA was to encourage investments from the private sector and hence work contracts, ie. contracts involving merely labour (or mere execution of construction without making investments) are outside the purview of the provisions of section 80-1A. Thus, the term "works contract" used in Explanation to section 80-IA(13) means a contract of developing infrastructure by merely employing labour and making no investments. We also find support from the following judgments The Hyderabad bench of Tribunal in case of M/s. GVPR Engineers Ltd. Vs. ACIT (2012) 32 CCH 0296 HydTrib (2012) 51 SOT 0207 (Hyd) (URO). The relevant extract of the order is reproduced as under:
"The next question to be answered is whether the assessee is a developer or mere works contractor. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement eritered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government The Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility.ITA No.82/JAB/2019
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Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project, provision of way for the cattle and bullock carts in the village, provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un- developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05- 2010, such activity is eligible for deduction under section 801A (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer."
6.4 It was also observed that "The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk.
Similarly the Chennai Bench of Tribunal in case of R.R. Constructions, Chennai vs Department Of Income Tax 2013) 35 CCH 0547 Chen Trib (2015) 152 ITD 0625 (Chennai) held that "when the assessee makes investment and himself executes development work and carries out civil works he is eligible for tax benefit u/s 80IA of the Act. Accordingly, with the foregoing discussion, we hold that the assessee is entitled to deduction u/s 80IA(4) of the Act, and therefore, we order to delete the addition made in this respect".
Thus, the memorandum explaining the provisions in the Finance Bill, 2007, further strengthens the contention of the assessee that a works contract is a contract which involves mere labour of the contractor. However, if under a contract, the contractor employs his capital and enterprise in addition to labour, then the said contract does not constitute a works contract under the Explanation to section 80-IA(13) and the contractor shall be eligible for deduction U/S 80-IA. Now coming to the facts of the case, it is submitted that the assessee was not mere works contractor, who had merely employed its labour under the projects from the various government authorities The assessee was a developer. In addition to employing labour it made investments, it developed an enterprise/infrastructure to support the work under the various projects. In addition to labour, it deployed its machinery, materials and did all the things necessary (Le provided an enterprise) to support the construction work undertaken under the various projects. The assessee was provided with the site alone and by putting its own inputs (not labour alone) he converted the site into an infrastructural facility.
6.5 Further, ITAT (Hyderabad) in case of Siva Swathi Constructions Pvt. Ltd. vs DCIT, Circle-3(2) in ITA No. 1008-09/Hyd/2013 for AYs 2009-10 & 2010- 11 dated 25.10.2013 held that "The next reason given by the CIT(A) is with regard to non- financial participation by the assessee, as the assessee has got mobilization advance. The mobilization advance has not been given freely. It has been given only after the assessee furnished a bank guarantee, and the bank guarantee has been given by the bank only after getting enough security from the assessee, to protect itself from any risk on account of any default on the part of the assessee. The assessee has taken financial assistance from bank and paid huge interest of Rs. 2,87,10,943.00 for assessment year 2009-10 and of Rs.
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9,35,78,373.00 for assessment year 2010-11, as seen from the Profit and Loss Account of the assessee for the relevant years ending on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 20 and 65 of the paper-book. Similarly, assessee has invested its own fund of Rs.5,55,00,000.00 for assessment year 2009-10 and of Rs 7,86,75,710.00 for the assessment year 2010-11, as seen from the Balance Sheet of the assessee as on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 21 and 66 of the paper-book. In this view of the matter, the reason given by the CIT(A) on this aspect for denying deduction to the assessee under S.80-IA is also not valid.
Thus in light of the aforesaid decision of the Tribunal Hyderabad Bench, the contention of the AO is not valid. Further, merely because the assessee was receiving payments from the Government in progress of work it cannot be said that the projects were financed by Government. In this regard it is pointed out that under sub-section 4 of section 80-IA, deduction is available to a developer, i.e. if, an assessee, merely develops the infrastructure facility without operating and maintaining the same, it is entitled to deduction. The Bombay High court in case of Commissioner of Income-tax v. ABG Heavy Industries Limited [322 ITR 323] observed that "Parliament amended the provisions of section 80-IA of the Act so as to clarify that in order to avail of a deduction, the assessee could (i) develop; or (ii) operate and maintain; or (iii) develop, operate and maintain the facility. The condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility."
"This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of the Central Board of Direct Taxes. The fact that in such a scheme. An enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act."ITA No.82/JAB/2019
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6.6 From the above it is clear that even if an assessee is merely developing the infrastructural facility (without operating and maintaining the same), it is entitled to deduction u/s 80-1A. Further, condition (b) laid out in sub-section 4 of section 80-IA mandates the existence of an agreement with the Government. Moreover, if section 80-IA grants deduction on profits from the activity of development carried out in pursuance of an agreement with the Government it presupposes that assessee will earn some profits from mere development (without operating and maintaining) of the infrastructure facility.
Now the relevant question that arises here is that how would an assessee engaged in mere developmental activity (and no operation) pursuant to an agreement with the Government earn profits? The obvious answer is that the assessee will recover its cost of development development from the Government otherwise the entire cost of development will be a loss in its hands. Thus, if deduction u/s 80-IA is denied on the ground that the assessee had received payments from Government, then an assessee who is only a "developer" (and not an operator) will never be entitled to deduction u/s 80-IA, which is clearly not the intention of legislature as discussed by the Bombay High Court in case of ABC Heavy Industries Ltd. Thus, merely because the assessee was paid by the Government for development work it cannot be denied deduction under section 80-IA(4). The contention of the assessee finds strength from the following judgments:
The ITAT (Mumbai) in case of ACIT v. Bharat Udyog Ltd. (2009) 123 TTJ 0689 : (2009) 23 DTR 0433 (2009) 118 ITD 0336 (2008) 24 SOT 0412 "After the amendment effected by Finance Act, 1999 w.e.f. 1st April, 2000, the deduction under s 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Sub-cl (c) of cl. (i) of s. 80-IA(4) is obviously applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1st April, 1995. It is not applicable to the case of an enterprise which is engaged in mere 'development' of infrastructure facility and not its 'operation' and 'maintenance'. Therefore, the question of 'operating and maintaining' of infrastructure facility by such enterprise before or after any cut off date cannot arise. However, if the contention of the Departmental Representative is accepted, it would obviously/understandably lead to ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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manifestly absurd results. When the Act provides for deduction undisputedly for an enterprise who is only 'developing' the infrastructure facility, unaccompanied by 'operating and maintaining' thereof by such person, there cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1st April, 1995. Since the assessee is only a developer of the infrastructure project and it is not maintaining and operating the infrastructure facility, sub-cl. (c) of cl. (1) of sub-s. (4) of s. 80-IA is not applicable. The interpretation of Revenue is absurd also in view of the rationale of the provisions of s. 80-IA(4)(i). From the asst. yr. 2000-01, deduction is available if the assessee carries on the business of any one of the three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person who develops the infrastructure facility project, realise its cost ? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government Therefore, merely because the transferee has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under s. 80-IA(4), which is not the intention of the law. If a person who only develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. When the legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, Le, to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, and has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under s. 80-IA inasmuch as mere 'development' as such and unassociated/ unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under s. 80-IA. Therefore, merely because the present assessee was paid by the Government for ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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development work, it cannot be denied deduction under s. 80-IA(4). A person who enters into a contract with another person will be a contractor no doubt, and the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as well. The term "contractor" is not essentially contradictory to the term "developer. On the other hand, rather s. 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will it debar the assessee from claiming deduction under s. 80-IA(4) Therefore, an assessee who is only engaged in the developing the infrastructural facility Le, road and not engaged in the 'operating and maintaining the said facility is entitled to the benefits of the deduction under s. 80-IA(4)-Patel Engineering Ltd. vs. Dy. CIT (2004) 84 TTJ (Mumbai) 646 followed. Provisions of sub-cl. (c) of cl. (i) of s 80-1A(4) are inapplicable to the assessee which is engaged in mere developing of the infrastructure facility and, therefore, an assessee who is only engaged in developing the infrastructure facility and not in 'operating and maintaining' the said facility is entitled to the benefit of deduction under s. 80-IA(4), merely because assessee is referred to as 'contractor in the agreement for development of infrastructure facility or some basic specifications are laid down, would not debar the assessee from claiming deduction under s. 80-IA(4)."
If a person who only develops the infrastructure facility was not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he was not operating the infrastructure facility. Merely because the assessee was paid by the Government for development work it could not be denied deduction under section 80- IA(4). The Chennai Bench of Tribunal in case of R.R. Constructions, Chennai vs. Department of Income tax held that "When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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be paid by the Government. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 801A(4), which is not the intention of the law. An enterprise, which develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction. It presupposes that there can be income to developer ie. to the person who is carrying on the activity of only development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from, has no other source of recoupment of his cost of development.
The Indore Bench of the Tribunal in case of Sanee Infrastructure Pvt. Ltd. vs. ACIT [138 ITD 433] held that "As per our considered view, after amendment by the Finance Act, 2002 for claim of deduction u/s 801A(4) infrastructure facility is only required to be developed and there is no condition that assessee should also operate the same. Thus, after amendment, when the assessee is not required to operate the facility, the payment for development of such infrastructure is required to be made by the Government only.
"After amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed by it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditions for claim of deduction"
6.7 Thus from the above, it is clear that the fact that the assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s 80- IA. Further, the Revenue in all the grounds has contended that the contracts entered into by the assessee were merely construction contracts' since the assessee is not exposed to any entrepreneurial and investment risk In this regard, the AO has observed that the assessee is executing the contract against ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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predetermined revenue w.r.t the above, it is submitted that under the impugned contracts, the assessee was merely carrying out the civil construction work. It was responsible for overall development of the infrastructure facility. It was merely provided with the site which it had to develop into an infrastructural facility by deploying his resources Le. material, plant & machinery, labour, supervisors etc. It was responsible for any damage/loss caused to any property or life in course of execution of the works. It was even responsible for remedying of the defects in the works at its cost. It was also required to operate and maintain the infrastructure facility. Hence, it cannot be said that the contract with the Government was to carry out mere civil construction. Attention in this regard is invited to the following:
(i) The ITAT (Ahmedabad) in case of Sugam Construction (P) Ltd. vs. ITO (56 SOT 45] held that "It is also gathered (a) That a developer is a person who undertakes the responsibility to develop a project. (b) That a developer is therefore not a civil contractor simplicitor. (c) That if we apply the commercial aspect, then a developer has to execute both managerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is another aspect that such design has to be approved by the owner of the project, i e. the Government in the present case. (f) That he has not only to execute the construction work in the capacity of a contractor but also he is assigned with the duty to develop, maintain and operate such project. (g) That to ascertain whether a civil construction work is assigned on development basis or contract basis can only be decided on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a "work contract" or a "development contract. (h) That in a development contract" responsibility is fully assigned to the developer for execution and completion of work. (i) That although the ownership of the site or the ownership over the land remains with the owner but during the period of development agreement the developer exercise complete domain over the land or the project. That a developer is not expected to raise bills at every step of construction but he is expected to charge the cost of construction plus mark-up of his profit from the assignee of the contract. (k) That a developer is therefore expected to arrange finances and also to undertake risk. (1) That in contrast to the rights of a "contractor" a "developer" is authorized to raise funds either by private placement or by financial ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined. "
(ii) ITAT(Hyderabad) in case of Koya and Co Construction (P) Ltd. vs ACIT (51 SOT 203] held that "The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all long been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 801A of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk Without any doubt, the learned counsel for the assessee clearly demonstrated before the court that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial resources."
Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the assessee vide the agreements has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Employer and indemnify the employer of any losses/damage caused to any property/life in course of execution of works. Further, it was responsible for the correction of defects arising in the works at it cost. Thus, it cannot be said that the assessee had not undertaken any risk. The ITAT (Hyderabad) in case of Siva Swathi Construction (P) Ltd. (supra) held that "Further reason given by the ld. CIT(A) for denying deduction under S.801A to the assessee is that the assessee has not undertaken any risks. The observations of the Id. CIT(A) in this behalf are also not valid and correct. It was clearly mentioned in the agreement that the assessee shall execute and furnish indemnity bond for a period of four years, indemnifying the Government against any loss or expenditure incurred, to repair any defect noticed due to faulty working done by the contractor or substandard material used by the contractor. Further, it is also mentioned in the contract agreement that the assessee shall not claim for any loss due to foreseen circumstances, including suspension of work due to cause. It is also provided that in the event of accident to people employed by the assessee resulting in compensation to be paid as per the Workmen's Compensation Act the same shall be paid by the contractor, viz. the assessee only. In view of the various specific clauses in the agreement fastening the risks to ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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be undertaken by the assessee, discussed above, it cannot be said that the assessee has not undertaken any risk.
6.8 From the above, it is clear that the contention of the AO that the assessee had not undertaken any entrepreneurial and investment risk is an incorrect interpretation of the facts. Lastly, with regard to the project O&M, Bangalore (on which a deduction of Rs. 35,16,9411- was claimed), it is submitted that it is an operation and maintenance project, to which Explanation to section 80- IA(13) does not apply. Explanation to section 80-IA(13) merely distinguishes between a developer and works contractor. It clarifies that a works contractor shall not be included in the category of 'developer' u/s 80-1A Thus, the Explanation clearly does not apply to O&M projects. Hence, deduction of Rs. 35,16,9411- claimed for the aforesaid project u/s 80-IA cannot be denied by invoking the explanation to section 80-1A.
7. From the perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80-1A. In our considered view do not find any reason to uphold the order of ld. CIT(A). Hence this ground of appeal of the assessee is allowed.
We also find that the facts of the case of the assessee are identical as that of the above case of the assessee's own case (supra). In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. We uphold the same. Hence, this ground of Revenue's appeal is dismissed."
The facts in the aforesaid case would show that it was also a case of development of roads for National Highways Authority of India apart from the other projects given in the facts in the order of Tribunal at para 3 of the judgement. The claim of deduction under section 801A(4) of I.T. Act 1961 was in respect to widening of road in to four lane roads of the existing National Highway No. 57. The activity was similar/identical to that in the case of appellant company for consideration. Respectfully following the decision of Hon'ble Kolkata Bench, Kolkata, I am of the view that disallowance of deduction under section 80IA(4) of I.T. Act 1961 in the case of appellant company is unjustified and unsustainable.
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7.2.8 The Hon'ble ITAT, Lucknow Bench, Lucknow in the case of M/s. Vijay Infrastructure Pvt. Ltd, vide order dated 30/10/2015 in ITA No. 254/LKW2015 has held as under:
"14.1 From the above paras, reproduced from the order of CIT(A), we find that a categorical finding has been given by CIT (A) that the assessee company is not a mere work contractor but has developed the road from existing 2 lane to 4 lane and while doing so, the assessee company has also made substantial investment by itself and also executed the development works and carried out civil-works on its own by using its own material and expertise and no material consumed in the roads and bridges were provided by the NHAI and UP PWD. This is also noted by CIT(A) that the maintenance of the existing facility during the period of development also was of the assessee company and so also was the risk during this period to maintain the infrastructure and after the completion of development of road and its handing over to the Government, the risk period of the assessee company was of 12 months for maintenance of the road. As per explanation below sub section (4) of section 801A, infrastructure facility includes a road including toll road, bridge or a rail system. This is not in dispute that the assessee has widened the road and therefore, activity of the assessee falls within the definition of infrastructure. The CIT(A) has also referred to several judicial pronouncements as per which it was held that there is no requirement that the assessee should have been the owner of the infrastructure facility. The facts in the case of Koya& Co. (Supra) are identical. In that case, the relevant paras of the Tribunal Order are Para No. 21 to 28 and the same are reproduced below for ready reference:-
21. We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 801A (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 801A (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 801A (4A) are also made available under Section 801A (4) itself. Further, the very fact that the legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. We find that where an assessee incurred expenditure for purchase of materials himself and executes the development work ie, carries out the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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civil construction work, he will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. We find that the word "owned" in sub-clause
(a) of clause (1) of sub section (4) of Section 801A of the Act refer to the enterprise. By reading of the section, it is clears that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 801A (4) and not any other person like individual, HUF, Firm etc.
22. We also find that according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one Even otherwise, the word "it" is used to denote an enterprise Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility.
23 The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 801A (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government We find that the Government handed over the possession of the premises ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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of projects to the assessee for the development of infrastructure facility It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village, provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quantity and quantity irrespective of the cost of such material. The used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor.
25. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vsLaxmi civil Engineering works (supral squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 801A of the Act after considering the Judgment of the Mumbai High Court in the case of ABG Heavy Engineering (supra). The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 801A of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 801A of the Act, which ultimately culminated into Amendment under section 801A of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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in Section 801A of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 801A of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer, otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or sub- contract as distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 801A of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial resources. Further, the order of Tribunal in the case of B.T.Patil cited supra is prior to amendment to sec 80IA(4), after the amendment the section 801A(4) read as (i) developing or (u) operating and maintaining or (ii) developing, operating and maintaining any infrastructure facility, prior to amendment the "or" between three activities was not there, after the amendment "or" has been inserted w.e.f. 1- 4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 801A of the Act if the contracts involves design, development, operating & maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s 801A of Act. In our opinion the contracts which contain above features to be segregated on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 801A(13), those work are not entitle for deduction u/s 801A of the Act. The profit from the contracts which involves design, development, operating & maintenance, financial involvement, and defect correction and liability period is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine the records accordingly and grant deduction on eligible turnover as directed above. It is needless to say that similar view ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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has been taken by the Chennai Bench of the Tribunal and deduction u/s. 801A was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view by inter-alia holding as follows:
"7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the provisions of section 801A shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 801A."
26. The above order was followed in subsequent assessment years 2007- 2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 8.11.2011 in the case of the same assessee,
27. Further in the case of R.R. Constructions, the Chennai Bench of Tribunal in I.T.A. No. 2061/Mds/2010 for assessment year 2007-08 vide order dated 3.10.2011 held as follows:
28. Being so, we are inclined to partly allow the ground relating to claiming of deduction u/s. 801A 14.2 From the above Para of this tribunal order, it comes out that if the contracts involves design, development, operating & maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction under s. 801A and profit from the contracts which involves design, development, operating & maintenance, financial involvement, and defect correction and liability period is to be accepted as development and cannot be said to be contract simplicitor to apply the explanation. In the present case, categorical finding has been given by CIT (A) that the assessee was engaged in development of road and is not a mere ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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contractor as he had deployed his own capital, used his own management and expertise in maintenance and had to bear the risk and defect correction. These findings of CIT (A) couldnot be controverted by learned DR of the revenue and therefore, this tribunal order rendered in the case of Koya& Co. (Supra) is squarely applicable because the facts are similar. In the order of CIT (A), he has followed this tribunal order and various other judicial pronouncements as noted by him in his order, as reproduced above. Considering this factual and legal position, we find no infirmity that the order of CIT (A) on this aspect that in the facts of the present case, it cannot be said that the assessee company was mere a contractor and not a developer. Therefore, on issue No. 3, we find no infirmity in the order of the CIT(A). This issue is decided in favour of the assessee"
In the aforesaid decision widening of road from two lanes to four lanes in terms of agreement with National Highways Authority was for consideration. The activity considered in the judgement is similar to that being carried out by the appellant on the basis of evidence on record. After considering the facts in detail the ITAT had concluded that the assessee therein was eligible for deduction under section 801A(4) of I.T. Act 1961. The ratio laid down by the aforesaid decision squarely applies to the facts in the case of appellant company and thus the appellant company would be eligible for deduction under section 801A of I.T. Act 1961 in respect to development of infrastructure project being roads. The aforesaid decision was challenged by the revenue before Hon'ble Allahabad High Court in Income Tax Appeal No. 29 of 2016 and the Hon'ble High Court has upheld the order of ITAT, Lucknow Bench by dismissing the appeal of revenue vide its judgement dated 12/7/2017. The aforesaid decision of the Hon'ble Allahabad High Court fully supports the submission of the appellant company that deduction under section 801A(4) of I.T. Act 1961 ought to have been granted as claimed. In view of above action of A.O. in disallowing the deduction under section 801A(4) to the appellant company is unjustified and unsustainable.
7.2.9 It is seen that appellant has submitted regular return of income for Asstt. Year 2009-10 u/s 139 of I.T. Act 1961. The regular assessment came to be made pursuance to return filed u/s 139 of 1.T. Act 1961 before the date of search by accepting claim of deduction u/s 801A(4)as shown in return except for some modification in quantum of deduction. In the course of search no evidence or material has been found warranting disturbance to claim of deduction u/s 801A(4) as allowed in the case of appellant in regular assessment. The A.O. in assessment proceeding u/s 153A has concluded that the project executed by the appellant is in the nature of works contract and appellant is contractor and not developer and in view of provisions of section 80IA(13) of Income Tax Act 1961 appellant is not eligible for grant of deduction under section 801A of I.T. Act ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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1961. In the course of searchno incriminating material or evidence was found which would enable A.O.to take view different from adopted in the case of appellantin regular assessment that appellant is developer. The appellantis a developer is accepted in regular assessment proceedings for the year under consideration and in earlier and subsequent assessment years. The claim of deduction u/s 801A cannot be disturbed in section 153A proceedings in absence of incriminating material. The denial of deduction u/s 801A by A.O. is thus without there being any incriminating material or evidence on record and is thus unjustified and unsustainable.
7.2.10 The legal position as regard to addition in 153A proceedings without there being incriminating material and evidence on record has been dealt by Hon'ble ITAT, Delhi Bench, Delhi in case M/s. Best Infrastructure (India) Pvt. Ltd. &Ors. vs. ACIT &Ors.
The aforesaid case addition made in the absence of incriminating evidence or material on record came to be considered by Hon'ble ITAT and the relevant findings as recorded in the said order are reproduced hereunder.
"8. We have carefully considered the arguments of both the sides and have perused the material placed before us In the case of Kabul Chawla (supra), Hon'ble Jurisdictional High Court has considered all earlier decisions of Hon'ble Delhi High Court and has also considered the decisions of other High Courts and Tribunals and summarized the legal position in paragraph 37 and at the conclusion of the case in paragraph 38, which are reproduced below -
"Summary of the legal position.
37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under-
i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.ITA No.82/JAB/2019
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iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
w. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
v In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (ie. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
Conclusion
38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07 On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed."
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9. In clause (iv) above, their Lordships held "Obviously an assessment has to be made under this Section only on the basis of seized material". In clause (v), the same is reiterated by holding "In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made". In clause (vu), it is stated "Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search"
10. In the case of RRJ Securities Ltd. (supra), in paragraph 21, it has been held.- "In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment. However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received by the AO represent or indicate any undisclosed income or possibility of any income that may be remained undisclosed in the relevant assessment years This Court in Commissioner of Income Tax (Central)-III v. Kabul Chawla: ITA 707/2014, decided on 28th August, 2015 has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments."
11. In the case of HarjeevAggarwal (supra), Hon'ble Jurisdictional High Court considered the evidentiary value of the statement recorded during the course of search. The relevant portion is paragraph 19, 20 & 24, which are reproduced below for ready reference:-
"19. In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under Section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the assessee in its statement, under the Provisions of Chapter XIV-B of the Act.
20 In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation.
24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are recorded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted. Therefore, it is necessary to ensure that such statements, which are retracted subsequently, do not form the sole basis for computing undisclosed income of an assessee."
12. Thus, Hon'ble Jurisdictional High Court has held "The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations". Their Lordships further observed "However, such Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 801A (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.
24. We also find that as per the provisions of the section 801A of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation". In paragraph 24, their Lordships have mentioned about the prevailing practice of extracting statement by exerting undue influence or coercion by the search party. Though the above decision in the case of HarjeevAggarwal is with reference to the meaning of undisclosed income u/s 158BB of the Income-tax Act, however, in our opinion, the above observation of Hon'ble Jurisdictional High Court would be squarely applicable while considering the evidentiary value of the statement while making the assessment u/s 153A."
"23. We have discussed in detail the legal position as laid down by Hon'ble Jurisdictional High Court and Hon'ble Apex Court in various cases. We have also discussed the facts of the assessee's case. Now, applying the law as laid down by Hon'ble Jurisdictional High Court and Hon'ble Apex Court to the facts of the assessee's case, the following position emerges.
(1) No addition u/s 153A in respect of a completed assessment can be made unless some incriminating material was unearthed during the course of search Admittedly, in the case of the assessee, no incriminating material with regard to issue of share capital has been found and seized during the course of search.
(i) Any statement recorded during the course of search cannot on a standalone basis without reference to any other material discovered during search and seizure operation would empower the Assessing ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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Officer to make the addition. The words "evidence found as a result of search would not take within its sweep statement recorded during search and seizure operations. Therefore, the Revenue's stand that the addition u/s 153A can be made in respect of share capital on account of statement of ShriTarunGoyal and ShriAnuAggarwal cannot be accepted
(iii) Even otherwise, the statement of ShriTarunGoyal cannot be utilized against the assessee as his statement was recorded behind the back of the assessee and the assessee was not allowed opportunity to cross- examine him.
(iv) In the statement of ShriAnuAggarwal dated 15th September, 2008, the query was raised with regard to loose papers found and seized from their premises. Admittedly, none of the loose papers was relating to issue of share capital. The loose papers were pertaining to unaccounted receipt on sale and unaccounted expenditure on construction In the statement dated 24th October, 2008, though the query was raised with regard to issue of share capital and the statement of ShriTarunGoyal was confronted wherein he has alleged to have provided accommodation entry to the assessee group, ShriAnuAggarwal categorically denied to have received any accommodation entries from anybody.
24. In view of the above, we hold that the issue of share capital was out of the purview of assessment u/s 153A as the assessment for assessment year 2005-06 was not pending on the date of search and no incriminating material relating to share capital was found during the course of search. Accordingly, the addition of Rs.3,60,00,000/- made by the Assessing Officer and sustained by learned CIT(A) for unexplained share capital is deleted."
7.2.11 The aforesaid decision of Hon'ble ITAT, Delhi Bench was challenged in appeal by revenue by filing appeal before Hon'ble Delhi High Court. The appeal filed by revenue has been dismissed in ITA No. 13/2017 vide judgment dated 01/08/2017. Perusal of assessment order shows that denial of deduction claimed u/s 801A(4) is not on the basis of any incriminating evidence or material found in the course of search. The appellant have been held as developer in regular assessment framed has achieved finality. The ratio laid down by the aforesaid decision squarely applies to the facts in case of appellant and respectfully ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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following the same I am of the considered opinion that the denial of deduction u/s 80IA(4) as claimed by A.O. is unjustified and unsustainable.
7.2.12 The AO by referring to form 26AS statement has observed that appellant is getting contracts from various State Government departments merely to complete certain projects. Every contractor may not be developer but every developer developing infrastructure Cfacility is a contractor. The deduction of Tax at source is merely a mechanism/method to collect tax under which certain percentage of amount is deducted by payer at the time of credit/payment to payee This fact brings no adversity with regard to activity of appellant being developer as discussed in above paras.
7.2.13 The decision rendered by Hon'ble Bombay High Court in case of in case of M/s Simple Foods Ltd in ITA No.27/2010 vide judgment dated 12/07/2017 and the decision of Hon'ble Delhi High Court in case of International Tractors Ltd. in ITA No. 1082/2005vide judgment dated 20/07/2017 also support the contention of appellant and deduction is claimed u/s 801A of IT. Act 1961 cannot be denied when deduction u/s 801A allowed in case of appellant in initial achieved finality assessment year has 7.2.14 It is seen that in the profit and loss account the appellant company is in receipt of interest on various deposits. It has been submitted that the aforesaid interest would go to reduce the claim of interest paid in profit and loss account and there is no resultant surplus in interest account for the purpose of exclusion for allowability of deduction under section 801A of L.T. Act 1961 The Hon'ble ITAT, Nagpur Bench, Nagpur in the case of M/s Plasti Surge Industries Pvt Ltd. in ITA No 78 & 86/Nag/2012 vide order dated 19/10/2012 has held that interest received and paid have to be netted out for the purpose of grant of deduction under section 801A of I.T. Act 1961. The aforesaid decision of ITAT, Nagpur Bench, Nagpur has achieved finality in as much as the question of law raised in this respect was not admitted by the Hon'ble Bombay High Court in the appeal filed by the revenue. The aforesaid view has thus achieved finality and thus respectfully following the same, I am of the opinion that nothing adverse can be drawn from the interest received and credited in the profit and loss account of appellant company for the purpose of quantum of allowable deduction under section 801A(4) of I.T. Act 1961.
7.2.15 It is seen that the sale proceed of empty bags is credited to the profit and loss account. The aforesaid sale of empty bags is in respect to purchase of cement and other consumable materials and cost of which debited to the profit and loss account. The sale value of Bardana would go to reduce the cost of ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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expenditure on account of consumable debited in the profit and loss account. The sale of Bardana is not an independent source of income. The sale of Bardana is inextricably linked to the development of projects being that of development of infrastructure project. The aforesaid receipt shown in the profit and loss account will have no adverse bearing on the quantum, of deduction claimed under section 80IA by the appellant company in the return. The claim of the appellant company is also supported by the decision of Hon'ble Gujarat High Court in the case of DCIT vs. HarjivandasJuthabhaiZaveri&Anr reported at 258 ITR 785 in which it has been held by the Hon'ble Court that the amount received towards sale of empty bags qualifies for deduction under section 801A of I.T. Act 1961. Respectfully following the same, I am of the opinion that there is nothing adverse from the sale of Bardana for the purpose of allowable quantum of deduction under section 801A of I.T. Act 1961.
7.2.16 It is evident from evidence on record that no incriminating evidence or material is on record on the basis of which denial of deduction has been made by the A.O For the detailed reasons recorded hereinabove, I am of the view that the denial of deduction u/s 80IA(4) made by the A.O. is unjustified and unsustainable. In view of above discussion and finding, the addition made by A.O. at Rs. 623.01 lakhs is hereby directed to be deleted. Thus, these grounds of appeal of appellant are allowed."
2.7.We find that the ld AO while granting deduction u/s 80IA of the Act to the assessee for AY 2009-10 u/s 143(3) of the Act on 16.12.2011 which is enclosed in pages 96 to 105 of the paper book Vol-1, had indeed narrated the entire activity carried out by the assessee and had categorically stated that the assessee is indeed engaged in the business of development of infrastructure facility. There is absolutely no such material which has been found during the course of search to disturb this particular finding of the ld AO. All the documents issued by the concerned regulatory authorities are only favoring the assessee. Similar was the view taken by the ld AO for AY 2010-11 also u/s 143(3) of the Act on 25.03.2013. We find that the ld ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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CIT(A) had granted relief to the assessee both on merits with regard to claim of deduction u/s 80IA of the Act and also on the aspect of absence of incriminating material found during the course of search qua this addition. The existence of incriminating material in respect of unabated assessment as mandatory has been endorsed by the Hon'ble Supreme Court in the recent decision of Pr.CIT Vs. Abhisar Buildwell Pvt. Ltd. reported in 454 ITR 212(SC). Further, we find that the ld CIT(A) had relied on the decision of Lucknow Tribunal in the case of Vijay Infrastructure in ITA No. 254/Lkw/2015 dated 30.10.2015 to give relief to the assessee on merits. We find that this decision of Lucknow Bench of Tribunal has been approved by the Hon'ble Allahabad High Court in the Income Tax Appeal No. 29/2016 dated 12.07.2017, wherein, specifically, the widening of roads from 2 lanes to 4 lanes have been approved to be development of roads activity by placing reliance on the CBDT Circular No. 4/2010. We find that the Special Leave Petition preferred by the revenue against this decision of the Hon'ble Allahabad High Court has been dismissed by the Hon'ble Supreme Court in Special Leave Petition (Civil) Dairy No. 10863/2018 dated 13.04.2018. In any event, we find that the claim of deduction u/s 80IA of the Act is to be examined in the initial year of its claim and the same is allowed in the initial year. The same cannot be disturbed by the revenue in the subsequent years, unless there exists any contrary materials on record or fresh development in facts. In the instant case, admittedly no such contrary material or fresh development on facts, had been brought on ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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record by the ld AO. Reliance in this regard has been rightly placed by the ld AR on the decision of Hon'ble Bombay High Court in the case of Simple Food Products Pvt. Ltd., Nagpur Vs. CIT Income Tax Appeal No. 27, 28, 29, 31, 36, 37 and 39/2010 dated 12.07.2017. Similar view was taken by the Hon'ble Delhi High Court in the case of CIT Vs. International Tractors in ITA Nos. 1082/2005, 690/2008, 275/2009, 1189/2009, 251/2010 dated 20.07.2017.
2.8. In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that, on merits, the assessee would be entitled for claim of deduction u/s 80IA of the Act. Apart from this, the assessee's claim of deduction u/s 80IA of the Act could not be disturbed by the ld AO up to AY 2013-14 (being unabated/ completed assessments) as there is no incriminating material at all found during the course of search. Accordingly, the ground No. 1 raised by the revenue for all the assessment years is dismissed.
3. Addition made on account of illegal payments through ShriGovind Prasad Pandey Ground No. 2 for assessment year 2011-12 Ground No. 2 for assessment year 2012-13 Ground No. 2 for assessment year 2013-14 Ground No. 2 for assessment year 2014-15 Ground No. 2 for assessment year 2015-16 ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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We have heard the rival contentions and perused the materials available on record. During the course of search and seizure operation u/s 132(1) of the Act in the Singhania Group, the residence of Shri Govind Prasad Pandey situated at FF2, Manpreet Vihar Apartment, Kirpal Chowk, Gupteshwar Road, Jabalpur was also covered. Shri Govind Prasad Pandey works in the assessee company and his job profile in the company is management of project and to liaison with other departments with respect toworks and payment of bills. He was also the project in-charge of Damoh Hatta, Gaisabad site in the assessee company. During the course of search operation at the residential premises of Shri Govind Prasad Pandey, loose papers (LPS-1) and a diary (BS-1) were found and duly seized. The said seized documents contained certain notings representing certain payments made to various parties with dates, names and amounts. The ld. AO observed in Assessment Year 2011-12 as under:-
"Tirupati Build-Con Pvt Ltd. (TBCL) is engaged in various infrastructure and road development projects as main contractor and sub-contractor at various sites in Madhya Pradesh & Chhattisgarh. TBCL mainly gets contracts from government agencies such as Madhya Pradesh Road Development Corporation (MPRDC), Madhya Pradesh Rural Development Authority (MPRRD), Chhattisgarh Public Works Department (CGPWD) and Sanjay Gandhi Thermal Power (SGTP) etc. These contracts are awarded after tender notification. In order to win the bid for tender and later on to ensure smooth functioning of work, inspection, approval and release of payments in time, the directors of company and project in charge keep in touch with the government officers/officials and liaison for the company."ITA No.82/JAB/2019
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3.1. The ld AO concluded that the contents reflected in the seized documents represent illegal payments made to various Government officials for liasoning purpose by Shri Govind Prasad Pandey on behalf of the assessee company. A statement to the effect was also recorded from Shri Govind Prasad Pandey u/s 132(4) of the Act by the search team. This statement was subsequently retracted by Shri Govind Prasad Pandey on 15.01.2015 before the Investigation Wing itself. Based on Shri Govind Prasad Pandey's statement, Shri Padam Singhania was confronted by the search team while recording his statement u/s 132(4) of the Act. Shri Padam Singhania, at the time of search itself had clarified that no illegal payments have been made by the assessee company and that he had not given any instructions to Shri Govind Prasad Pandey to make any illegal payments on behalf of the assessee company. It is pertinent to note that the Investigation Wing made post search enquiries with all the officials mentioned in the said seized documents of Shri Govind Prasad Pandey. The concerned officials were summoned by the Investigation Wing and statements on oath were recorded from them during the period 24.12.2014 to 30.12.2014. These statements are enclosed in pages 1 to 100 of volume-6 of paper book. All the concerned officials categorically denied any receipt of money from Shri Govind Prasad Pandey. It is also pertinent to note that these statements were recorded by the Investigation Wing behind the back of the assessee. Thereafter, the Investigation Wing summoned Shri Govind Prasad Pandey wherein he explained how those ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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notings were made by him in the seized documents and filed a retraction statement on 15.01.2015 before the Investigation Wing itself. The ldAO completely ignored all the aforesaid contentions of the assessee and proceeded to make addition on account of illegal payments made to various Government officials as submitted herein under:-
Year wise breakup of illegal payments to various officers/officials of MPRDC S No. Financial Year Asst Year Amount (In Rs.) 1 2010-11 2011-12 16,75,000/-
2 2011-12 2012-13 50,000/-
3 2012-13 2013-14 1,08,94,000/-
4 2013-14 2014-15 1,37,58,000/-
5 2014-15 2015-16 1,84,58,000/-
Total 4,48,35,000/-
3.2.The additions were made by the ld. AO by invoking the provisions of Explanation to Section 37(1) of the Act. This addition was made on substantive basis for various assessment years in the hands of the assessee company and on protective basis in the assessment of Shri Govind Prasad Pandey.
3.3. The ld. CIT(A) appreciated the contentions of the assessee and deleted the addition made on account of payments made for illegal gratification for various assessment years. The relevant observations of the ld CIT(A) for AY 2011-12 in this regard is reproduced herein and the same observation would hold good for other assessment years qua this issue:-
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"7.2.3.DECISION:- I have carefully considered the submission put forth & the documents furnished on behalf of the appellant, perused the facts of the case and the observation of the AO in the impugned assessment order and other material brought on record. The A.O. has made the addition for Rs.16.75 lakhs on account of illegal gratification on the basis of documents seized from Shri Govind Pandey an employee of appellant company. The A.O. has discussed about the addition at para 6.1 of assessment order and has given the details as regard to seized documents in assessment order. The A.O. on the basis statement of Shri Govind Pandey has concluded that the addition of Rs.16.75 lacs is required to be made at the hands of appellant on account of payment of illegal gratification.
7.2.4 It is seen from record that the residential premises of one of the employees, Shri Govind Pandey was searched simultaneously and addition made is on the basis of statement of Shri Govind Pandey u/s 132(4) of I.T. Act 1961 which has been retracted. The seized documents are not found from the premises of assessee. The seized documents were explained to be recorded and maintained by Shri Govind Pandey for personal purpose and are not the record of appellant for which any adverse action need to be taken at the hands of appellant. It was explained before the A.O. that these notings are estimation of cost during the quality check and it is no record of Payment made by the appellant company. It is seen from the record that Shri Padam Singhania, Director of the company itself at the time of search itself had clarified that no illegal payments are made by appellant company and he had not given any instruction to Shri Govind Pandey for making any illegal payment. In the course of search no corroborative evidence or material is found on record to show that the appellant has made payment of any illegal gratification. The A.O. in the course of assessment proceedings has also not brought any material/ evidence on record to show that the appellant has made any illegal payments which are required to be brought to tax at the hands of appellant. The statement given by Shri Govind Pandey at the time of search and subsequent statement being contradictory to each other no much credence can be given to same. Noting in diary by itself is not sufficient evidence to conclude that illegal payments like that of gratifications have been made by the appellant. Evidentiary value in respect to notings on loose papers and diaries have come up for consideration before Hon'ble ITAT, Ahemdabad Bench, Ahmedabad in ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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case of M/s Nishant Construction Pvt. Ltd in ITA No. 1502/Ahmd/2015. The Hon'ble ITAT in its order dated 14/02/2017 has held as under:
19. at this stage, we would like to refer to the observations of the lower authorities to the effect that no one makes a loss in real estate business and that the market perceptions indicate that the prices of the immovable properties are always on the upward trend. It appears that both the lower authorities have been carried away with the "notorious practice prevailing in real estate circles all property transactions, there is non-disclosure of the full consideration.
20. In Lalchand Bhasa tAmbica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the "notorious practice" prevailing in trade circles. It was observed as under:
"Adverting to the various probabilities which weighed with the Income- tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf."
21. Several decades back the Madras High Court in the case of Shriramalinga Choodambikai Mills Ltd. vs. CIT: (1955) 28 ITR 952 held that in the absence of any evidence to show either that the sales were sham transactions or that the market price were in fact paid by the purchasers, the mere fact that goods were sold at a concessional rate would not entitle the Income tax Department to assess the difference between the market price and the price paid by the purchaser as profit of the assessee. In CIT vs. A. Raman & Co.: (1968) 67 ITR 11 the Supreme Court held that the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which actually accrues is taxable, but income which the assessee could have, but has not in fact earned, is not made taxable. These two judgments were noticed and applied by the Supreme Court in CIT vs. Calcutta discount Co. Ltd.: (1973) 91 ITR 8. These judgments apply to the present case discount Co. in favour of the assessee.
22. In our considered opinion, the assessing authority has no power to disturb the sale price shown except in three cases. The first is under Section 145 of the Act. Where the sale of properties is part of the business of the assessee, the Assessing Officer, if he is of the opinion that the accounts are not correct and complete, may proceed to reject ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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the books of accounts and thereafter make a best judgment assessment of the income in the manner prescribed by Section 144. The second is the case where Section 50C of the Act is invoked on the basis of the prices fixed by the Stamp Valuation Authorities of the State Government. That section, it is pointed out, however, applies only in the computation of capital gains and cannot BE availed by the Revenue where the profits of the business are to be computed.
23. The third is the case of section 92BA inserted by the Finance Act, 2012 w.e.f. 01.04.2013. This section gives power to the Assessing Officer to recalculate the profits shown by the assessee in cases of "specified domestic transactions", where the aggregate of such transactions entered into in the relevant accounting year exceeds a sum of Rs. 5 crores.
24. Except in these three situations, the Act does not permit the enhancement of the profits of the business shown by the assessee.
25. Coming to the evidentiary value of the impounded loose sheet mentioned elsewhere, the Hon'ble Supreme Court in the case of Common Cause (A red Society) and Others vs. Union of India and Others in Writ Petition Register Civil Appeal No. 505 of 2015 has observed as under:-
16. With respect to the kind of materials which have been placed on record, this Court in V.C. Shukla's case (supra) has dealt with the matter though at the stage of discharge when investigation had been completed but same is relevant for the purpose of decision of this case also. This Court has considered the entries in Jain Hawala diaries, note books and file containing loose sheets of papers not in the form of "Books of Accounts" and has held that such entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act, and that only where the entries are in the books of accounts regularly kept, depending on the nature of occupation, that those are admissible
17. It has further been laid down in V.C. Shukla (Supra) as to the value of entries in the books of account, that such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. It has been held even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability.
26. The Hon'ble Supreme Court further observed:-
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17. From a plain reading of the Section it is manifest that to make an entry relevant there under it 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 are fulfilled and the entry becomes admissible as/ relevant evidence, still, the statement made therein shall not alone be sufficient evidence to charge any person with liability. It 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 far charging a person with a liability. It will, therefore, be necessary for us to first ascertain whether the entries in the documents, with which we are concerned, fulfill the requirements of the above section so as to be admissible in evidence and if this question is answered in the affirmative then only its probative value need be assessed.
27. With respect to evidentiary value of regular account book, the Hon'ble Supreme Court in the case of V.C. Shukla 1998 (3) SCC 410 has laid down :-
"37. In Beni v. Bisan Dayal it was observed that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another In Hira Lal v. Ram Rakha the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been proved, said, that the rule as laid down in Section 34 of Tie Act that entries in the books of account regularly kept in the course of business are relevant whenever they refer to a matter in which the Court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with
28 It is apparent from the aforesaid discussion that the loose sheet of papers are wholly irrelevant as evidence being not admissible u/s. 34 ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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so as to constitute evidence with respect to the transactions mentioned there in being of no evidentiary value
29. Moreover, the Assessing Office did not make any inquiry from buyers of flat in respect of actual prices paid by them. He also did not make any other inquiry in order to corroborate his conclusion. There is no incriminating evidence to show that the assessee has sold the flats at a higher rate.
32. Considering the facts of the case in hand in totality and in the light of the judicial decisions referred to hereinabove, we do not find any merit in the impugned additions. We, therefore, set aside the findings of the ld. CIT(A)and direct the A.O. to delete the addition of Rs. 32.56 crores.
The ratio laid down by the aforesaid decision squarely applies to the facts in case of appellant and considering the same noting found in the documents not belonging to appellant and also not found from appellant are not sufficient evidence to hold that appellant has made any payment on account of illegal gratification. In view of above, the conclusion of the A.O. as regard to illegal payment is unjustified and unsustainable.
7.2.5 It is seen that the appellant company has maintained regular books of account in respect to activities of business. The A.O. has found no fault with the books of account maintained by appellant. The A.O. has accepted the books of account as well as net profit as declared by appellant without adverse observation with regard to maintenance of books of account as well as transaction noted in books of account. The A.O. has made reference to withdrawal from bank account which are properly recorded in regular books of account and its utilization for incurring expenses as recorded in books of account is not disputed by the A.O. On aforesaid undisputed factual position the addition made by the A.O. on the ground that the withdrawal from bank are utilized for illegal gratification is unjustified and unsustainable. It is also not the case of the A.O. that illegal gratification expenses are recorded in regular books of account and debited in profit & loss a/c or the expenses incurred on illegal gratification remain unexplained at the hands of appellant. On above factual situation the addition made by the A.O. on assumption and presumption is unjustified and unsustainable.
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7.2.6 It is noted that the Investigation Wing of the Department had examined various persons in post search inquiry for verification of documents seized from Shri. Govind Pandey. The copies of various statement recorded have been submitted in the appellate proceedings to support the contention made by appellant that notiings found in the seized documents are not evidence of any payment made on account of illegal gratification. The perusal of statement recorded by the Department of various persons indicates that the seized documents along with entries represented by names of such persons were confronted to verify whether any payment has been received by them. The aforesaid persons in the statement given on oath before the Officer of Investigation Wing have clearly stated that no money was received by them from appellant or Shri GP. Pandey. The aforesaid evidence which demonstrates that the notings in seized documents are not in respect to payment made by appellant have not been faulted by the A.O. in assessment proceedings nor any independent evidence has been brought on record to show that the statement given on oath by various person are not correct. Contents of statement on oath on record have been unrebbutted. On above factual position, conclusion of the A.O. that appellant has made payment on account of illegal gratification is contrary to evidence on record and is unjustified.
7.2.7 It is noted that Shri Govind Pandey although in the initial statement had given adverse evidence however the same was retracted. Shri Govind Pandey in his subsequent statement had explained the nature of notings as made in the documents found from his premises. The Hon'ble ITAT, Raipur Bench, Raipur in case of Shri B.L. Agrawal in ITA No.110 to 114/BLPR/2012 had considered the contradictory statement of third party for making addition. The relevant findings as recorded in the order of Hon'ble ITAT at para 19 & 20 are reproduced hereunder:
10. In our considered opinion the statement of Shri Sunil Kumar Agrawal which has been duly retracted can by no stretch of imagination be a basis to hold that the assessee was owner of the share capital of these four companies. This presumption is not tenable under any Law be it the Income Tax Law or Company Law.
20. In this regard we also note that Hon'ble Apex Court in the case of Surajmal vs. State (Supra) has expounded that it is well settled that where witnesses make two inconsistent statements in their evidence ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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either at one stage or at two stages, the testimony of such witnesses becomes unreliable and unworthy of credence. Thus we find that in absence of any cogent evidence, this statement alone which has been duly retracted cannot be a basis for addition of share capital and share premium of these companies in the hands of the assessee. Addition has to be based upon cogent material and not mere here say. In this regard we also note that in the case of P.V. Kalyanasunderam, deletion of addition for allegation on on-money merely on the basis of conflicting statement of the seller and loose papers was upheld by the Hon'ble Madras High Court in 282 ITR 259 and by the Hon'ble Apex Court in Appeal (Civil) No. 4262 of 2007 vide judgement dated 14-09- 2007 The ratio laid down by the aforesaid decision of Hon'ble ITAT which has been rendered after following the decision of Hon'ble Apex Court in case of Surajmal Vs. State (Supra) squarely applies to the facts in the case of appellant and considering the same addition made by A.O. is unjustified and unsustainable.
7.2.8 The Hon'ble Hyderabad ITAT in case of DCIT Vs. K. Baburao had considered the evidentiary value of the note book seized during the course of search which was not supported by any other corroborative material or evidence found during the course of search. The Hon'ble ITAT has held as under:
4. During assessment proceedings, the AO observed that as per the seized material Annexure KBR/A/02 and KBR/A/4, assessee was involved in several financial transactions relating to real estate business for the period 2003 to 2008 and these transactions were written in coded form. He observed that in the statement recorded on the date of search, assessee admitted that the seized books contain details of day to day expenditure. In the statement recorded u/s. 131 on 23-7-2008, the assessee further admitted that the seized books contain receipts and payments partly 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 his managers and his two wives Smt. Sridevi and Smt. Rani. The AO analyzed the entries in the books by entering the same in chronological order in excel spreadsheet and fed the receipts and payments against the names mentioned. He noticed that in every transaction last three digits were omitted while recording.
For example, car insurance payment was written as Rs. 10.6 which ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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stands for a payment of Rs. 10,600/. Similarly, in respect of bank transactions, last three digits were omitted.
Tax has to be collected on real income but not 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 evidences have been brought to demolish the contention of the assessee. As contended by the assessee, no assets have been unearthed during search, which is ultimate weapon of the Dept., for making such addition on the basis of some mathematical calculation.
26. It is clear from the above provisions of section 153A that the income of the assessee in case of a person where search is initiated u/s. 132, the books of account or other documents or any assets are requisitioned u/s. 132A, the Assessing Officer after issue of a notice to furnish income of the assessee in respect of each assessment year falling within 6 assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition made, the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such 6 assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisitioned, as the case may be, on bringing on record the material to show that there is undisclosed income of the assessee. In other words, there should be material on record to show that the income is assessed on the basis of material/ evidence in hands of the Assessing Officer.
27. Being so, in our opinion, guess work is not possible in case of search assessment framed u/s. 143(3) or u/s. 153A of the Act without any proper material. The AO shall have the basis for assuming that the expenditure incurred by the assessee is out of undisclosed income. It is not permissible to assess the undisclosed income in the absence of any other evidence on arbitrary basis. The unsubstantiated loose sheets cannot be considered as a conclusive evidence to make any addition towards undisclosed income. It was held by the Supreme Court in the case of CBI vs. V.C. Shukla (1998) 3 SCC 410 that "file containing loose sheets of papers are not books" and hence entries therein are not admissible u/s. 34 of the Evidence Act, 1872.
28. In the present case, the seized material (two note books) marked as KBR/A/02 and KBR/A/04 wherein certain entries are found recording arious transactions pertaining to the assessee. These entries in the notebook are unsubstantiated and on that basis the AO reached to the conclusion that the figures mentioned therein are to be read by ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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adding zeros and thereby he came to conclude 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) rightly came to the conclusion that it cannot be acted upon and deleted the addition.
29. Other than the loose paper, the AO has not brought on record any corroborative material or evidence to show that the inference made by him is correct. The CIT(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 on 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 not be said that the decision recorded by the CIT(A) one which 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 CIT(A) has reached a correct conclusion in deleting the addition made by the AO on the basis of loose sheets.
The ratio laid down by Hon'ble ITAT Hyderabad Bench squarely applies to the facts in the case of appellant and considering the aforesaid judicial precedent addition made by the A.O. is unjustified and unsustainable. For the detailed reasons recorded hereinabove, I am of the considered opinion that the impugned addition made by the AO is unjustified and unsustainable and hence, the addition made at Rs.16.75 lakhs is directed to be deleted. Thus, these Grounds of appeal of appellant are allowed."
3.4. We find that Shri Padam Singhania at the time of search itself had categorically stated that no illegal payments were made by the assessee company to any Government officials and that he had not given any instructions to Shri Govind Prasad Pandey to make any illegal payments to Government officials. Further, in the course of search, no corroborative ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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evidence or material were found to show that the assessee company had made any payment of any illegal gratification. It is pertinent to note that the seized documents based on which the additions were made were not seized from the premises of the assessee company. It was seized in the independent search conducted in the case of Shri Govind Prasad Pandey. Shri Govind Prasad Pandey may be working with the assessee company but that does not mean that all documents found in his premises represent transactions carried out on behalf of the assessee company, unless there is evidence to prove the contrary. No such contrary evidence has been brought on record by the revenue in the instant case. Hence, the primary onus and presumption in terms of Section 292C of the Act would lie on ShriGovind Prasad Pandey and not on the assessee company. Though, Shri Govind Prasad Pandey had initially stated in his statement u/s 132(4) of the Act that the payments reflected in the seized documents represent illegal gratification made to various Government officials for and on behalf of the assessee company and he had acted as per instructions of Shri Padam Singhania, the said statement stood retracted by him on 15.01.2015 before the Investigation Wing itself during the post search proceedings. This fact was further corroborated by Shri Padam Singhania's statement wherein he had categorically stated that he had not given any instructions to Shri Govind Prasad Pandey to make any payment in the form of illegal gratification to various Government officials and the assessee company had not made any illegal payments. Further, the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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Investigation Wing had also conducted independent enquiries with the concerned Government officials mentioned in the seized documents by recording statements on oath from them, behind the back of the assessee, wherein all the parties had denied having received any money from the assessee company directly or through Shri Govind Prasad Pandeyor through any other person. Hence, the seized documents found from Shri Govind Prasad Pandey's premises which is not supported by any corroborative evidence/material cannot be used against the assessee company for making addition in the hands of the assessee company. In view of the aforesaid observations, we have no hesitation to delete the substantive addition in the hands of the assessee company. Accordingly, the addition made on alleged illegal payments for various assessment years are hereby deleted. Accordingly Ground No. 2 raised by the revenue for AYs. 2011-12 to 2015-16 is dismissed.
4. Addition u/s 68 in respect of share capital contribution of ₹1,37,56,000/-
Ground No.3 for AY 2011-12 We have heard the rival submissions and perused the materials available on record. The ld.AO observed that the assessee had allotted shares at a premium of ₹40 per share to different Kolkata based companies on ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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02.04.2009. The ld AO observed that 192400 shares of ₹10 each were held by family members in the assessee company. 3,62,000 equity shares were allotted to different Kolkata based companies at a premium of ₹40 per share. During the year under consideration, the shares were transferred by Kolkata based companies to the individual family members at par, pursuant to which entire 5,45,400equity shares came to be held at a price of ₹10 each by the family members in the assessee company. The ldAO observed in para 6.3.3 of this assessment order that shares allotted at a premium to Kolkata based companies in earlier years and during the year under consideration, the said shares were acquired by the family members from Kolkata based companies at par and accordingly treated the issuance of shares to Kolkata based shares company shares as not genuine and merely a sham transaction. The fact of issuance of shares to Kolkata based companies at a premium were reflected in the books of accounts of the assessee company and the same was confronted at the time of search proceedings to Shri Padam Singhania who stated that he would reply after consulting his CA. Later his statement was recorded on 21.01.2015 u/s 131 of the Act wherein he came forward to surrender the difference of ₹38 per share (40-2) for issuance of 3,62,000 shares to Kolkata based companies and offered a sum of ₹1,37,56,000 in the individual status of family members of Singhania's for AY 2015-16. However, on perusal of the returns of individuals, the ldAO observed that no such offer was made. Accordingly, the ld AO proceeded to add a sum of ₹1,37,56,000 in the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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hands of the assessee company for the year under consideration based on the statement given by Shri Padam Singhania.
4.1. Before the ld CIT(A), the assessee made a preliminary objection that AY2011-12 being unabated/ completed assessment and no incriminating material was found during the course of search qua the issue of share capital either at par or at a premium, no addition per se could be made in the hands of the assessee company in the search assessment u/s 153A of the Act. Further, the assessee submitted that there was no receipt of any money during the year at all. The receipt of share capital and share premium from Kolkata based companies happened in earlier year, wherein no addition has been made by the ld AO u/s 68 of the Act despite completing the assessment u/s 143(3) of the Act on 06.03.2013. During the year under consideration, the promoters of the assessee company had purchased the shares held by Kolkata based companies in the assessee company at a nominal value. This is purely a transaction that has happened between the promoters of the assessee company and the Kolkata based companies, on which, the assessee company is not at all involved and does not have any control. Hence, the assessee company cannot be impleaded at all in the entire set of transactions. We find that these contentions were rightly appreciated by the ld CIT(A) while granting relief to the assessee by observing as under:-
"7.5.3.DECISION:- I have carefully considered the submission put forth & the documents furnished on behalf of the appellant, perused ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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the facts of the case and the observation of the AO in the impugned assessment order and other material evidences brought on record In the case of appellant share capital has been issued to corporate shareholders in the relevant Asstt. Year 2010-11 at Rs. 181 lakhs. The details as to share capital issued to various corporate shareholders have been observed in assessment order at page 60. The details as reproduced in assessment order indicate the name of corporate shareholders and complete address of the company and number of shares issued to shareholders and amount received towards contribution of share capital including premium. The A.O. has obtained details of two such corporate shareholders from the website of Ministry of Corporate Affairs (MCA) and balance sheet of such corporate shareholders has been obtained and pasted at page 62 of assessment order. M/s. UmangVanijya Pvt. Ltd had subscribed share capital by making contribution of Rs.5 lakhs whereas share capital and reserve & surplus of such company is Rs.867.15 lakhs as is evident from the data of financial statement observed in assessment order. It is also seen that the share capital contributed by M/s. Aakriti Suppliers Pvt. Ltd. is Rs.15 lakhs whereas share capital and reserve & surplus of such company is Rs.2862.52 lakhs. The aforesaid data of corporate shareholders observed in the assessment order itself establishes the creditworthiness of the corporate shareholders as well as identity of such shareholders. The transaction of contribution of share capital is through proper banking channel and this fact is not in dispute.
7.5.4 The Hon'ble Jurisdictional High Court in case of People General Hospital Ltd. reported at 365 ITR 0065 (M.P.) had explained the onus on appellant in the case of contribution of share capital. It has been held by Hon'ble Jurisdictional High Court that in respect to contribution of share capital, the onus on appellant is only to establish identity of shareholders. In the facts of the present case the identity of corporate shareholders is clearly evident from the evidences on record. Financial Statement of all the corporate shareholders is placed before me and the financial statements clearly substantiated and demonstrated the creditworthiness and genuineness of the transactions. PAN of the corporate shareholders is available on record. Share Capital amount have been received through proper banking channel. Copy of Bank Statement of appellant company is available on record. In view of above, the onus to explain the share capital contribution by the appellant stands explained. Hon'ble Jurisdictional High Court in the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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case of CIT Vs. People General Hospital Ltd. reported at 365 ITR 65 MP has held as under:
"15. In Lovely Exports (supra) the Apex Court considering the question held thus:-
"2. Can the amount of share money be regarded as undisclosed income under s.68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law.
Hence, we find no infirmity with the impugned judgment."
16. The aforesaid judgment has been followed by all the Courts and the judgments relied on by the appellants relates to the period prior to the judgment in Lovely Exports. As the Apex Court has specifically held that if the identity of the person providing share application money is established then the burden was not on the assessee to prove the creditworthiness of the said person. However, the department can proceed against the said Company in accordance with law. The position of the present case is identical. It is not the case of any of the parties that M/s Alliance Industries Limited, Sharjah is a bogus company or a non-existent company and the amount which was subscribed by the said Company by way of share subscription was in fact the money of the respondent assessee. In the present case, the assessee had established the identity of investor who had provided the share subscription and it was established that the transaction was genuine though as per contention of the respondent the creditworthiness of the creditor was also established. In the present case, in the light of the judgment of Lovely Exports (P) Ltd., we have to see only in respect of the establishment of the identity of the investor. The Delhi High Court also in Divine Leasing & Finance Ltd. (supra), considering the similar question held that the assessee Company having received subscriptions to the public/rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources. The similar view has been taken by the other High Courts.
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17. As the Apex Court has considered the law in Lovely Exports (supra) and in view of law laid down by the Apex Court, we find that the substantial questions framed in these appeals do not arise for our consideration. Accordingly, all these appeals are dismissed with no order as to costs."
The aforesaid decision of Hon'ble Jurisdictional High Court has been upheld by the Hon'ble Apex Court on dismissal of appeal filed in SLP (Civil)CC-5997/2014 vide judgment dated 17/04/2014. The ratio laid down by the Hon'ble Jurisdictional High Court squarely applies to the facts in case of appellant and considering the same addition made by the A.O. is held to be unjustified and unsustainable.
7.5.5 It is also noted that the Hon'ble High Court of Bombay at Goa in case of M/s Paradise Inland Shipping Pvt. Ltd., vide judgment dated 10th April 2017 in Tax Appeal No. 66 of 2016 has dismissed the appeal of revenue challenging the addition in respect to share capital. It is noted by the Hon'ble High Court that the A.O. for making addition in respect to share capital had relied upon statement of two persons one from Calcutta and other from Delhi to show that companies who had subscribed to share capital of assessee company are not in existence. The aforesaid finding were reversed in appellate proceedings being contrary to documents placed on record out of documents available in public domain. The Hon'ble High Court has upheld findings of lower appellate authorities which were recorded on the basis of documents produced which were basically from public offices which maintain the record of the companies. The Hon'ble High Court for its conclusion has relied upon the decision of Hon'ble Apex Court in the case of Orissa Corporation Pvt. Ltd. reported at 159 ITR 78 (SC). In the facts of present case, the assessee has placed on record the details down loaded from website of registrar of the companies and PAN details to substantiate the contributions of share capital. No fault is found in the same. In the case of appellant there is no legal evidence brought on record to doubt the genuineness of contribution of share capital. Ratio laid down by the Hon'ble Bombay High Court squarely applies to the facts in case of assessee The addition made by the A.O. is thus unjustified and unreasonable.
7.5.6 The A.O. has referred to report of Investigation Wing of Kolkata to Investigation Wing of Jabalpur which has been pasted at page 65 ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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&66 of assessment order. In aforesaid report no specific observation is given as regard to transaction of contribution of share capital received by appellant from the aforesaid corporate shareholders. The A.O. himself has brought on record the Balance Sheets of some corporate shareholders wherein substantial share capital and reserves and surplus of corporate shareholders are found by downloading the information from site of Ministry of Corporate Affairs (MCA) PAN of such companies is also available on record. Copy of Bank Statements of appellant company in which share capital payments are received from corporate shareholders are available on record. On above facts mere general observation in report is not enough to take any adverse view and to make addition at the hands of appellant company. The report does not dispute the identity of corporate shareholders on the contrary it has identified companies to some group of directors. It is also not the case of the A.O. nor any such evidence was found in the course of search and brought in assessment proceedings to show that money belonging to appellant has flown to corporate shareholders which has been introduced as share capital. In view of above, nothing adverse can be drawn from the aforesaid report as discussed by the A.O. The AO has also made reference to statement of Shri Padam Kumar Singhania which has been pasted in assessment order. The aforesaid statement has been retracted. In any case in the aforesaid statement nothing has been stated on behalf of appellant company and thus there is nothing adverse which can be drawn from the statement referred to in assessment order.
7.5.7 It is seen in the case of appellant regular assessment has been framed pursuance to return filed u/s 139 of I.T. Act 1961 on 24/09/2011. In the course of search no incriminating material or evidence was found to impeach the genuineness of contribution of share capital received by appellant company. It is settled proposition of law that in assessment framed u/s 153A of I.T. Act 1961 the additions in the completed assessment have to be restricted to incriminating evidence or material found during the course of search. In the case of appellant there is no incriminating evidence or material found during the course of search with regard to share capital contribution received which was accepted in the regular assessment framed u/s 143(3) of I.T. Act 1961 during Asstt. Year 2009-10 & 2010-11 on 16/12/2011 & 25/03/2013 respectively and has achieved finality. The addition made on account of share capital contribution in ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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the absence of incriminating evidence or material on record came to be considered by Hon'ble ITAT, Delhi Bench, Delhi in case of M/s. Best Infrastructure Pvt. Ltd. reported at 47 CCH 0159 and relevant findings as recorded in said order are reproduced hereunder:
"8. We have carefully considered the arguments of both the sides and have perused the material placed before us. In the case of Kabul Chawla (supra), Hon'ble Jurisdictional High Court has considered all earlier decisions of Hon'ble Delhi High Court and has also considered the decisions of other High Courts and Tribunals and summarized the legal position in paragraph 37 and at the conclusion of the case in paragraph 38, which are reproduced below:-
"Summary of the legal position.
37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:-
i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
iv Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material"
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153Ais relatable to abated proceedings (ie. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of vii Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
Conclusion
38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed."
9. In clause (iv) above, their Lordships held "Obviously an assessment has to be made under this Section only on the basis of seized material. In clause (v), the same is reiterated by holding "In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made In clause (vu), it is stated "Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search".
10. In the case of RRJ Securities Ltd. (supra), in paragraph 21, it has been held "In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment. However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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by the AO represent or indicate any undisclosed income or possibility of any income that may be remained undisclosed in the relevant assessment years. This Court in Commissioner of Income Tax (Central)-III v. Kabul Chawla: ITA 707/2014, decided on 28th August, 2015 has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments."
11. In the case of Harjeev Aggarwal (supra), Hon'ble Jurisdictional High Court considered the evidentiary value of the statement recorded during the course of search. The relevant portion is paragraph 19, 20 & 24, which are reproduced below for ready reference :-
"19. In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under Section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the assessee in its statement, under the Provisions of Chapter XIV-B of the Act.
20. In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words "evidence found as a result of search would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation.
24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion Sometimes statements are corded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted. Therefore, it is necessary to ensure ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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that such statements, which are retracted subsequently, do not form the sole basis for computing undisclosed income of an assessee."
12. Thus, Hon'ble Jurisdictional High Court has held "The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations". Their Lordships further observed "However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation". In paragraph 24, their Lordships have mentioned about the prevailing practice of extracting statement by exerting undue influence or coercion by the search party. Though the above decision in the case of Harjeev Aggarwal is with reference to the meaning of undisclosed income u/s 158BB of the Income-tax Act, however, in our opinion, the above observation of Hon'ble Jurisdictional High Court would be squarely applicable while considering the evidentiary value of the statement while making the assessment u/s 153A."
"23. We have discussed in detail the legal position as laid down by Hon'ble Jurisdictional High Court and Hon'ble Apex Court in various cases. We have also discussed the facts of the assessee's case. Now, applying the law as laid down by Hon'ble Jurisdictional High Court and Hon'ble Apex Court to the facts of the assessee's case, the following position emerges.
(i) No addition u/s 153A in respect of a completed assessment can be made unless some incriminating material was unearthed during the course of search.
Admittedly, in the case of the assessee, no incriminating material with regard to issue of share capital has been found and seized during the course of search.
(ii) Any statement recorded during the course of search cannot on a standalone basis without reference to any other material discovered during search and seizure operation would empower the Assessing Officer to make the addition. The words "evidence found as a result of search" would not take within its sweep statement recorded during search and seizure operations. Therefore, the Revenue's stand that the addition u/s 153A can be made in respect of share capital on account of statement of Shri Tarun Goyal and Shri Anu Aggarwal cannot be accepted.
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(iii) Even otherwise, the statement of Shri Tarun Goyal cannot be utilized against the assessee as his statement was recorded behind the back of the assessee and the assessee was not allowed opportunity to cross-examine him.
(iv) In the statement of Shri Anu Aggarwal dated 15th September, 2008, the query was raised with regard to loose papers found and seized from their premises. Admittedly, none of the loose papers was relating to issue of share capital. The loose papers were pertaining to unaccounted receipt on sale and unaccounted expenditure on construction. In the statement dated 24th October, 2008, though the query was raised with regard to issue of share capital and the statement of Shri Tarun Goyal was confronted wherein he has alleged to have provided accommodation entry to the assessee group, Shri Anu Aggarwal categorically denied to have received any accommodation entries from anybody
24. In view of the above, we hold that the issue of share capital was out of the purview of assessment u/s 153A as the assessment for assessment year 2005- 06 was not pending on the date of search and no incriminating material relating to share capital was found during the course of search. Accordingly, the addition of Rs. 3,60,00,000/- made by the Assessing Officer and sustained by learned CIT(A) for unexplained share capital is deleted."
The aforesaid decision has further been upheld by the Hon'ble Delhi High Court vide, its judgment dated 01/08/2017 in ITA No.13/2017. The aforesaid decision rendered is in respect to contribution of share capital received by said company. Perusal of assessment order shows that addition made is not on the basis of any incriminating material or evidence found in the course of search. Regular assessment framed has already achieved finality. The facts and circumstances in case of appellant are similar to that of decision of Hon'ble Delhi High Court. The ratio laid down by the aforesaid decision squarely applies to the facts in case of appellant. The addition made by the A.O. on account of share capital is thus unjustified and unsustainable.
7.5.8 It is seen that sum of Rs.252.93 lakhs is share application money received upto Asstt. Year 2009-10 which was shown as share application money in balance sheet for the year ended 31/03/2009. The aforesaid sum includes Rs. 181 lakhs for which shares have been issued to corporate shareholders in Asstt. Year 2010-11. In the regular assessment framed u/s 143(3) and assessment framed u/s 153A ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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r.w.s. 143(3) of I.T. Act 1961 for Asstt. Year 2009-10 contribution of share application money has not been disputed by the A.O. In fact share application money is received at Rs.81 lakhs in the year ending 31/03/2008 and Rs.100 lakhs in the year ending 31/03/2009 on the basis of evidence on record. The receipt of share application money having been accepted in earlier assessment years cannot be subjected to assessment on allotment of share capital in the year under consideration. In view of above, the addition made by the AO to above extent is unjustified and unsustainable for this reason also.
7.5.9 In the assessment order, the A.O. at para 6.3.17 has observed that difference amount of share premium on issuing 362000 shares in Financial Year 2009-10 works out Rs. 1,37,56,000/- which remains unexplained in Asstt. Year 2010-11. In the computation of assessment order at last page aforesaid addition has been made in Asstt. Year 2011-12. In view of detailed finding recorded in paragraphs hereinabove various observations made in assessment order as regard to share capital addition of Rs.1,37,56,000/- is unjustified and unsustainable in Asstt. Year 2010-11 and also in Asstt.Year 2011-12 where the A.O. has made the addition under mistake.
7.5.10 It is evident from the evidence on record that no incriminating evidence or material is on record on the basis of which addition has been made by the A.O. Regular assessment framed has achieved finality. Appellant has established identity, creditworthiness of corporate shareholders and genuineness of transactions by placing sufficient evidences on record. For the detailed reasons recorded hereinabove, I am of the considered opinion that the share capital addition made by the A.O. is unjustified and unsustainable in Asstt. Year 2010-11 and also in Asstt.Year 2011-12 where the A.O. has made the addition under mistake. The observation of the AO at para 7.3.17 of the assessment order for addition for share capital are deleted in assessment year 2010-11 and it is held that no sum at Rs.137.56 lakhs can be assessed to tax at the hands of appellant in assessment year 2010-11 or in assessment year 2011-12. Hence, this Ground of appeal of appellant is allowed."
4.2. Given the elaborate observations made by the ld CIT(A) reproduced herein above which stood uncontroverted by the revenue before us, we do ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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not find any infirmity in the order of the ld CIT(A) granting relief to the assessee. Accordingly, Ground No. 3 raised by the revenue for assessment year 2011-12 is dismissed.
5. Addition on account of unrecorded cash transactions Ground No. 4 for AY 2011-12- Rs. 137 lakhs Ground No. 4 for AY 2012-13 Rs. 70 lakhs We have heard the rival submissions and perused the material available on record. During the course of search, seized document Annexure A-1/LPS-6/ page 36 was recovered from the head office of the assessee company, wherein, it was written "cash from GR" against Rs. 70 lakhs. Shri Padam Singhania was asked about the same. He responded that 'GR' stands for Shri Guddu Rastogi who is the dealer of Prism and Ambuja cement at Shahdol. He further stated that this amount was paid in cash to Shri Guddu Rastogi against purchase of cement during the FY 2011-12 and later on, when the company had sufficient funds, the same was paid through e- transfer and cash amount of the same was received back from him. Shri Padam Singhania came forward to surrender this Rs. 70 lakhs as undisclosed income from AY 2012-13. Similar noting was mentioned in the seized paper A-1/LPS-6/Page35 wherein, cash payment totaling to Rs. 1,37,00,000/- was referred against cement purchase to Shri Guddu Rastogi. Shri Padam Singhania came forward and offered a sum of Rs.
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97,50,000/- as undisclosed income for AY 2011-12 in this regard. The ld AO however, found that this disclosure was not honored by the assessee company while filing its return of income u/s 153A of the Act for AYs 2011- 12 and 2012-13. Accordingly, the ld. AO issued show cause notice as to why a sum of Rs. 137 lakhs and Rs. 70 lakhs be not treated as undisclosed income of assessee company for AYs 2011-12 and 2012-13 respectively. The assessee responded before the ld AO that the said seized document is merely a loose paper containing rough calculation prepared in a computer by one of the employee. It was explained that the said transactions pertain to cement purchase wherein, the assessee is dealing in contract business where work is carried out at various sites and many papers which are prepared by the employee and staff of the assessee company are being sent to the head office. It was pleaded that the assessee company cannot be held responsible to state the genuineness of each type of rough estimates or notings made by various employees at various sites. However, it was also submitted that the surrender was made only to avoid any litigation and attain mental peace. Since the individual family members of Singhania Group had disclosed Rs. 9 crores as undisclosed income, in any event, the same would be available for telescoping benefit with the said income. Based on this explanation, the ld AO concluded that the assessee had accepted the contents in the seized documents to be its undisclosed income and rejected the plea of the assessee that the notings are rough estimates. The ld AO however, held that the said payment could also be ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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incontravention of provisions of Section 40A(3) of the Act. With these observations, the ld AO brought to tax the sum of Rs. 137 lakhs and Rs. 70 lakhs as undisclosed income of the assessee representing cash payment to Shri Guddu Rastogi in AYs 2011-12 and 2012-13 respectively.
5.1.At the outset, it was pleaded before the ld CIT(A) that the payment for purchase of cement has been made through proper banking channel and no violation of provision of section 40A(3) of the Act was made by the assessee. It was explained that the loose papers being A-1/ LPS-6/ pages 35-36 does not indicate any cash payment made by the assessee to Shri Guddu Rastogi. In only refer to certain transactions with Shri Guddu Rastogi in respect of purchase of cement. Further, the said loose papers refer to amounts allegedly received by the assessee from Shri Guddu Rastogi and not payments made thereon. The ld AO could have understood the truth had he proceeded to examine Shri Guddu Rastogi in this regard to ascertain whether any payment per se was made by him to the assessee company or to any representative on behalf of the assessee company or whether there were any receipts from the assessee company. It was also pointed out that Shri Padam Singhania though surrendered this income originally had later on retracted his statement which was ignored by the ld AO while making addition in the hands of the assessee. The ld CIT(A) appreciated the contentions of the assessee and deleted the addition for both the years by observing as under:-
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"7.4.3.DECISION:- I have carefully considered the submission put forth& the documents furnished on behalf of the appellant, perused the facts of the case and the observation of the AO in the impugned assessment order and other material evidences brought on record. In case of appellant, the A.O. has made the impugned addition of Rs.137 lakhs in Asstt.Year 2011-12 and Rs.70 lacs in Asstt. Year 2012-13 for detailed discussion observed at para 6.7.1 of assessment order. The A.O has referred to the statement of Shri Padam Singhania at the time of search. The A.O. has made the addition by observing that amount paid is liable to be assessed on account of violation of the provisions of section 40A(3) of Income Tax Act 1961 7.4.4It is noted that the appellant has maintained regular books of account in respect to above mentioned two assessment years and same are audited by Chartered Accountant and tax audit reports have been submitted in the regular assessment proceedings as well as in assessment proceedings u/s 153A of Income Tax Act 1961. The additions made by the A.O. are not finding any place in the tax audit report being payment made in violation of section 40A(3) of Income Tax Act 1961. In case of regular assessment proceedings of assessee no such addition as made by the A.O. had been made for violation of section 40A(3) of Income Tax Act 1961. It is seen that the payment made by appellant for purchase of cement is supported by proper bills and vouchers and entire payment made for purchase of cement is through proper banking channel. On above admitted undisputed factual position, there is no case for making addition u/s 40A(3) of Income Tax Act 1961 in respect to purchase of cement at the hands of appellant. The addition made by the A.O. for violation of section 40A(3) of Income Tax Act 1961 is unjustified and unsustainable.
7.4.5 The loose papers as found from the appellant are pasted in assessment order at page 95 and 96 of assessment order. Perusal of loose papers being A-1/LPS-6/Page-35 & 36 do not indicate that any payment has been made by appellant in cash. Loose paper referred to certain transaction with Shri Guddu Rastogi in respect to purchase of cement. Loose paper shows that the appellant has received amount mentioned therein and notings are not in respect to any payment made. The notings on loose paper by itself is not an evidence for making any addition at the hands of appellant. The A.O. has not even examined Shri Guddu Rastogi in connection with loose paper found from the appellant. The notings on loose paper in absence of any ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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further corroborative material or evidence on record do not justify any addition liable to be assessed at the hands of appellant. Notings on loose paper by itself is not sufficient evidence to conclude that any payments have been made by the appellant. Evidentiary value in respect to notings on loose papers have come up for consideration before Hon'ble ITAT, Ahemdabad Bench, Ahmedabad in case of M/s Nishant Construction Pvt. Ltd in ITA No. 1502/Ahmd/2015 vide order dated 14/02/2017. The relevant findings of Hon'ble ITAT are reproduced at above para 7.2.4. The ratio laid down by the aforesaid decision squarely applies to the facts in case of appellant and considering the same notings found on loose paper are not sufficient evidence to hold that appellant has made any payment. In view of above conclusion of A.O. as to payment made to Guddu Rastogi is unjustified and unsustainable.
7.4.6 The only adverse thing which is considered by the A.O. for making the impugned addition is the statement of Shri Padam Singhania obtained during the course of search at his premises which has been retracted and would no longer remain credible evidence on record. The aforesaid issue is amply supported by instruction issued by CBDT on 10/03/2003 and further clarification issued there upon on 18/12/2014. The CBDT has explained in the aforesaid instruction that the A.O. shall not obtain confessional statement during the course of search and rely on evidence or material found during the course of search in order to make addition at the hands of various assessee.. The confessional statement obtained de-horse any material or evidence cannot be said to be evidence or material found during the course of search in order to raise adversity for making addition at the hands of appellant. The legal position as regard to use of statement obtained during the course of search for the purpose of assessment has been dealt by various Hon'ble High Courts. Hon'ble High Court of Jharkhand in the case of Shree Ganesh Trading Co. reported at 257 CTR 0159 has held as under:
6. We are of the considered opinion that statement recorded under section 132(4) of the Income Tax Act, 1961 is evidence but its reliability depends upon the facts of the case and particularly surrounding circumstances. Drawing inference from the facts is a question of law. Here in this case, all the authorities below have merely reached to the conclusion of one conclusion merely on the basis of assumption resulting into fastening of the liability upon the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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assessee. The statement on oath of the assessee is a piece of evidence as per section 132(4) of the Income Tax Act and when there is incriminating admission against himself, then it is required to be examined with due care and caution. In the judgment of Kailashben Manharlal Chokshi (supra), the Division Bench of Gujarat High Court has considered the issue in the facts of that case and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for rejection of the assessee's contention by which the assessee has retracted from his admission. None of the authorities gave any reason as to why Assessing Officer did not proceed further to enquire into the undisclosed income as admitted by the assessee in his statement under section 134(2) in fact situation where during the course of search, there was no recovery of assets or cash by the Department. This fact also has not been taken care of and considered by any of the authorities that in a case where there was search operation, no assets or cash was recovered from the assessee, in that situation what had prompted the assessee to make declaration of undisclosed income of Rs.20 lacs. Mere reading of statement of assessee is not the assessment of evidentiary value of the evidence when such statement is self- incriminating. Therefore, we are of the considered opinion that in the present case, a wrong inference had been drawn by the authorities below in holding that there was undisclosed income to the tune of Rs.20 lacs.
Hon'ble High Court of Andhra Pradesh in the case of Gajjam Chinna Yellapa reported at 370 ITR 0671 has held as under:
9. The Act empowers the Assessing Officers or other authorities to record the statements of the assesses, whenever a survey or search is conducted under the relevant provisions of law. The statements so recorded are referable to Section 132 of the Act.
Sub-section 4 thereof enables the authorities not only to rely upon the statement in the concerned proceedings but also in other proceedings that are pending, by the time the statement was recorded.
10. If the statement is not retracted, the same can constitute the sole basis for the authorities to pass an order of assessment. However, if it is retracted by the person from whom it was recorded, totally different considerations altogether, ensue. The situation resembles the one, which arises on retraction from the statement recorded under Section 164 Cr.P.C. The evidentiary value of a retracted statement becomes diluted and it looses the strength, to stand on its own. Once the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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statement is retracted, the Assessing Authority has to garner some support, to the statement for passing an order of assessment.
11. In IT A No. 112 of 2003, this Court dealt with the very aspect and held that a retracted statement cannot constitute the sole basis for fastening liability upon the assessee.
12. In the instant case, the appellants specifically pleaded that the statements were recorded from them by applying pressure, till midnight, and that they have been denied access outside the society The Assessing Officer made an effort to depict that the withdrawal or retraction on the part of the appellants is not genuine We do not hesitate to observe that an Assessing Officer does not have any power, right or jurisdiction to tell, much less to decide, upon the nature of withdrawal or retraction. His duty ends where the statement is recorded. If the statements are retracted, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleged to have exerted force.
13. It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. The Assessing Officer well can very well support his findings on the basis of other material. If he did not have any other material, in a way, it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants Our conclusion find support from the Circular dated 10.03.2003 issued by the Central Board of Direct Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements.
The ratio laid down by the aforesaid decisions squarely applies to the facts in case of appellant and respectfully following the same, I am of the considered opinion that the addition made bythe A.O. on the basis of statement of ShriPadamSinghania which has been retracted subsequently is unjustified and unsustainable.
7.4.7 The various contention raised by appellant in the submission as referred to hereinabove are fair and reasonable. Considering the totality of fact and circumstances in case of appellant, I am of the considered opinion that the addition made by the A.O. at Rs.137 lakhs in Asstt. Year 2011-12 and Rs.70 lakhs in Asstt. Year 2012-13 is unjustified and unsustainable. Hence, the addition made by the A.O. is ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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directed to be deleted in both the assessment years. These grounds of appeal of appellant are allowed."
5.2. We have gone through the said seized documents A-1/ LPS-6/ pages 35-36. We find that the seized documents only refer to cash received from Shri Guddu Rastogi allegedly. It does not refer to any cash payment made to Shri Guddu Rastogi. Hence, addition made on account of unrecorded cash payment by the ld AO for both the years by placing reliance on the seized documents is devoid of merit. In any event, the ld AO had not resorted to make any cross verification from Shri Guddu Rastogi to ascertain the fact as to whether there was any cash transaction regarding purchase of cement between the assessee company and him. The revenue before us had not brought any evidence on record as to whether any addition has been made in this regard in the hands of Shri Guddu Rastogi. The entire addition has been made merely based on rough notings made in the seized documents and based on statement given by Shri Padam Singhania ignoring the fact that the said statement was subsequently retracted by him. As stated earlier, the seized document does not refer to any cash payment, hence there is no question of invoking provisions of section 40A(3) of the Act. The entire addition has been made only based on allegations that there was some cash payment which was not supported by any corroborative evidence. These aspects were rightly appreciated by the ld CIT(A) while granting relief to the assessee as is evident from the observations made hereinabove. In view of the aforesaid observations, we do not find any infirmity in the order of the ldCIT(A) in granting relief to ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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the assessee. Accordingly, the ground No. 4 raised by the revenue for AYs 2011-12 and 2012-13 is hereby dismissed.
6. Addition on account of sub-contract payments Ground No. 3 for AY 2012-13 of Rs. 1,23,62,077 Ground No. 3 for AY 2013-14 of Rs. 1,68,58,576 Ground No. 3 for AY 2014-15 of Rs. 1,57,89,630 We have heard the rival submissions and perused the materials available on record. During the course of search and seizure operation u/ 132(1) of the Act in the premises of the assessee company on 16.10.2014, consequential search warrant was issued in the case of Shri Sushil Singhal, a sub-contractor of the assessee company. This warrant was executed on the same date at his residence at Khaleswar Road, Umariya (MP). A statement was recorded from Shri Sushil Singhal wherein, he stated that he had executed the work of sub-contract basis for the assessee company only. Shri Sushil Singhal stated that his books of account were kept at head office of the assessee company which was denied by Shri Padam Singhania in his statement. The ld AO observed that the said sub-contractor i.e. Shri Sushil Singhal is a man of small means and declaring meagre income in his return of income and concluded that he is a bogus sub-contractor and has been used to inflate expenses and suppress income of the assessee company. It is pertinent to note that there is absolutely no incriminating ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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documents that were found in the course of search of Shri Sushil Singhal to doubt the genuineness of the transaction of sub-contract payment made by assessee company to him or to doubt the capacity of Shri Sushil Singhal to execute the sub-contract work for the assessee company. It was submitted that assessee company had duly deducted tax at source on the sub- contract payment made to Shri Sushil Singhal. The ld AO dismissed the same by stating that merely a particular transaction had undergone tax deduction procedure, the same would not establish its genuineness. The ld AO proceeded to disallow the entire sub-contract payment made to Shri Sushil Singhal of Rs. 1,23,62,077/- for AY 2012-13 ;Rs. 1,68,58,576/- for AY 2013-14 and Rs. 1,57,89,630/- for AY 2014-15.
6.1. The assessee submitted that search assessment of Shri Sushil Singhalwas also framed by the very same ld. AO on 23.12.2016, wherein, the sub-contract payment made by assessee company to ShriSushilSinghal had been duly assessed as 'business income' in the hands of Shri Sushil Singhal by the very same ld AO. Further, it was reiterated before the ld. CIT(A) that there is absolutely no incriminating material found during the course of search of either Shri Sushil Singhal or the assessee company to doubt the genuineness of the sub-contract payment made to Shri Sushil Singhal and assessments for AYs 2012-13 and 2013-14 being completed assessments, no addition could be made at all in any event in the search assessment. These facts were duly appreciated by the ldCIT(A) by observing as under:-
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"7.3.3.DECISION:- I have carefully considered the submission put forth & the documents furnished on behalf of the appellant, perused the facts of the case and the observation of the AO in the impugned assessment order and other material evidences brought on record I find substantial force in the same. The appellant company has claimed sub contract expenses in respect to payments made to Shri Sushil Singhal. The A.O. has observed that the premise of Shri Sushil Singhal was simultaneously searched under section 132(1) of Income Tax Act 1961 on the same date that on 16/10/2014. The A.O. has observed that no books of account in respect to activity of business were available at the time of search. The A.O. has discussed addition at para 6.4 of the assessment order. The A.O. has observed as regard creditworthiness of Shri Sushil Singhal and has referred to report of the inspector which has been scanned and pasted in the assessment order. The A.O. has observed that Shri Sushil Singhal has offered nominal income in the return and he has not produced the books of account and vouchers and therefore payment made to Shri Sushil Singhal for assessment years 2012-13 to 2014-15 are disallowed as proved to be bogus. It is seen that the assessment of Shri Sushil Singhal has been framed by the same A.O. on 19/12/2016 ie. 4 days prior to framing of assessment in the case of appellant company. In the assessment framed of Shri Sushil Singhal it is seen that the income as declared by him has been accepted except for assessment year 2012-13 wherein addition of Rs 21,60,150/- has been made by not accepting the opening capital of Shri Sushil Singhal. The perusal of the assessment order shows that the A.O. has noted that Shri Sushil Singal is a sub contractor of the appellant company and receipts declared by him in the return are on account of receipt from appellant company from which income has been declared by him in the return. The returns of income for the assessment years 2012-13 to 2014-15 are supported by financial statements which are duly audited and audited financial statements have been furnished along with returns of income. The financial statements as submitted by Shri Sushil Singhal has been accepted without inviting any adverse observation in the assessment framed in his hand at the same time by the same A.O. The financial statements of Shri Sushil Singhal indicates that he is having substantial plant and machinery worth Rs.104.83 lakhs being opening WDV in assessment year 2014-15 and there has been further addition to Land machinery of Rs. 33.64 lakhs. The various plant and machinery like dumper, tripper excavator, tippers, JCB etc. fully ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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substantiate the contention of the appellant company that Shri Sushil Singhal had satisfactory ability to execute the sub contract work for the appellant company. The financial statements of Shri Sushil Singhal also indicted that substantial loans have been obtained from the financial institutions in order to acquire the fixed assets being plant and machinery for execution of civil work. The evidence on record thus fully substantiates that Shri Sushil Singhal has executed the work of sub contract of appellant company, Moreover the aforesaid facts have been accepted by A.O. in the assessment of Shri Sushil Singhal without inviting any adverse observation and thus there is no reason to come to a contrary conclusion while considering the allowability of expenditure on account of sub contract payments by the appellant company. In the case of appellant sub contract payments made in past and subsequent years has been accepted.
7.3.4 It is seen in the case of appellant sub contract payments to Sushil singhal has been accepted in regular assessment. In the course of search no incriminating material or evidence was found to impeach the genuineness of sub contract expenses incurred by appellant company. It is settled proposition of law that in assessment framed u/s 153A of I.T. Act 1961 the additions in the completed assessment have to be restricted to incriminating evidence or material found during the course of search. In the case of appellant there is no incriminating evidence or material found during the course of search with regard to sub contract expenses paid to Shri Sushil Singhal which was accepted in the regular assessment framed and has achieved finality. The addition made in the absence of incriminating evidence or material on record came to be considered by Hon'ble ITAT, Delhi Bench, Delhi in case of M/s. Best Infrastructure Pvt. Ltd. reported at 47 CCH 0159 and relevant findings as recorded in said order are reproduced hereunder:
"8. We have carefully considered the arguments of both the sides and have perused the material placed before us. In the case of Kabul Chawla (supra), Hon'ble Jurisdictional High Court has considered all earlier decisions of Hon'ble Delhi High Court and has also considered the decisions of other High Courts and Tribunals and summarized the legal position in paragraph 37 and at the conclusion of the case in paragraph 38, which are reproduced below:-ITA No.82/JAB/2019
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"Summary of the legal position.
37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under-
i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as afresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassessthe 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
iv Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material orinformation available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153Ais relatable to abated proceedings (ie those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
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vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material earthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment Conclusion
38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed."
9. In clause (iv) above, their Lordships held "Obviously an assessment has to be made under this Section only on the basis of seized material". In clause (v), the same is reiterated by holding "In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made". In clause (vi), it is stated "Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search"
10. In the case of RRJ Securities Ltd. (supra), in paragraph 21, it has been held :- "In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received by the AO represent or indicate any undisclosed income or possibility of any income that may be remained undisclosed in the relevant assessment years, This Court in Commissioner of Income Tax (Central)-III v. Kabul Chawla ΙΤΑ 707/2014, decided on 28th August, 2015 has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments."
11. In the case of Harjeev Aggarwal (supra), Hon'ble Jurisdictional High Court considered the evidentiary value of the statement recorded during the course of search. The relevant portion is paragraph 19, 20 & 24, which are reproduced below for ready reference :-
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"19. In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under Section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the assessee in its statement, under the Provisions of Chapter XIV-B of the Act.
20. In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because anyadmission was made by the assessee during search operation
24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessee to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are corded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted Therefore, it is necessary to ensure that such statements, which retracted subsequently, do not form the sole basis for computing undisclosed income of an assessee'
12. Thus, Hon'ble Jurisdictional High Court has held "The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations" Their Lordships further observed "However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation" In paragraph 24, theu Lordships have mentioned about the prevailing practice of extracting statement by exerting undue influence or coercion by the search party Though ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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the above decision in the case of Harjeev Aggarwal is with reference to the meaning of undisclosed income u/s 158BB of the Income-tax Act, however, in our opinion, the above observation of Hon'ble Jurisdictional High Court would be squarely applicable while considering the evidentiary value of the statement while making the assessment u/s 153A."
"23. We have discussed in detail the legal position as laid down by Hon'ble Jurisdictional High Court and Hon'ble Apex Court in various cases. We have also discussed the facts of the assessee's case. Now, applying the law as laid down by Hon'ble Jurisdictional High Court and Hon'ble Apex Court to the facts of the assessee's case, the following position emerges
(i) No addition u/s 153A in respect of a completed assessment can be made unless some incriminating material was unearthed during the course of search Admittedly, in the case of the assessee, no incriminating material with regard to issue of share capital has been found and seized during the course of search (u) Any statement recorded during the course of search cannot on a standalone basis without reference to any other material discovered during search and seizure operation would empower the Assessing Officer to make the addition The words "evidence found as a result of search" would not take within its sweер statement recorded during search and seizure operations. Therefore, the Revenue's stand that the addition u/s 153A can be made in respect of share capital on account of statement of Shri Tarun Goyal and Shri Anu Aggarwal cannot be accepted.
(un) Even otherwise, the statement of ShriTarunGoyal cannot be utilized against the assessee as his statement was recorded behind the back of the assessee and the assessee was not allowed opportunity to cross-examine him.
(iv) In the statement of Shri Anu Aggarwal dated 15th September, 2008, the query was raised with regard to loose papers found and seized from their premises. Admittedly, none of the loose papers was relating to issue of share capital. The loose papers were pertaining to unaccounted receipt on sale and unaccounted expenditure on construction. In the statement dated 24th October, 2008, though the query was raised with regard to issue of share capital and the statement of Shri Tarun Goyal was confronted wherein he has alleged to have provided accommodation entry to the assessee group, Shri ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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Anu Aggarwal categorically denied to have received any accommodation entries from anybody.
24. In view of the above, we hold that the issue of share capital was out of the purview of assessment u/s 153A as the assessment for assessment year 2005- 06 was not pending on the date of search and no incriminating material relating to share capital was found during the course of search. Accordingly, the addition of Rs.3,60,00,000/- made by the Assessing Officer and sustained by learned CIT(A) for unexplained share capital is deleted"
7.3.5 The aforesaid decision has further been upheld by the Hon'ble Delhi High Court vide, its judgment dated 01/08/2017 in ITA No.13/2017. Perusal of assessment order shows that addition made is not on the basis of any incriminating material or evidence found in the course of search. Regular assessment framed has already achieved finality. The facts and circumstances in case of appellant are similar to that of decision of Hon'ble Delhi High Court. The ratio laid down by the aforesaid decision squarely applies to the facts in case of appellant. The addition made by A.O. is thus unjustified and unsustainable.
7.3.6 Considering the totality of the facts and circumstances in the case of appellant as above, I am of the considered opinion that the addition made by the A.O. on account of sub contract payments to Shri Sushil Singhal is unjustified and unsustainable. I, therefore, direct the A.O. to delete the addition made by him at Rs. 1,23,62,077/ and these grounds of appeal of the appellant are allowed."
6.2. It is a fact that the assessee had made sub-contract to Shri Sushil Singhal. It is a fact that Shri Sushil Singhal also was covered in the search based on the consequential search warrant issued in his name on 16.10.2014 and search assessments were independently framed on him by the very same ld. AO just 4 days prior to the completion of search assessments in assessee's company case. In the search assessments completed in the hands of Shri Sushil Singhal, the sub-contract payments ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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made by the assessee company to Shri Sushil Singhal were treated as 'business income' by the very same ld AO, meaning thereby, the ld AO had indeed accepted the fact that Shri Sushil Singhal had acted as a sub- contractor to the assessee company. Having taken the said stand while framing the search assessment of Shri Sushil Singhal, the very same ld AO would not be justified in taking a divergent stand while framing the search assessment in the hands of the assessee company by stating that Shri Sushil Singhal is a man of no means and does not have capacity to execute sub-contract work for the assessee company. These facts were duly appreciated by the ld CIT(A) on merits while granting relief to the assessee company, on which, we do not find any infirmity. In any event, no addition could be made at all in the hands of the assessee company for AYs 2012- 13 and AY 2013-14, being unabated/ completed assessments, as there was absolutely no incriminating material that was found either in the course of search of assessee company or in the course of search of Shri Sushil Singhal to doubt the genuineness of sub-contract payment to Shri Sushil Singhal. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. reported in 454 ITR 212 (SC). For AY 2014-15, the assessee though would not be covered by the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwell (supra), still the assessee company would be entitled for relief on merits in view of the aforesaid observations. Accordingly, the ground No. 3 raised by the revenue for AYs 2012-13, 2013-14 and 2014-15 is dismissed.
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7. Addition on Rs. 12,02,643/- account of Sale of Gitti Ground No. 5 for AY 2012-13 We have heard the rival submissions and perused the materials available on record. The ld AO observed that the assessee company apart from civil construction works is engaged in mining of minor minerals. It excavates black basalt, 'Gitti', 'murum' etc and the same are used as raw material at their construction sites and sold to others as well. The assessee has mines situated at Bilaspur, Lalpur, Distt. Shahdol, Distt. Umaria and Panjee Camp- Hatta, Distt. Damoh. The company has another mine situated at Khasra No. 371/1, Village Banka, Tehsil-Chandiya, Distt. Umaria (MP) spread over 5 acres of land. The same had been leased to assessee company by Government of Madhya Pradesh for a period of 10 years i.e. till 21.07.2018 which is extendable for next ten years.
7.1. During the course of search, evidence was found for unaccounted sale of Gitti from their crushers as per seized document A-1/LPS-22/Page-17. Shri Padam Singhania u/s 132(4) of the Act surrendered the sum of Rs. 12,02,643/- on account of unaccounted sale of gitti for FY 2010-11, 2011- 12 and 2012-13. However, this commitment was not honored by the assessee while filing the return of income u/s 153A of the Act. The assessee during the course of assessment proceedings stated that the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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seized documents represent only rough notings and which are not supported with any corroborative evidence. The ld AO however, disregarded the same and stated that the seized paper is titled as Gitti Sale Summary, it contains the name of the party, period in which the sale was made and quantity sold thereon. Accordingly, he proceeded to add the sum of Rs. 12,02,643/- as unaccounted sales in the hands of the assessee. The ld CIT(A) observed that the period mentioned in the seized documents from December 2010 to May 2012 and said document is dated 26.05.2012. The said seized documents does not represent any sale of gitti made during the year under consideration. Accordingly, the addition made by the ld AO ignoring this fact and merely based on statement of Shri Padam Singhania cannot be sustained in the eyes of law. The seized document A- 1/LPS-22/page 17 is reproduced at page 90 of the assessment order. On perusal of the said seized documents, we find that the same contains the name of the party, sale of gitti made during the particular period, number of trips undergone together with the quantity sold thereon. Nowhere the said seized document contains the value of rate per metric ton. Hence, the basis of Rs. 250 per metric ton adopted by the ld AO for arriving the sale figures of Rs. 12,02,643/- is apparently devoid of merit. Further, we find from the perusal of the said seized documents that the sale has been made spread over a period of 3 FYs i.e. FY 2010-11, 2011-12 and 2012-13 relevant to AYs 2011-12, 2012-13 and 2013-14. There is absolutely no break up of quantity sold for each of the financial years in the said seized ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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documents. Apart from these rough notings in the loose papers, no other corroborative evidence was found by the search team or any other corroborative material brought on record by the ld AO in the assessment proceedings. In these circumstances, the said seized documents require to be considered as dumb documents based on which no addition could be made. It is pertinent to note that the addition has been made based on the statement of Shri Padam Sighania by the ld AO. But we find that the said statement had been retracted by him subsequently which fact has been ignored by the ld AO. There is absolutely no basis brought on record by the ld AO to adopt the sale rate of Rs. 250 per metric ton for arriving at the unaccounted sale of gitti. Accordingly, the Ground No. 5 raised by the revenue in AY 2012-13 is dismissed.
8. Addition on account of unaccounted cash payment of Rs. 8,62,692/-.
Ground No. 1 for AY 2014-15.
We have heard the rival submissions and perused the material available on record. During the course of search, seized documents A-1/LPS-6/ Pages 33 and 34 comprising loose papers were recovered from the head office of the assessee company. The said loose papers are ledger account of Shri Pradeep Khare for FY 2013-14. The said account mentioned cash payments made to Shri Pradeep Khare from Shivangi Oil Pvt. Ltd, Bilaspur for mining work totaling to Rs. 8,62,692/- during the FY 2013-14 relevant to AY 2014- ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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15. Shri Padam Sighania in his statement u/s 132(4) of the Act agreed to offer this as unaccounted cash payment but did not honor his commitment while filing return u/s 153A of the Act for the assessee company. The assessee was show caused by the ld AO as to why a sum of ₹ 8,62,692/- be not brought to tax as unaccounted cash payments made by the assessee. The assessee responded that Shri Pradeep Khare is a liaison agent and the entire cash payments reflected in the ledger account on account of transaction pertains to the assessee company. The assessee submitted that this is nothing but imprest cash given to Shri Pradeep Khare and source for giving for such imprest money were drawn from the regular cash balance available with the assessee company, which are duly reflected in the main cash book maintained by the assessee company. This is also reflected as a contra entry in the imprest cash book/ petty cash book maintained by Shri Pradeep Khare. The assessee in support of these contentions furnished the main cash book as well as the petty cash book together with the cash vouchers for expenses incurred by Sri Pradeep Khare on behalf of the assessee company before the ld AO. The ld AO disregarded the same and proceeded to add a sum of ₹8,62,692/- as unaccounted cash payments made by the assessee on substantive basis and same was also added in the hands of M/s. Shivangi Oil Pvt Ltd. on protective basis.
8.1. The assessee submitted before the ld CIT(A) that the ld AO had not even bothered to make enquiry/ cross verification with Shri Pradeep Khare ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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to ascertain the facts. It was submitted that the assessee had maintained regular books of account with respect to expenses incurred and claimed in profit and loss account. From the cash vouchers of Shri Pradeep Khare, it could be seen that the expenditure was incurred by Shri Pradip Khare out of imprest amount given to him and the same is also duly reflected in the petty cash book maintained by Shri Pradeep Khare. These expenses were allowed as deduction by the ld AO in the search assessment. While this is so, there was no reason to dismiss the explanation given by the assessee that the cash payments made to Shri Pradeep Khare are already reflected in the books of account of the assessee company for which the sources were drawn from the sufficient cash balance available with the assessee company. The ld CIT(A) appreciated these contentions of the assessee on examination of the cash book and petty cash book, which are already placed on record before the ld AO and deleted the addition.
8.2. We find that the deletion of this addition has been made based on verification of cash book made by the ld CIT(A). It is a fact that Shri Pradeep Khare is a liaison agent for the assessee working in site and had to be provided imprest cash for meeting the expenditure for and on behalf of the assessee company. Time and again, the imprest was given by the assessee company out of sources drawn from the cash book regularly maintained by the assessee company, which fact is not disputed at all. It is the duty of Shri Pradeep Khare to maintain an account for the imprest cash received by him from the company together with the relevant cash ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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vouchers and evidences and seek replenishment of the imprest cash from the company from time to time on production of accounts with supporting documents. The seized document based on which the addition has been made was the ledger account of various imprest cash payments made to Shri Pradeep Khare for meeting expenses for and on behalf of the assessee company. As stated earlier, the imprest cash has been paid to Shri Pradeep Khare out of sufficient cash balance available with the assessee company. On receipt of details of expenditure from Shri Pradeep Khare, the same are reflected in the books of account of the assessee company under the concerned expenditure head. Till the time Shri Pradeep Khare produces the accounts with evidence seeking for replenishment of the imprest account for day-to-day expenses incurred by him, the expenditure incurred gets reflected only in the imprest cash book maintained by him at the site. It is not disputed that the expenditure incurred by Shri Pradip Khare for and on behalf of the assessee company were duly claimed as deduction and allowed by the ld AO in the search assessment proceedings. Hence, it cannot be said that those payments are not recorded in the books of accounts of the assessee company warranting any addition. In these facts and circumstances of the case, the statement given by Shri Padam Singhania has got absolutely no relevance. In any event, the said statement stood subsequently retracted by him. Hence, the entire addition is made by the ld AO without appreciating the modus operandi adopted ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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and the evidences on record. Accordingly, ground No. 1 raised by the revenue in AY 2014-15 is dismissed.
9. Addition of ₹28,76,300 on the basis of rough extracts of invoices Ground No. 4 for AY 2014-15.
We have heard the rival submissions and perused the material available on record. During the course of search, seized document A-1/LPS-1/pages 3 to 33 were seized from the office premises of the assessee company located at Burhar, containing certain bills of "Om Marketing" and "Ishwari Industries". The Search party compared the said invoices with the ledger account of Om Marketing and Ishwari Industries in the books of the assessee company and found that those invoices reflected in the seized documents were not recorded by the assessee company. Shri Padam Singhania surrendered the total of these bills to the tune of ₹28,76,300/- in his statement but did not honor the same while filing the return of income u/s 153A of the Act for the assessee company. In response to the show cause notice issued by the ld AO during the course of search assessment proceedings, the assessee stated these are fabricated papers and has got no relevance either with income or expenditure of the assessee and these invoices are only sample bills which were not acted upon by the assessee. The ld AO, however, disregarded the said explanation and proceeded to add a sum of ₹28,76,300/- as unexplained expenditure in the hands of the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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assessee. The assessee requested the ld AO to make direct enquiry from M/s. Om marketing and Ishwari Industries to ascertain the facts. The ld AO made an independent verification from Sri Ravi Asudani, proprietor of Om marketing and Ishwari Industries who confirmed that these invoices were not acted upon by the parties and also denied having made any cash sales to the assessee company from the said concerns. Hence it goes to prove that the assessee had not purchased any goods from these concerns that are reflected in the seized documents and those invoices are mainly proforma invoices. All the transactions made with these two concerns were already reflected in the regular books of account maintained by the assessee company and the transactions reflected in the seized documents are only proforma invoices which were never acted upon between the parties. This argument was appreciated by the ld CIT(A) and the addition was deleted by observing as under:-
7.5.3.DECISION:- I have carefully considered the submission put forth & the documents furnished on behalf of the appellant, perused the facts of the case and the observation of the AO in the impugned assessment order and other material evidences brought on record. The A.O. has made an addition of Rs.28,76,300/ on the basis of certain invoices found in search of M/s. Om Marketing and M/s. Ishwarı Industries. In the course of search bills of Rs. 13,57,500/- pertaining to M/s. Om Marketing and Rs 15,18,800/- pertaining to M/s. Ishwari Industries were found The A.O. had examined the Fproprietor of the aforesaid concerns Shri Ravi Asudani wherein he has stated that no cash sale has been made to the appellant company The aforesaid invoices found in the course of search was not found recorded in the regular books of account of appellant. The appellant has also not claimed to have received the aforesaid goods for executing work. The independent evidence collected bythe A.O. on record indicates that the ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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seized documents are not the evidence of any payment made by the appellant which is not recorded in books of account. It is noted that no claim is made by appellant in respect ito aforesaid seized documents and it is also not an evidence of payment made by the appellant is undisputed fact on record. In view of above facts there is no justification for making any addition at the hands of appellant in as much as there is neither any claim which requires disallowance nor there is any unexplained expenditure which requires addition at the hands of appellant. The seized documents are in fact no evidence of transaction made by the appellant which requires adverse consideration at the hands of appellant. Thus explanation of appellant that the aforesaid documents are fabricated documents which have no relevance either with income or expenditure of appellant deserves acceptance.
7.5.4 The addition made by the A.O. is by referring to statement of Shri Padam Singhania. The statement obtained from Shri Padam Singhania has been retracted. The A.O. has not brought on record tatement any corroborative material or evidence to support the statement obtained. The evidentiary value and addition made on the basis of statement has been considered by Hon'ble High Court of Jharkhand in the case of Shree Ganesh Trading Co. reported at 257 CTR 0159 and Hon'ble High Court of Andhra Pradesh in the case of Gajjam Chinna Yellappa reported at 370 ITR 0671. The relevant portion of aforesaid two judgements are reproduced at para 16 & 17 above. The ratio laid down by the aforesaid decisions squarely applies to the facts in case of appellant. Circular of Board dated 10/03/2003 and further clarification issued on 18/12/2014 also support the contention of appellant. Respectfully following the same, I am of the considered opinion that the addition made by the A.O. on the basis of statement of Shri Padam Singhania which has been retracted subsequently is unjustified and unsustainable. Rough extracts of invoices are no credible evidence on the basis of which addition as made by the A.Ο. can be justified 7.5.5 In the course of search no corroborative evidence or material is found on record to show that the appellant has incurred any unexplained expenditure. Infact independent verification of Proprietor of said two concerns made by theA.O. in the course of assessment ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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proceedings substantiate the submission of appellant. Evidentiary value in respect to loose papers have come up for consideration before Hon'ble ITAT, Ahemdabad Bench, Ahmedabad in case of M/s Nishant Construction Pvt. Ltd in ITA No. 1502/Ahmd/2015 and Hon'ble Hyderabad ITAT in case of DCIT Vs. K. Baburao reported at 39 CCH
34. The relevant portion of aforesaid two judgements are reproduced at para 7.2.4 while adjudicating Ground No. 8 to 11. The ratio laid down by aforesaid decisions squarely applies to the facts in case of appellant considering the aforesaid judicial precedent addition made by the A.O. is unjustified and unsustainable 7.5.8 Considering the totality of facts and circumstances in case of appellant, I am of the considered opinion that the addition made by the A.O. at Rs.28,76,300/- is unjustified and unsustainable. The addition so made by the A.O. at Rs.28,76,300/- is directed to be delete. These grounds of appeal of appellant are allowed."
9.1. We find that the ld CIT(A) had taken due cognizance of the independent verification carried out by the ld AO from the proprietor of 2 concerns i.e. Om marketing and Ishwari Industries, wherein the proprietor had categorically denied having made any cash sales in respect of those invoices to the assessee company and also denied having made any transaction qua those invoices reflected in the seized documents with the assessee company. This clearly goes to prove that the documents are merely rough notings and proforma invoices not acted upon by the parties. In fact, the corroborative material in the form of third-party independent examination goes in favour of the assessee. This fact has been duly appreciated by the ld CIT(A) while granting relief to the assessee company on which we do not find any infirmity. Accordingly Ground No. 4 in Assessment Year 2014-15 is dismissed.
ITA No.82/JAB/2019IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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10. Addition on account of unaccounted receipts of ₹1,73,63,660/-
Ground No. 1 for AY 2015-16 We have heard the rival submissions and perused the materials available on record. In the group of cases at the instance of Authorized Officer, a sum of ₹9 crores was offered for taxation with understanding that the same would be considered as a reasonable disclosure by the group as a whole. Alternatively, it was also understood by the group that the same would be available for telescoping benefit in the hands of various assessees' of the group. Accordingly, the various family members pertaining to the group offered a sum of ₹9 crores in total in their returns and paid taxes thereon. During the course of search, loose sheet identified as A-1/LPS-4 in page 21 was found which contained certain rough notings. The assessee pleaded that such rough notings does not represent any transaction that had materialized in the assessee's firm. Shri Padam Kumar Singhania, the key person of the Singhania group, during the course of search, gave a statement u/s 132(4) of the Act agreeing to offer the contents of the said seized documents totalling to ₹1,73,63,660/- as unaccounted receipts in the hands of the assessee. The main case of the revenue is that the noting in the said seized documents indicate that amount is received from Shri Ashok Singh for some Government work. The ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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assessee on its part placed on record the evidences that Shri Ashok Singh have not received any contract work under the Pradhan Mantri Gram Sadak Yojna (PMGSY) and M.P.Rural Road Development Authority (MPRRDA) and thus there is no question of any money to be received from the said party. The assessee also gave the address of the party before the ld. AO. The ld. AO further did not make any effort to verify the facts from the said party as to whether any money has been paid by him to the assessee or not and proceeded to treat the entire sum mentioned in the seized documents of ₹1,73,63,660/- as unaccounted receipts in the hands of the assessee based on the initial statement of Shri Padam Kumar Singhania, ignoring the fact that the said statement subsequently stood retracted by him. It has to be understood that the family members of Singhania Group had come forward to offer additional income of ₹9 crores for the entire group as a whole. The assessee on its part had denied the aforesaid loose papers and pleaded that the same would only have to be construed as dumb documents as it is not corroborated with any external evidence. Alternatively, the assessee had requested for telescoping benefit with the disclosure made in the total sum of ₹9 crore by the entire family members. This benefit of telescoping was not granted by the ld. AO and the addition ultimately was made in the hands of the assessee company herein based on the original statement of Shri Padam Singhania.
10.1. The assessee reiterated its submissions before the ld. CIT(A) and pleaded that the contents in the seized documents are just rough notings.
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No cash was received by the assessee from Shri Ashok Singh to the tune of ₹1,73,63,660/-. The assessee stated that an information was sought under Right to Information (RTI) Act from PMGSY and MPRRDA asking about the work allotted to Shri Ashok Singh. The authorities confirmed that they had not given any work to Shri Ashok Singh. Based on the strength of this RTI information, the assessee pleaded that the contents in the seized documents are just rough notings not having any supportive or any corroborative evidence and hence had to be construed as dumb documents. The assessee also clarified that the said notings were made to mislead the financers/ creditors that their debts would be paid as soon as the money is received from the mentioned sources, but in reality, no such source actually existed and the said loose paper is merely fake document. The assessee pleaded that there were no transactions with Shri Ashok Singh, hence, there was no occasion at all for it to receive any cash from the said party. The ld. CIT(A) duly appreciated the contentions of the assessee by categorically observing that contents of the loose papers found in the course of search were not supported with any corroborative evidence. He also observed that the ld AO had not brought any evidence or material to show that the assessee was in receipt of money to the tune of ₹1,73,63,660/- during the year. But the assessee on its part had duly furnished the information obtained under RTI Act from PMGSY and MPRRDA stating that Shri Ashok Singh had not been awarded any Government work during the FY 2014-15 and this information have not ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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been found to be incorrect or false. The ld. CIT(A) also observed that no addition can be made merely on the basis of a statement of any person. Thereafter, the ld CIT(A) by placing reliance on the decision of the coordinate bench of Ahmedabad Tribunal in the case of Nishant Construction Pvt. Ltd. in ITA No. 1502/Ahd/2015 dated 14/02/2017; decision of the Hon'ble Supreme Court in the case of Common Cause and others Vs. Union of India and others in Writ Petition (Civil) Appeal No. 505/2015 and decision of the Hon'ble Supreme Court in the case of V. C. Shukla reported in 1998 (3) SCC 410 deleted the addition made in the sum of ₹1,73,63,660/- in the hands of the assessee. The ld. CIT(A) also took cognizance of the fact that the statement of u/s 132(4) of the Act which have been heavily relied upon by the ld.AO for framing the addition had been subsequently retracted by him and hence no addition can be made based on such original statement which is not supported by any corroborative evidence.
10.2. Before us, the ld DR was only harping on the original statements recorded from Shri Padam Singhania. As stated in the earlier part of this order, that disclosure has been made by Shri Padam Singhania on the pretext that the same would be available for telescoping benefit with the overall disclosure of ₹9 crores made by the family members for the group as a whole on an alternative basis. In other words, the contents of these loose papers had been categorically denied by Shri Padam Singhania at the first instance as not belonging to the assessee and as an alternative ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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measure, had come forward to surrender the sum as income of the assessee with the bonafide belief that the same would be available for telescoping benefit with the overall disclosure of ₹9 crores made by the family members for the group as a whole. The ld. AO having ignored the fact that there was no occasion for the assessee to receive any money from Shri Ashok Singh, proceeded to add the rough notings in the loose papers as unaccounted receipts in the hands of the assessee and had not even given the benefit of telescoping to the assessee. It is a fact that the contents in the said documents are absolutely not supported with any corroborative evidence whatsoever. We agree with the contention of the assessee that there was no occasion at all for the assessee to receive any money from Shri Ashok Singh. Hence the notings in the loose papers found in the search are to be construed only as dumb documents not supported with corroborative evidence and hence no addition per se could be made in the hands of the assessee based on such dumb documents, dehors the statement given by Shri Padam Singhania. No work was executed by the assessee to Shri Ashok Singh, so as to enable the assessee to receive any money from Shri Ashok Singh. The assessee to prove its bona fide had also given the complete address of Shri Ashok Singh before the ld. AO. A simple verification on the part of the ld AO with Shri Ashok Singh in the manner known to law, would have brought the truth present in the transaction, which was admittedly not done by the ld. AO. Hence, there is absolutely no case for the revenue to make any addition in the hands of the assessee.
ITA No.82/JAB/2019IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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We find no infirmity in the order of the ld. CIT(A) granting relief thereon. Accordingly, the ground No. 1 raised by the revenue for AY 2015-16 is dismissed.
11. Addition on account of difference in work in progress (WIP) of ₹4,14,08,000/-.
Ground No. 3 for assessment year 2015-16 We have heard the rival submissions and perused the materials available on record. During the course of search and seizure operation at the Head Office of the assessee company located at Burhar, certain printouts in excel sheets related to work-in-progress at various sites of the assessee company were found and duly seized as A-1/LPS-6/Paged 42 to 50. As per these sheets, the total amount of WIP contract wise worked out to ₹28,75,83,000/- as on 31.08.2014. Another loose sheet was found as A- 1/LPS-6/page-51 which reads work-in-progress for the month of August (31.08.2014) and the word "actual" was mentioned thereon wherein the WIP as on 31.08.2014 was reflected at ₹32,89,91,000/-. Shri Padam Singhania was asked to explain the difference of ₹4,14,08,000/- (32,89,91,000-28,75,83,000). He replied that loose papers in pages 42 to 50 reflect the stock statement submitted before the State Bank of India, Jabalpur with respect to August 2014 and page 51 of LPS-6 is the actual work in progress of assessee company during the August 2014. However, he came forward to offer the sum of Rs. 4,14,08,000/- as undisclosed ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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income for AY 2015-16, but did not honor this commitment while filing the return of income u/s 153A of the Act for the assessee company. Show cause notice was issued by the ld AO as to why the said difference in work in progress be not added as an unaccounted income in the hands of the assessee. The assessee responded by stating that the actual work in progress as on 31.08.2014 of ₹32,89,91,000/- and it is always difficult to ascertain the actual WIP in real time as work was always going on and there is purchase of materials and labour payment and other overhead expenses incurred on day-to-day basis. The figure submitted in the stock statement to the bank is an estimated figure which should not be taken for the purpose of assessment of the company. The another loose sheet i.e. A- 1/LPS-6/Page-51 representing actual WIP as on 31.08.2014 matches with the books of account regularly maintained by the assessee and the same is more than the stock statement submitted to the bank and hence there cannot be any concealment of income thereon. The ld AO however, ignored the said submissions and proceeded to add the difference amount of ₹4,14,08,000/- based on the initial statement of Shri Padam Singhania for AY 2015-16. It is pertinent to note that Shri Padam Singhania had categorically stated in his statement u/s 132(4) that one of the bunch of loose papers represent work in progress as on 31.08.2014 for the purpose of submission of stock statement to the bank to avail the credit facility from the bank and another bunch which is reflected at page 51 of the loose sheets which is 'actual' for the month of August 2014. The very same reply ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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was given by the assessee company during the course of assessment proceedings also and the figures mentioned in page 51 of the seized documents being the actual WIP as on 31.08.2014 also matches with the regular books of account maintained by the assessee which was also examined by the ld AO and accepted in the search assessment proceedings. The regular books of account maintained by the assessee and the net profit declared thereon had not been found to be low by the ld AO. The books of accounts were not rejected by the ld AO by pointing out some defects thereon. The source for increase in work in progress of ₹4.1408 crores are duly drawn and reflected in the regular books of account maintained by the assessee. Hence, there is absolutely no case for the revenue to make an addition on account of unaccounted income thereon merely based on statement of Shri Padam Singhania. It is pertinent to note that the said statement had been subsequently retracted by Sri Padam Singhania, which has been ignored by the ld AO while framing the addition. It is a fact that seized documents at page 42 to 50 representing closing WIP as on 31.08.2014, is a rough estimate submitted to the bank for availing the credit facility from the bank. It is also pertinent to note that in the instant case, the stock statement submitted to the bank is less by ₹4.14 crores than the actual WIP as on 31.08.2014. It is not the case of the revenue in the instant case that the said differential amount of ₹4.14 crores has been invested by the assessee towards WIP from sources outside of the books of account. No addition, whatsoever was even sought ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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to be made as unexplained investment or unexplained expenditure by the ld AO. On the contrary, the said investment of ₹32.89 lakhs as on 31.08.2014 representing closing WIP as on 31.08.2014 matches with the regular books of account maintained by the assessee. Hence, the source for such investment stands duly explained from the regular books of account itself which had not been rejected by the ld AO. Hence, these facts have been duly appreciated by the ld CIT(A) while granting relief to the assessee on which we do not find any infirmity. Accordingly, we hold that there is absolutely no case for making addition of Rs.4,14,08,000/- in the hands of the assessee for AY 2015-16. Accordingly, Ground No. 3 raised by the revenue for AY 2015-16 is dismissed.
12. In AY 2007-08, the only issue on merits is with regard to denial of deduction u/s 80IA of the Act, which had already addressed in favour of the assessee in earlier part of this order. We find that the assessee had also filed petition under Rule 27 of the ITAT Rules challenging the validity of reassessment for AY 2007-08. Since the relief is granted to the assessee on merits, adjudication of Rule 27 petition of the assessee becomes academic in nature. No opinion is rendered thereon and the same is hereby left open.
13. In the result, all the appeals of the revenue are dismissed for AYs 2007-08, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14, 2014-15 and ITA No.82/JAB/2019 IT(SS) A Nos.5 to 10/JAB/2018 ITA No.22/JAB/2018 TirupatiBuildconPvt Ltd.
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2015-16 and Rule 27 petition of the assessee for AY 2007-08 is dismissed as infructuous.
Order pronounced in the open court on 28.06.2024
-Sd/- -Sd/-
(SAKTIJIT DEY) (M. BALAGANESH)
VICE PRESIDENT ACCOUNTANT MEMBER
Jabalpur Dated: 28.06.2024
AK KEOT, Sr.PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT (Judicial)
4. The PCIT
5. DR, ITAT, Jabalpur
6. Guard File
आदे शानुसार/BY ORDER,
स या पत त //True Copy//
1.
( Asst. Registrar)
ITAT, Jabalpur