Income Tax Appellate Tribunal - Kolkata
D.C.I.T Cc - Xvi,Kolkata., Kolkata vs M/S Sancia Global Infra Equipments ... on 19 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH : KOLKATA
[Before Hon'ble Shri N.V.Vasudevan, JM & Hon'ble Shri Waseem Ahmed, AM ]
IT(SS)A Nos.15-17/Kol/2013
Assessment Years : 2007-08, 2008-09 & 2009-10
D.C.I.T., Central Circle-XVI, -versus- M/s. Sancia Global Infra
Kolkata Equipments Projects Ltd. Kolkata
(PAN:AABCG 0882 E)
(Appellant) (Respondent)
For the Appellant : Md. Usman, CIT DR
For the Respondent : None
Date of Hearing : 17.01.2018
Date of Pronouncement : 19.01.2018
ORDER
Per Waseem Ahmed, AM:
1. These appeals by the Revenue arise out of the separate orders of the Learned Commissioner of Income Tax (Appeals), Central-II, Kolkata [in short the ld CITA] dated 08.11.2012, 20.11.2012 and 22.11.2012 respectively passed against the orders passed by the DCIT, CC-XVI, Kolkata [in short the ld. AO] under section 153A/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') dated 09.08.2012 for the assessment years 2007-08, 2008-09 and 2009-2010 respectively.
2. The revenue has raised the following grounds:
2IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 IT(SS)No.15/Kol/2013 A.Y.2007-08 "1. That on the facts and circumstances of the case and in law, the Ld CIT (A) was not justified in deleting the disallowance made u/s 40(a)(ia).
2. That on the facts and circumstances of the case and in law, the Ld CIT (A) was not justified in deleting the disallowance of Rs. 37,78,831/- u/s 40(a)(ia) without considering the fact that the assessee has failed to prove that TDS is not applicable on the payment.
The assessee even failed to prove that the entire expense claimed was genuine.
3. That on the facts and circumstances of the case and in law the Ld CIT (A) was not justified in deleting the disallowance u/s 40(a)(ia) on the basis of ITAT, Kolkata's order in the case of M/s Matrix Glass & Structures Pvt. Ltd. -vs- ITO, Ward-6(2), Kolkata in ITA No. 658 (Kol) of 2010 dated 28.01.2011 without considering failure of obligation of the assessee in regard to deduction of tax.
4. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case."
IT(SS)No.16/Kol/2013 A.Y.2008-09
1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in directing to eliminate income from bogus sales of Rs.114,10,16,936/- instead of Rs.85,10,68,095/-.
2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in directing to eliminate income from bogus sales of Rs.114,10,16,936/- against expenditure of Rs.85,10,68,095/- on bogus purchase.
3. That on the facts and circumstances of the case and in law, the Ld CIT (A) was not justified in deleting the disallowance made u/s 40(a)(ia)
4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in deleting the disallowance u/s 40(a)(ia) without considering the fact that the assessee has failed to prove that TDS not to be made on the amount of disallowance of Rs. 55,68,935/-. The assessee even failed to prove that the entire expense claimed was genuine.
5. That on the facts and circumstances of the case and in law the Ld CIT (A) was not justified in deleting the disallowance u/s 40(a)(ia) on the basis of ITAT, Kolkata's order in the case of M/s Matrix Glass & Structures Pvt. Ltd. -vs- ITO, Ward-6(2), Kolkata in ITA No. 658 (Kol) of 2010 dated 28.01.2011 without considering failure of obligation of the assessee in regard to deduction of tax.
2 3IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10
6. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case.
IT(SS) No.17/Kol/2013 : A.Y.2009-10
1. That on the facts and circumstances of the case and in law, the Ld (IT (A) was not justified in directing to eliminate income from bogus sales of Rs.152,47,0l,711/- instead of Rs.120,41,23, 721/-.
2. That on the facts and circumstances of the case and in law, the Ld (IT (A) was not justified in directing to eliminate income from bogus sales of Rs. 152,47,01,711/- against expenditure of Rs. 120,41,23,721/- on bogus purchase.
3. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case.
3. At the outset it was observed that these appeals by the Revenue have been fixed on several occasions but most of the time the assessee failed to appear on the dates of hearing. On the last date of hearing i.e. 07.12.2017 the ld. Counsel for the assessee was given the last opportunity for hearing and accordingly the matter was posted for hearing on 17.01.2018 but again the assessee failed to appear.
4. It was also observed that on the last occasion this Tribunal has decided all the appeals filed by the Revenue ex parte on merit by partly allowing the same for statistical purposes vide order dated 08.07.2016. These appeals were decided ex parte due to non- appearance of the assessee.
5. However, subsequently the Ld. Counsel Shri Subash Agarwal for the assessee filed Miscellaneous Application in respect of all the appeals as stated above and pleaded for recalling the ex parte order passed by this Tribunal. The pleading of the assessee was considered by this Tribunal and accordingly the ex parte orders passed by this Tribunal were recalled and fixed for hearing.
3 4IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10
6. But again it was observed that the assessee adopted the dilly-dally approach in prosecuting the appeals filed by the Revenue. On specific question from the Bench to Shri Subash Agarwal about the non-appearance of the assessee it was intimated that the assessee is not co-operating as confirmed by the briefing counsel for the assessee namely Shri Arjun Pitti.
7. In view of the above, we decide to adjudicate the impugned appeals after hearing the Ld. DR. At the threshold it was noticed that the impugned appeals have already been decided by this Tribunal vide order dated 08.07.2016 and no new facts has been brought to our notice at the time of hearing. Therefore, we are inclined to take the view which has already been taken by the Tribunal in the impugned appeals. At this juncture we find important to reproduce the view already taken by the Tribunal in the impugned appeals which is reproduced below:
IT(SS)No.15/Kol/2013 (A.Y.2007-08) This is an appeal by the Revenue against the order dated 08.11.2012 of CIT(A) - Central-II, Kolkata, relating to AY 2007-08.
2. Grounds of appeal raised by the revenue read as follows :-
"1. That on the facts and circumstances of the case and in law, the Ld CIT (A) was not justified in deleting the disallowance made u/s 40(a)(ia)
2. That on the facts and circumstances of the case and in law, the Ld CIT (A) was not justified in deleting the disallowance of Rs. 37,78,831/- u/s 40(a)(ia) without considering the fact that the assessee has failed to prove that TDS is not applicable on the payment. The assessee even failed to prove that the entire expense claimed was genuine.
3. That on the facts and circumstances of the case and in law the Ld ClT (A) was not justified in deleting the disallowance u/s 40(a)(ia) on the basis of ITAT, Kolkata's order in the case of M/s Matrix Glass & Structures Pvt. Ltd. -vs- ITO, Ward-6(2), Kolkata in ITA No. 658 (Kol) of 2010 dated 28.01.2011 without considering failure of obligation of the assessee in regard to deduction of tax.
4. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case."
3. The Assessee is a private limited company. It is engaged in the business of giving on hire of construction, earth moving equipment and heavy commercial vehicle. There was a search operation carried out u/s 132 of the Income Tax Act, 1961 (Act) in the case of "Austral Group " on 23.06.2009. The main companies of this group are M/.s Green earth Resources and Projects Ltd. (formerly known as Austral Coke and Project Ltd.) and M/S Sancia Global Infra 4 5 IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 Projects Ltd. (formerly known as Gremach Infrastructure Equipments and Projects Ltd.). The Assessee was also part of the Austral Group and was also subjected to a search u/s.132 of the Act.
4. During the course of search, several incriminating documents were found and seized. In the case of assessee, for A.Y. 2007-08 the original return of income u/s 139(1) of the Act was filed on 25.10.2007. Consequent to search action, the AO issued notices u/s 153A of the Act dated 25.04.2011 for A.Y. 2004-05 to A.Y. 2009-10. The Assessee filed a petition dated 25.09.2011 seeking extension for filing of return for the reason that all the records and documents of the Assessee were destroyed in fire on 20.02.2010. On the request of the Assessee, the AO provided copies of all the seized documents to the Assessee. However, thereafter also, the assessee did not file the return u/s 153A of the Act. Therefore, the AO issued notice u/s 142(1) along with a show cause letter for each assessment year having head-wise contemplated quantification of income. On examination of accounts and the investigations carried out during and subsequent to the search operation, it was observed by the AO that there was complexity involved in the accounts to determine the correct assessable income for the reason that the block of capital assets disclosed in the accounts were not proper, having consequential impact on the amount of depreciation and the expenditure and income on account of equipment/vehicle hire charges were also found to be inflated and incorrect. That, the financial results shown in the accounts of the Assessee do not present true and correct state of affairs and the entire accounts required to be re-examined in order to take into consideration the incorrect claim of depreciation, bogus machinery/vehicle hire charges etc. The exercise of recasting of accounts being a complex accounting process and keeping in view the complexities in accounts, the case was considered for Special Audit u/s 142(2A) of the Act. Ultimately, the Assessee was asked to get its accounts audited from the nominated chartered accountant, Shri Swapan Kumar Saha, FCA. The Auditor submitted the Special Audit Report dated 09.06.2012 on 11.06.2012. The copy of the said special audit report was provided to the Assessee and, thereafter, the assessee filed return of income for the year under consideration on 05.07.2012 u/s 153A declaring income of Rs.8,93,37,431/-.
5. In the assessment for AY 07-08, the AO noticed that the auditor in his supplementary report dated 02.08.2012 on Special Audit clarified that he could not verify the accounts on which Tax Deduction at Source (TDS) was required to be made. However, a list on which TDS could be applicable on the basis of original audited accounts, was furnished by the auditor. Based on the supplementary report, the AO called upon the Assessee to furnish the details of TDS on the heads of expenditure as per the auditor's list. In response, the Assessee submitted head-wise details of the expenditures and TDS. On perusal of details AO was of the view that the assessee has made expenditure of Rs.77,25,966/- under the head 'Transport Charges' in which TDS on expenditure to the tune of Rs.75,87,662/- was not made. On being questioned, the Assessee in its submission dated 03.08.2012 stated as under:
"TDS on Rs.75,57,662/- has not been deducted due to the reason that the transportation expenses were incurred on various construction sites at remote locations, which were paid to various parties and the same were below the threshold limit prescribed as per Income Tax Act,"
6. The AO however concluded that the Assessee failed to comply with the provisions of TDS and therefore the transportation expenses to the tune of Rs.75,57,662 cannot be allowed as deduction while computing income in view of the provisions of sec.40(a)(ia) of the Act. The following were the relevant observations of the AO:
5 6IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 "Possibility of some of the expenses being below the threshold limit of TDS cannot be ruled out. But, entire expenses of Rs.75,57,662/- on which TDS was not deducted within the threshold limit of non-deduction is not acceptable. Therefore, on ad- hoc basis 5 % of such expenses i.e. Rs.37,78,831/- is being disallowed u/s 40(a)(ia) of the Act."
7. The AO accordingly made ad-hoc disallowance of Rs.37,78,831/- by invoking provisions of section 40(a)(ia) of the Act and added the said sum to the total income of the Assessee.
8. Before CIT(A), the Assessee submitted that the principal business of the Assessee during the relevant previous year was hiring of earth moving and earth cutting equipments which were deployed in remote areas by the civil contractors. The machineries given on hire needed to be transported from place to place at frequent intervals. For this purpose the assessee had to incur transportation charges. The transport was however arranged locally by the workers at various sites where the machines were stationed. Ordinarily the site supervisors/ or site in-charge used to hire the transport available locally. The transportation charges used to be incurred and paid at sites situated in remote areas which were later reimbursed. Having regard to the nature of assessee's business and having regard to the fact that the machineries were frequently transported from site to site which were all situated in remote areas, the basic documentation used to be maintained at site where the payments to the transporters were made. The payments were always made for invoice values which used to be below Rs.20,000/- per trip. The payments were made to the transport / truck operators directly who plied their trucks locally. Having regard to the fact that machineries were hired at remote locations, assessee never engaged any regular established transport operators. The Assessee thus submitted that the payments to transporters did not attract provisions of Sec 194C of the Act because the payments to any individual transporter; against any individual transport assignment never exceeded Rs.20,000/- and aggregate payments to any individual transporter did not exceed Rs.50,000/- in a given year. It was therefore submitted that the conditions incorporated in Sec 194C of the Act were not fulfilled; the assessee did not have legal obligation to deduct tax u/s 194C of the Act and therefore the disallowance u/s 40(a)(ia) was uncalled for. It was further explained before the AO that the payments to the transporters were effected during the relevant year and the entire expenditure on transportation was fully paid during the year itself and nothing remained payable and therefore also the provision of Sec 40(a)(ia) of the Act was not applicable.
9. It was further contended that the AO did not point out any infirmity in the explanation furnished. It was pointed out that the books of accounts and supporting papers were not available for production since these were destroyed in fire. It was submitted that in the given circumstances the conclusion of the AO that there was a possibility of some expenses being in excess of threshold limit of TDS is purely based on conjectures and surmises. It was argued that u/s.40(a)(ia) of the Act there cannot be disallowance on ad-hoc estimate basis. The Assessee placed reliance on the decision of the case of Matrix Glass & Structures Pvt. Ltd Vs. ITO in ITA No. 1658(Kol)2010 dated 28.11.2011 for AY 2006-07 wherein on identical facts and circumstances disallowance made by the AO invoking the provisions of Sec.40(a)(ia) of the Act was deleted by the Tribunal by observing that in their considered view the disallowance u/s 40(a)(ia) could not be made merely because there was an apprehension/suspicion that application of Sec 194C of the Act could not be ruled out. The Tribunal noted that before making the disallowance the AO did not bring a single instance on record which proved that in any specific case payment exceeded Rs.20,000/- at anyone time and the total payments made to an individual; in the relevant year exceeded Rs.50,000/-. The Tribunal therefore held that no disallowance was permissible u/s 40(a)(ia) merely on the presumption that application of Sec 194C of the Act could not be ruled out because the payments were supported by self-made 6 7 IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 vouchers. The Assessee also relied on the Special Bench of ITAT at Vizag in the case of Merilyn Shipping & Transporters Vs. ACIT wherein it was held that provisions of Sec 40(a)(ia) of the Act are applicable only in relation to expenses which remain unpaid on the last day of the previous year and do not apply to expenses which have been actually paid during the relevant previous year.
10. The CIT(A) agreed with the submissions made on behalf of the Assessee and held that disallowance u/s.40(a)(ia) of the Act cannot be made on the basis of estimates. The following were the relevant observations of the CIT(A):
"5. I have considered the submission of the appellant and perused the assessment order. On going through the assessment order, it is apparent that the AO has made ad- hoc disallowance of Rs.37,78,831/- by invoking provisions of section 40(a)(ia) of the Act on account of transportation charges. On careful consideration of the facts and in law, I am of the opinion that the AO was not justified in making ad-hoc disallowance u/s 40(a)(ia) of the Act. The section 40(a)(ia) reads as under:
"Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the heads 'Profits and gains of business or profession',-
(a) in the case of any assessee -
(i) ............................................
(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contactor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid "
Thus, on plane reading of the above provisions, it is apparent that in order to invoke the provisions of section 40(a)(ia), the first and foremost condition that has be satisfied, is that the tax is deductible at source on the amount of expenditure under Chapter XVII - B of the I.T. Act. The provisions of section 40(a)(ia) cannot be invoked on the presumption that there is a possibility that on some amount of expenditure tax was deductible at source. I am of the opinion that there cannot be any disallowance u/s 40(a)(ia) on ad-hoc basis. The provisions of section 40(a)(ia) have to be invoked in absolute terms and not on presumption. If, there is an expenditure on which tax was deductible under Chapter XVII - B, and the tax has not been deducted or, after deduction, not paid within the time', only then the provisions of section 40(a)(ia) can come into play to make the disallowance of such an expenditure. In the case of appellant company, it is observed that that it had incurred expenditure of Rs.77,25,966/- on account of transportation charges. In the course of assessment proceedings it was explained before the AO that out of total expenditure of Rs. 77,25,966/ -, the TDS on the payment of Rs.75,57,662/- was not made because the payments were made to various parties and the same were below the threshold limit prescribed in the relevant provisions of the Act. However, the AO did not accept the contention of the appellant in its totality and on ad-hoc basis 50% of Rs.75,57,662/- was disallowed by invoking provisions of section 40(a)(ia) of the Act. However, as discussed above, this action of the AO is not in accordance with law and, therefore, cannot be approved.
7 8IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 5.1 In the case of M/5 Matrix Glass & Structures Pvt. Ltd. vs. ITO, Ward- 6(2), Kolkata, ITA No. 658 (Kol) of 2010 dated 28.01.2011, the AO had made disallowance of Rs.11,58,302/- on account of transportation charges by invoking the provisions of section 40(a)(ia) of the Act. The aforesaid disallowance was made by the AO for the reason that the assessee company did not furnish details and evidences to verify whether provisions of section 194C was applicable or not and as to whether each payment was below Rs.20,000/-. The disallowance made by the AO was upheld by the CIT(A). On further appeal, the Hon'ble ITAT, "A" Bench, Kolkata held as under:
" ..........we are of the considered view that the disallowance made u/s 40(a)(ia) of the Act could not be made merely because there is an apprehension/suspicion that application of section 194C could not be ruled out. The Department has not brought even a single instance on record that out of the above amount aggregating to Rs.11,58,302/ -, there was any case where payment exceeding Rs.20,000/- was made at a time and/or the total payments made to an individual truck owner in the financial year was exceeding Rs.50,000/- by the assessee. If the assessee has not maintained proper evidences, the disallowance could be made under other provisions of the Act on the ground of non- genuineness or as per section 40A(3) of the Act if applicable, but no disallowance could be made u/s 40(a)(ia) of the Act merely on presumption that application of section 194C could not be ruled out because payments were supported by self-made vouchers without containing details of transporters/truck owners. In order to make disallowance u/s 40(a)(ia) of the Act, the Department has to specifically bring out a case that the assessee was required to deduct TDS on the payments made as per provisions of the Act which assessee failed to do so. In view of the above, we are of the considered view that in the facts and circumstances of the case, the disallowance of Rs.11,58,302/- claimed by the assessee under the head transportation charges is not justified. Hence, we delete the same."
The facts in the case of appellant company are same as in the case of M/s. Matrix Glass & Structures Pvt. Ltd. (supra). In the case of appellant company also, the AO has brought no material on record to prove that there was any default u/s 194C of the Act on the part of appellant company in not deducting the TDS on Rs.37,78,831/-. Therefore, no disallowance could be made u/s 40(a)(ia) of the Act merely on assumption and surmises. In view of above facts and respectfully following the decision of Hon'ble Jurisdictional ITAT, the AO is directed to delete the disallowance made u/s 40(a)(ia) on account of transportation charges. The ground nos. 1 to 3 are allowed."
11. Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.
12. Despite service of notice through DR none appeared on behalf of the assessee. Copy of the acknowledgment evidencing service of notice on the assessee together with the letter dated 16.05.2016 of DCIT, Circle-5(1), Kolkata is placed on record. We have heard the submissions of the ld. DR, who submitted that the provision of section 40(a)(ia) of the Act are mandatory. It was the submission that it is no doubt true that no adhoc disallowance u/s 40(a)(ia) of the Act could be made by the AO. Nevertheless since the quantum of expenditure on transport charges on which TDS was not made was quantified at Rs.75,57,662/- and since the assessee only made submissions that payments were always made for invoice values which used to be below Rs.20,000/- in single instance and that the aggregate payments of any individual transporter did not exceed Rs. 50,000/- in a given year, without any proof or evidence to substantiate its claim, 8 9 IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 the CIT(A) ought not to have deleted the disallowance made by the AO just by relying on the submissions of the Assessee. It was further submitted by him that the assessee should be directed to substantiate its case by furnishing the required details and evidence in support of its claim. It was prayed by him that order of CIT(A) should be set aside and the issue remanded to the AO with the direction to the assessee to furnish proof to show that payments made to individual transporters against the individual transport assignment never exceeded Rs.20,000/- and the aggregate payment to any individual transporter did not exceed Rs.50,000/- in a given year.
13. We find force in the submissions of the ld. DR and are of the view that order of CIT(A) should be set aside and the issue remanded to the AO for fresh consideration as suggested by the ld. DR. We order accordingly. As rightly pointed out by him disallowance u/s.40(a)(ia) of the Act cannot be made on ad-hoc basis but the Assessee should substantiate its claim payments made to individual transporters against the individual transport assignment never exceeded Rs.20,000/- and the aggregate payment to any individual transporter did not exceed Rs.50,000/- in a given year. The proof to be let by the Assessee in this regard can either be direct proof or circumstantial evidence, keeping in mind the fact that the books of accounts of the Assessee were destroyed in fire.
14. In the result the appeal by the revenue is allowed for statistical purposes.
15. IT(SS)No.16/Kol/2013 A.Y.2008-09: This is an appeal filed by the Revenue against the order dated 20.11.2012 of CIT(A)-Central-II, Kolkata relating to A.Y.2008-09.
16. Ground Nos. 1 and 2 raised by the revenue read as follows :-
"1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in directing to eliminate income from bogus sales of Rs.114,10,16,936/- instead of Rs.85,10,68,095/-.
2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in directing to eliminate income from bogus sales of Rs.114,10,16,936/- against expenditure of Rs.85,10,68,095/- on bogus purchase."
17. As we have already seen while deciding the appeal of the revenue for A.Y.2007-08, there was a search and seizure operation carried out u/s 132 of the Act in the case of "Austral group" on 23.06.2009. Pursuant to which the assessee was also searched and proceedings were initiated u/s 153A of the Act. As far as the A.Y.2008-09 is concerned in the assessment proceedings u/s 153A of the Act, the books of accounts were not available as it was destroyed in fire and the special audit was carried out u/s 142(2A) of the Act. Based on the Special audit report and other documents available the assessment for A.Y.2008-09 u/s 153A of the Act was carried out by the AO.
18. The main business activity of the Assessee was to provide construction/earthmoving equipments and heavy vehicles on hire and trading of hard coke. According to the revenue, during the course of search, documents were found and seized which revealed that the Assessee was indulging in bogus transactions of i.e., hire charges, excavation and other contractual work were shown to have been received when no such transactions actually took place. In the course of assessment proceedings, the Assessee failed to produce books of account, bills, vouchers and other relevant documents and claimed that the same had been destroyed in fire. The auditor also could not examine the books of account for the same reason and the evidence that the books of account and other documents were destroyed in fire was obtained by him. The special 9 10 IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 auditor prepared the revised Balance Sheet and the Profit and Loss Account on the basis of seized documents, regular assessment order of earlier years, earlier audited balance sheet and profit and loss account as well as the appraisal report prepared by the investigation wing.
19. During the course of proceedings u/s 153A of the Act, it was observed by the AO that the documents with identification mark NKJ-2, NKJ-3, NKJ-4, NKJ-5, NKJ-8 and NKJ-9 impounded from the office of GDJ Constructions Pvt. Ltd. and GDJ Exports Pvt. Ltd., in the course of survey action u/s 133A of the Act on 27.08.2009 revealed that assessee company booked machinery hire charges in the name of GDJ Constructions Pvt. Ltd., GDJ Exports Pvt. Ltd., Ampoule Auto Pvt. Ltd. and Ganco SS India Pvt. Ltd. amounting to Rs.85,26,19,991/- for Financial Year 2007-08 relevant to A.Y. 2008-09. The statement of Shri Nikhil Jalan recorded on oath on 27.08.2009 wherein he stated that the transactions of hire charges were on paper only and no actual hiring of machineries had taken place. Shri Ajit Jindal in his statement recorded u/s 131 of the Act on 16.11.2011 too has confirmed the transactions entered into with the companies of Nikhil Jalan were bogus. None of these companies had the necessary infrastructure or technical expertise to carry out the hiring of the machineries and there were no concrete evidences to prove the genuineness of the transactions. Therefore, the AO asked the Assessee to explain as to why the hiring charges shown as paid to the above named parties should not be treated as bogus expenditure and disallowed. In response, it was submitted by the Assessee that against the disallowance of bogus hiring charges paid by the Assessee, the corresponding hiring charges received by the Assessee should also be treated as bogus and required to be deducted from the gross receipts/sale. According to the AO, in the Special Audit Report dated 09.06.2012, Shri Swapan Kumar Saha, FCA, too has categorically mentioned the above Machinery Hire Charges to be bogus. Hence, in the year under consideration, he disallowed sum of Rs.85,26,19,991/- on account machinery hiring charges paid by the Assessee.
20. During the course of assessment proceedings, it was further observed by the AO that the survey action u/s 133A of the Act was conducted in the case of Nikhil Impex and Gilbert Commercial Pvt. Ltd. at 19,British Indian Street, Kolkata-69, which revealed that the Assessee booked income/receipt from machinery hire charges in the name of said two concerns amounting to Rs.38,30,47,366/- and Rs.13,70,78,412/-, respectively aggregating to Rs.52,01,25,778/- during F.Y. 2007-08 relevant to A.Y. 2008-09. The statement of Shri Nikhil Jalan, proprietor of Nikhil Impex and director of Gilbert Commercial Pvt. Ltd. was recorded on oath wherein he stated that the transactions of hiring charges were on paper only and no actual hiring of machineries had taken place. On being questioned to the Assessee about this fact, the assessee submitted that the Special Auditor, M/S Swapan & Associate, has disallowed the hiring charges expenses incurred related to Rehiring & Sub-Contract of civil, Site Clearance and Excavation expenses amounting to Rs.85,26,19,991/- and Hiring Charges income earned related to hiring charges and civil, site clearance, and excavation contract amounting to Rs.52,01,25,778/- during the financial year 2007-08 as bogus transactions as per Appraisal Report and draft assessment order. However, in the absence of entire records, if corresponding receipt, on expenses of Rs.85,26,19,991/ - was computed by applying gross profit ratio worked out on the basis of statutory audited accounts which is a reflection of regular books of account, it comes to Rs.110,01,35,574/-. However, the contention of the Assessee was not accepted by the AO for the reason that it was based on sheer estimation. Later on, the Assessee filed another submission on 23.07.2012 wherein it was stated that the Assessee has reconstructed the records after obtaining details from the concerned parties and the various sale/purchase agreements, invoices and details of sale/purchase are enclosed for F.Y. 2007-08 relevant to A.Y 2008-09. It was submitted by the assessee that as per the originally audited accounts the sales on account of hiring/rehiring was Rs.235,62,02,246/-. Out of this sales of Rs.114,10,16,936/- was bogus in 10 11 IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 the cases of (i) Arshhiya Technologies International Ltd. (Rs.15,00,04,050/-), (ii) Gilbert Commercial Pvt. Ltd. (Rs.13,70,78,412/-), (iii) Jindal Power Ltd. (Rs.4,44,50,000/-), (iv) JSW Energy Ratnagiri Ltd. (Rs.35,54,88,534/-), (v) Nikhil Impex (Rs.38,30,47,940/-), (vi) PN Construction -Agra (Rs.4,50,000/-) and (vii) Valuable Infrastructure Pvt. Ltd. (Rs. 7,04,98,000/- ). Similarly, as per the originally audited books of account, the expenses on account of rehiring of machines were Rs.158,90,63,696/-. Out of these expenses/purchases, the expenses of Rs.85,10,68,095/- were bogus in the cases of (i) Ampoules & Auto Ltd. (Rs.19,04,26,672), (ii) Ganco SS India Pvt. Ltd. (Rs.24,61,96,263/-), GDJ Construction Pvt. Ltd. (Rs.30,63,61,742/-) and GDJ Export Pvt. Ltd. (Rs.l0,80,83,418/-). It was submitted by the Assessee that though in the course of search bogus sale entries amounting to Rs.82.01 crores were found in the case of Gilbert Commercial Private Ltd. and Nikhil Impex, but, in actual the bogus sales were RS.114.10 crores as detailed above. The relevant documentary evidences was also enclosed. In view of above, it was contended before the AO that the bogus sales of Rs.114.10 crores should be reduced from the total sales declared by the assessee and similarly the bogus purchases/expenses amounting Rs.85.10 crores should be reduced from the debit side to arrive on the correct income.
21. The AO however did not agree with the above submission made by the Assessee. The AO held that it was undisputable fact that the Assessee had indulged in bogus transactions of hiring and contractual work. The documents seized during the course of search and also statements recorded during the course of survey operation in the business premises of Shri Nikhil Jalan, proprietor of Nikhil Impex and Director of GDJ Construction and Gilbert Commercial; that the Assessee had entered into bogus transactions. But, on being asked to explain why the Assessee shall get into the bogus transactions for increasing the income, the Assessee vide its submission dated 31.07.2012 stated the following:
"During the F.Y.2007-08 we have provided the entry of sales amounted to Rs.114,10,16,936/- in lieu of commission of 0.25% and taken the entry of purchases of Rs.85,10,68,095/- on commission of 0.15% which is amounted to Rs.15,75,940/- i.e. (114,10,16,936*0.25% - 85,10,68,095*0.15%) and the same we are disclosing for the A.Y. 2008- 09"
22. In the concluding paragraph of the assessment order, the AO held as under:
"In view of the facts brought on record it is clearly evident that the assessee company has indulged in bogus transactions of expenses to the extent of Rs.85,10,68,095/- and also recorded bogus transaction of income of Rs.114,10,16,936/- corresponding to the said bogus expenses, for earning commission. The bogus expenses of Rs.85,10,68,095/- is therefore eliminated from the operating expenses and bogus income to the extent of Rs.85,10,65,095/- only is also eliminated from the income from operation. Further, commission income from providing entries is computed at an estimated average rate of 0.40% on total bogus income is added back to the total income. Therefore, a sum of Rs.45,64,067/- i.e. (0.40% of 114,10,16,936) is added back to the total income on account of commission from bogus entries."
The AO thus reduced the bogus sales to the extent of Rs. 85,10,68,095/- only as against the claim of the assessee company of Rs.114,10,16,936/-. Further, the AO calculated the commission on bogus sale of Rs.114,10,16,936/- i.e. the entire bogus sales as per the claim of the assessee, @ 0.40% instead @ 0.25% as submitted by the assessee company. Again, the AO 11 12 IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 did not allow deduction on account of commission paid by the company @ 0.15% for taking entries of bogus purchases of Rs.85,10,68,095/-.
23. Aggrieved by the aforesaid action of the AO, the Assessee preferred appeal before CIT(A). Before CIT(A), the Assessee besides reiterating submissions as were made before AO, further submitted that the AO has agreed in principle that in arriving at true taxable income, it was necessary to eliminate from the credit side the income which was not real. However having agreed with this principle he eliminated from the credit side only sum of Rs.85,26,19,991/-. It was argued that the Assessee did not raise any particular invoices having value of Rs.85,26, 19,991/ -. The invoices were raised on different parties for different values and aggregate of all bogus invoices, amounted to Rs.1,14,10,16.936/-. It was submitted that once the AO accepted the premise that entire invoiced value of Rs.1,14,10,16,936/- represented bogus income then the AO could not turn around and eliminate only few of the invoices totalling to Rs.85,26,19,991/-. If the AO's hypothesis is accepted then it will amount to the fact that the AO having held the entire gross of sum of Rs.l,14,lo,16,936/- to be bogus yet for tax purpose a differential sum of Rs.28,99,48,841/- was considered to be real income. Such conclusion will be self- contradictory.
24. On the question of estimation of commission income from bogus providing accommodation entries, it was submitted by the Assessee that the Assessee accounted bogus income of Rs.1,14,10,16,936/- and in this respect thereof earned charges @ 0.25% of the invoiced values. The Assessee's gross receipt by way of commission therefore amounted to Rs.28,52,542/-. To offset the bogus income represented by the accommodation entries/ invoices; the Assessee in turn took accommodation entries for corresponding expenses. The aggregate invoiced value of such expenses amounted to Rs.85,10,68,095/-. For availing such accommodation the appellant in turn paid charges @ 0.150/0; amounting to Rs.12,76,602/- The differential between the charges received and paid amounted to Rs.15,75,940/- was offered as Assessee's income in the return filed u/s 153A of the Act. It was argued that the AO in the order of assessment computed such income at average rate of 0.4% on the total bogus income and the same was assessed at Rs.45,64,067/-. The AO did not assign any basis or reason for adopting the commission rate of 0.4% as opposed to 0.25% admitted by the Assessee. At no stage of the assessment proceedings the AO had directed the assessee to furnish its explanation with regard to his presumption that commission was earned @ 0.4%. Before making an addition on entirely presumptive basis it was mandatory for the AO to grant the Assessee opportunity of rebutting his presumptions or assumption. The AO could not unilaterally resort to estimation of income; particularly when save and expect the admission of the assessee the AO did not have any material evidence in his possession which in any manner indicated that the assessee was charging commission @ 0.4% . In absence of any material or information with the AO he was not justified in assessing commission income of Rs.45,64,067 /-; adopting the rate of 0.4%. It was further submitted that the AO has admitted that accounting of bogus income and expenditure was inter linked, inter connected. If the Assessee received commission for providing accommodation entries with regard to income then simultaneously the assessee had to pay similar charge for taking accommodation entries for the corresponding expense. Once the AO accepted that the accommodation entries relating to bogus expenses and income were interlinked, inert connected and inter dependant then in arriving at income chargeable to tax from the activity of providing accommodation entries the AO should have allowed the set off for commission paid on the expense entries as well. In the circumstances the AO could not unilaterally assess the income byway of commission for providing accommodation entries without allowing deduction for the corresponding expenses paid for availing accommodation entries.
12 13IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10
25. The CIT(A) agreed with the submissions of the Assessee and he concluded on the above issues as follows:
"5.2 On careful consideration of facts of the case and in law, I am of the opinion that the AO was not justified in eliminating the amount of bogus sales/receipts at Rs.85,10,68,095/- only in place of actual amount of Rs.114,10,16,936/-. In the course of appellate proceedings, the appellant submitted copies of the submission and documents furnished before the AO. I find force in the submission of the appellant that the AO did not dispute the correctness of the amounts of bogus expenses and bogus sales claimed by it before him. In paragraph 11.4 of the assessment order, he himself has mentioned that in view of the facts brought on record it is clearly evident that the assessee company has indulged in bogus expenses to the extent of Rs.85,10,68,095/- and also recorded bogus transactions of income of Rs.114,10,16,936/- corresponding to the said bogus expenses, for earning commission. I am of the considered opinion that once the AO has accepted the correctness of the figures of bogus transactions, there should not be any reason for not eliminating the claimed and accepted amount of bogus sales from the sales credited to the profit and loss account. In fact, it is observed that in the same paragraph of the assessment order, the AO has taken contradictory stand because he has calculated the receipt of commission income on account of providing entries of bogus sales of Rs.114,10,16,936/-. When, he has computed the commission income on the bogus sales of Rs.114,l0 ,15,936/ -, there is no reason for not eliminating the said amount from the gross sales/receipts credited to the profit and loss account. Further, in the assessment order the AO has not stated as to why he was allowing deduction of bogus sales to the extent of bogus expenses only. I am of the opinion that the action of the AO is not in accordance to law and, therefore, he is directed to eliminate the bogus sales at Rs.114,l0,16,936/- in place of Rs.85,10;68,095/- allowed by him.
5.3 With regard to commission income earned by the appellant company, it is observed that the AO has calculated the receipt of commission @ 0.40% on the bogus sales of Rs.114,10,16,936/- at Rs.45,64,067/-, whereas, the claim of the appellant was that it had received service charges on bogus sales @ 0.25% . Further, he did not allow deduction on account of payment' of commission claimed by the appellant @ 0.15% on bogus purchases/expenses amounting to Rs.85,10,68,095/-. However, the AO is totally silent in the assessment order that as to why he did not allow the deduction on account of commission payment. In the course of appellate proceedings the Ld.A.R., of the appellant company, was asked to furnish the evidence that the rate of commission received was @ 0.25%. But, no such evidence was furnished by the appellant. Therefore, the rate of commission receipt adopted by the AO @ 0.40% is upheld. However, on careful consideration of the facts, I am of the opinion that the AO has not disputed that the appellant company was indulged in booking bogus expenses and bogus receipts and the appellant company was paying as well as receiving the commission on such bogus transactions. Once this fact is admitted, the AO cannot deny the deduction on account of payment of commission and only the net amount of the commission income will be taxable in the hands of appellant company. Hence, the AO is directed to allow payment of commission on bogus expenses/purchases of Rs.85,10,68,095/- @ 0.15% which comes to Rs.12,76,602/-. Thus, the net commission income taxable in the hands of appellant company is Rs.32,87,465/- i.e. (Rs.45,64,067 - Rs.12,76,602). In view of above, the ground no.1 is allowed and the ground nos.2, 3 and 4 are partly allowed.13 14
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A.Yrs.2007-08to2009-10
26. Aggrieved by the order of CIT(A) the revenue has raised ground Nos. 1 and 2 before the Tribunal. As we have already seen despite service of notice, the assessee did not choose to appear in the present proceedings. We have heard the submissions of the ld. DR. The ld. DR submitted that the re-constructed accounts as drawn by the Special auditor was not verified by the AO or CIT(A) by calling upon the parties to the transactions to confirm the claim of the assessee. According to him the issue should be set aside to the AO for carrying out a fresh exercise in this regard.
27. We have considered his submissions. From the reading of the AO's order and CIT(A) it is not clear as to whether the bogus expenditure and bogus sales had in fact been carried out by the actual inflow and out flow of money. The conclusion that there was bogus expenditure as well as bogus sales is based on material found in the course of search, statement recorded at the time of search and material and statement recorded in the subsequent Survey u/s.133A of the Act. Therefore it cannot be said that there was no basis for the AO or the Assessee to have quantified the bogus expenditure and bogus sales. In our opinion if there had been an actual inflow of a sum of Rs.114,10,16,936/- if such bogus income is recorded by the assessee in the books of accounts and if the corresponding bogus expenditure of Rs.85,10,68,095/- is also evidenced by out flow of funds then the action of AO would be justified. If, on the other hand, the aforesaid transactions are only book entries without there being actual flow of funds then the action of CIT(A) would be proper and justified calling for no interference. We, therefore, set aside the order of CIT(A) and remand the issue to the AO for fresh consideration on the lines indicated above.
28. As far as the estimation of income as done by CIT(A) is concerned we find that the estimation of 0.40% rate of commission on bogus sales recorded by the assessee. This addition was rightly upheld by CIT(A) because the assessee failed to substantiate its claim that the rate of commission received was only @ 0.25%. As far as the commission paid on bogus booking of expenses is concerned, the CIT(A) has rightly held that the AO had not disputed that the assessee indulged in bogus booking of expenses and was paying commission for creating entries for such bogus expenses. As rightly held by CIT(A) one this fact is admitted, then the AO cannot deny deduction on account of payment of commission and conclusion of CIT(A) that only net commission income had to be taxed in the hands of the assesseee, in our opinion, is just and proper. The quantum of commission of expenditure on booking of bogus expenses adopted, in our view, is also justified. To this extent we confirm the order of CIT(A).
29. In the result ground No.1 raised by the revenue is partly allowed for statistical purposes and ground no.2 raised by the revenue is dismissed.
30. Ground Nos. 3 to 5 raised by the revenue are identical to ground nos. 1 to 3 by the revenue in ITA No.15/Kol/2013 for A.Y.2007-08. For the reasons stated therein these grounds are treated as allowed for statistical purposes.
31. In the result the appeal of the revenue is partly allowed for statistical purposes.
32. IT(SS) No.17/Kol/2013 : A.Y.2009-10 : This is an appeal filed by the revenue against the order dated 22.11.2012 of CIT(A)-Central-II, Kolkata relating to A.Y.2009-10.
33. Grounds of appeal raised by the revenue read as follows :-
"1. That on the facts and circumstances of the case and in law, the Ld (IT (A) was not 14 15 IT(SS)A Nos.15to17/Kol/2013 M/s Sancia Global Infra Equipments Projects Ltd.
A.Yrs.2007-08to2009-10 justified in directing to eliminate income from bogus sales of Rs.152,47,0l,711/- instead of Rs.120,41,23, 721/-.
2. That on the facts and circumstances of the case and in law, the Ld (IT (A) was not justified in directing to eliminate income from bogus sales of Rs. 152,47,01,711/- against expenditure of Rs. 120,41,23,721/- on bogus purchase.
3. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case."
34. These grounds are identical to ground Nos. 1 and 2 raised by the revenue in ITA No.16/Kol/2013 for A.Y.2008-09. The facts and circumstances under which these grounds of appeal arise for consideration are also identical to A.Y.2008-09. For the reasons given while deciding similar grounds for A.Y.2008-09 ground no.1 raised by the revenue is allowed for statistical purposes while ground no.2 raised by the revenue is dismissed.
35. In the result the appeal filed by the revenue is partly allowed for statistical purposes.
36. In the result IT(SS)No.15/Kol/2013 is allowed for statistical purposes and IT(SS)16/Kol/2013 and IT(SS)No.17/Kol/2013 are partly allowed for statistical purposes."
8. In view of the above we do not want to take a different view in the absence of any assistance from side of the assessee/ld. Counsel for the assessee. Therefore, all the appeals filed by the Revenue are adjudicated in terms of the above.
9. In the result, IT(SS)A No. 15/Kol/2013 is allowed for statistical purposes, IT(SS)A No. 16/Kol/2013 and IT(SS)A No. 17/Kol/2013 are partly allowed for statistical purposes.
Order pronounced in the Court on 19.01.2018.
Sd/- Sd/-
[N.V.Vasudevan] [ Waseem Ahmed]
Judicial Member Accountant Member
Dated : 19.01.2018
SB, Sr. PS
15
16
IT(SS)A Nos.15to17/Kol/2013
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A.Yrs.2007-08to2009-10
Copy of the order forwarded to:
1. D.C.I.T., Central Circle-XVI, Kolkata, Aayakar Bhawan Poorva, 110,Shantipally, 4th Floor, Kolkata-700107.
2. M/s. Sancia Global Infra Equipments Projects Ltd., 32, Ezra Street, Todi Mansion, Room No.1060, 10th Floor, Kolkata-700001.
3. CIT(A)-Central-II, Kolkata 4. CIT-Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By Order Senior Private Secretary Head of Office/ D.D.O., ITAT Kolkata Benches 16