TMI Blog2019 (12) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... not be applied in the case of the assessee. In the facts of the case the preponderance of the probability suggests that raising of bogus bills by the subcontractors to the contactors and then routing back of the money in the form of the cash definitely must have been done on the direction of the assessee as assessee is the ultimate beneficiary by way of excess deduction of depreciation on the capital asset in the form of building. Assessee is not entitled for the depreciation on the inflated portion of the cost of capital asset shown by the assessee as incurred through two contractors, namely, OSN and JDMS. - ITA No.6894/Del/2015, ITA No.545/Del/2016, ITA No.193/Del/2017 - - - Dated:- 29-11-2019 - Shri Sudhanshu Srivastava, Judicial Member And Shri O.P. Kant, Accountant Member For the Assessee : Shri V.K. Aggarwal, AR, Ms. Shweta Bansal, CA For the Department : Shri G. Johnson, Sr.DR; ORDER PER O.P. KANT, AM: These three appeals by the Revenue are directed against three separate orders dated 07/10/2015; 03/11/2015 and 10/11/2016 passed by the learned Commissioner of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractors, namely, M/s Jubilant Developers and Management Services Pvt. Ltd and M/s OSN Infrastructure and Project Ltd. has admitted claiming of bogus expenditure on building construction for the assessee without incurring actual expenses on construction. The Assessing officer has noted that aggregate amount of ₹ 75 Crores had been disclosed by those two contractors as their undisclosed income. The Assessing Officer has summarized the factual observation based on the seized material as under: 4. During the course of search action at the business premises of the assessee company situated at 308, Udyog Vihar, Phase-ll, Gurgaon, various documents were found and seized which insinuated that the assessee company has colluded with the various contractors to inflate the carrying cost of its capital assets through booking of inflated bills in their books of account. It was found that the employees of the assessee company were managing/supervising the affairs of the companies or business entities of its contractors to whom funds were given in the forms of advances for construction/development work. 5. During the search seizur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of their misdemeanors were either received or utilized by the assessee or the assessee is benefited in any manner from the acts or misdeed of their contactors. The assessee submitted that it had acted in the most bonafide manner and given the impugned advances under trust and cost of improvement/construction of its capital assets can neither be reduced not disturbed. Accordingly, the assessee claimed that no depreciation can be disallowed to the extent of such abortive expenditure in the case of the assessee company. The Assessing Officer rejected the contention of the assessee and asked the assessee to file details of bills raised by the above referred two contactors and the corresponding expenditure capitalised in books of accounts. On the basis of the details submitted, the Assessing Officer worked out excess depreciation of ₹ 2,10,53,292/- claimed by the assessee. The finding of the Assessing Officer reproduced in para 12 of the assessment order is extracted as under: 12. In view of the above, the capital cost of assets as mentioned in the financial results of the assessee company is in excess to the extent of ₹ 21,05,32,916/-. Therefore, a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of ₹ 147,51,91,619/- taken by the AO as the cumulative capitalization of assets by the appellant is incorrect in as much as it includes ₹ 21,35,32,916/- related to work contracts given to companies/persons other than the above two contractors, and after reducing this' amount of ₹ 213532916/- from the figure adopted by the AO, the balance amount is Rs,126,16,58,703/-. The date wise invoice amounts of which have been submitted, and is summarized hereunder: S.No. Name of person Amount (Rs.) 1 3 S Company 524741 2 Chettinadu Constructions 5648879 3 Datta Steel Mart 4649946 4 H20 Technologies 1800000 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 Gold Star Realtors Ltd 14546982 24 Blues Developers Pvt. Ltd. 254998 25 Asra Real Estate Advisory Services 1705000 26 Trimurti Concast Pvt. Ltd. 1893683 27 Fortune Metals Ltd. 1698612 28 . Aircare Engineers 1307869 Total 213532916 4.2.4 On consideration of the above facts, following the method adopted by the AO and utilized for arriving at the impugned disallowance of depreciation at page-5 para-8 of the assessment order, by adopting the figures as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OSN Infrastructure Projects Pvt. Ltd. i. Total Advance Given 138,84,99,263 7,05,29,978 ii. Cumulative capitalization by EISML 23,22,34,166^ iii. Less: Cumulative inflated expenses offered 14,70,00,000 iv. Net capital work-in-progress (8,12,34,166b V. Invoices raised by JDMS 23,22,34,166 4,02,07,799 vi. Cumulative invoices raised by JDMS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted in their assessment, the receipt of the money by way of cash from those subcontractors. According to the Ld. DR, the documents seized in Annexures A-3, A-4, A-5 and A-8 seized from the premises of the assessee, wherein the actual low rate of the work is mentioned, clearly indicated that the assessee was aware of the actual rate of work and money which flowed back to the contractors. According to the learned DR, it is apparent that the money has actually routed back to the assessee as flow of cash back from the subcontractor to the contractor was within the knowledge of the assessee. In view of the learned Departmental Representative, it is against human probability that assessee would allow such bogus payment to the contractor knowingly that actual rate of the work is very low and money is routed back from the subcontractor to the contactor. Regarding the computation of the depreciation by the Ld. CIT(A), the learned DR submitted that in case of Jubilant Developers and Management Services Private Limited, the amount of excess capitalisation has been computed at ₹ 15 croress, whereas it should have been the amount of ₹ 25 crores, i.e., the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions and rates prescribed in Income-tax Rules, 1962. Out of the depreciation claimed on building in the Income-tax Return, the Assessing Officer has disallowed depreciation to the extent of ₹ 2,10,53,292/-being depreciation on account of no assets created in respect of the contracts given to M/s OSN Infrastructure and Project Private Limited (in short OSN ) and M/s Jubilant Developers and Management Services Private Limited ( in short JDMS ) to the extent of amount accepted by them in the return of income as expenditure not incurred actually. Thus, the Assessing Officer has excluded out of cost of building, the amount which has been admitted by the two contractors as not actually incurred. In facts of the case, the issue in dispute is what should be the depreciation which the assessee should have been allowed. In terms of section 32 of the Act and Rule 5(1) of Income-tax Rules 1962, the deduction of depreciation is allowed on building owned, wholly or partly by the assessee , and used for the purposes of the business or profession at the rate of 10 % of the written down value of the capital asset of building. The term written down value has been define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of survey at your office premises on 18.8.2011, on verification, it was found and asserted by you that no genuine activities have been conducted by your group. It was a iso found that corroborative evidences of various expenses claimed in your companies were also missing. You had also stated that Sh. Ashish Mittal is at helm of the affairs. Various records and other documents pertaining to your activities were also not produced and no satisfactory explanation to the quarries raised were rendered by you and other office bearers of your group. Do you agree on the said state of affairs? Explain the same? Ans. I agree that certain corporative evidences to establish the genuineness were missing at the time of survey. To cover the stated discrepancies, we in consultation with Sh. Ashish Mittal, the person supervising the accounting/compliance/other business activities, agree to offer ₹ 75 crore as income of the OSN group, its principals who have allotted contracts/ jobs other vendors/contractors who have performed work for as or our principals or our sub-contractors for the relevant period i.e. FY 2010-11 and 2011-12 with the understanding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them, general correspondence, etc for the Financial Year 2010-11, relevant to Assessment Year 2011-12. 5.7 These papers are an indubitable and concrete record of the transactions undertaxen by M/s. OSN Infrastructure Projects Pvt. Limited. Page No 128 129 of Annexure AA-1 and page no. 36 of Ann.AA-2 are summary sheets highlighting the following details: a) Value of total contracts obtained by OSN Infra from EISML, b) Billing for work to be done during the financial year 2010-11 and 2011-12 c) Amount of cost of work and bills issued by various sub contractors along with their names for FY 2010-11 2011-12. d) Actual cost incurred for the work and e) The difference received in cash by M/s. OSN Infrastructure Projects Pvt. Limited from such sub contractors. f) Details of brokerage received from the sellers of land not booked in the books of accounts of M/s. OSN Infrastructure Projects Pvt. Limited. g) Details of cash received back from sellers of land at Distt. Alwar, Rajasthan and Hyderabad not booked in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural land at Distt. Hanumangarh, Rajasthan to M/s. ARSS Infrastructure Projects Limited, Mancheshwar Industrial Estate, Bhuvaneshwar. A part of this work was given to M/s. OM Builders also The details of these two sub-contracts are available on page 5 to 13 of Annexure AA-1 The details of bogus billing pertaining to this contractor are available on pages 128 129 of Annexure AA-1 and it was seen that out of total bills of ₹ 8.01 crores on account of Hanumangarh work, the actual cost was for ₹ 0.91 crores and the balance amount of ₹ 7 10 crores represented undisclosed income of the assessee for the relevant period under consideration. 5.13 incriminating documents were also found and seized pertaining to the contract allotted for clearing, leveling, filling, removal of boulders, rock excavation, blasting, stacking, consolidation of soil, kuchha road etc. of agriculture land at Village Pata, Tehsil Ramgarh, Distt. Alwar, Rajasthan to subcontractor M/s. Patel Engineering Limited. A part of this work was also performed by M/s. Orris Infrastructure Pvt. Limited. The details of these two subcontracts are available on page 14 to 24 of Annexure AA-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s located at H35/1, DLF Phase-1 Gurgaon which is being reproduced as under: Q. No. 23 I am showing you pages 1 to 129 of Annexure AA-1 of the material found and seized/impounded during the course of lifting of restraints placed at the premises of yourconsuitant, Mr. Ashish Mittal who has stated to belong to you. Please identify the papers andexplain the contents thereof. Ans. The said papers pertain to the various bills raised by the sub contractors of OSN Infrastructure and Projects Pvt Ltd, their ledger accounts and a summary sheet of 1) Contract Value 2) Amount of total bills raised 3) Cost of bills 9) the actual cost incurred and 5) the difference received by us in cash from the said sub contractors on account of inflated/excessive expenditure charged by us in our books of account. As apparent from the papers, the said excessive/inflated expenditure aggregates to ₹ 30 crores (Approx) for the financial years 2010-11 which is appearing in a summarized manner on page 129 of the above stated Annexure AA1. The same may kina'iv be treated as part of the total income offered by us to the extent of ₹ 75cr in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent of 2.5% of land values is appearing. Explain whether the same is refected in your books of a/c's or not? Ans. It is clarified that Page No. 129 and 36 of Annexure AA 1 and AA 2 respectively have calculations of cash received by us on account of brokerage from sale of Alwar lands from the sellers which has not been accounted for in our books of account The said brokerage was received by us from the vendors of the said land outside the books of account amounting to ₹ 3.00 crores and ₹ 1.50 crores during the financial years 2010-11 and 2011-12 respectively. The said vendors agreed to pay the brokerage to be computed at the rate of 2.5 % of the value of sales consideration, to be paid 2/3rd during the financial year 2010-11 and the balance 1/3*during the financial year 2011-12. The same was accordingly received to the extent of ₹ 3crores and ₹ 1.5 crores during the financial year 2010-11 and 2011-12 respectively. The samemay kindly be treated as part of the total income offered by us to the extent of ₹ 75 crores inthe course of my statement recorded on oath dated 25/08/2011 Q. 26 You have stared that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g pages 1 to 79 were found and seized pertaining to the assessee company. It was categorically admitted by Mr. Sanjay Saini, director of M/s OIPPL that the said papers pertained to the business operations of the assessee company. It was also revealed by him that he was introduced to the Educomp Group by the director of the assessee company, Mr. Arun Kumar who was engaged in executing of various constructions contracts for and on behalf of the said group in past. Since, the said group required additional resources to execute their construction activity, Mr. Arun Kumar introduced him to the Educomp Group. Mr. Sanjay Saini also confirmed that the said papers were inadvertently left by Mr. Arun Kumar during one of his visits to his office at the above stated premises. Mr. Sanjay Saini also confirmed that the impugned papers contained details of bogus expenditure booked by the assessee company and accordingly after consultation with the director of the assessee company, he offered amounts of ₹ 10 crores and ₹ 5 crores for the F.Y. 2010-11 and 2011-12 respectively as undisclosed income of the assessee company. 1.1 The statement of Sh. Arun Kumar, director o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come with an understanding that neither any penalty nor any punitive proceedings of any nature will either be initiated or imposed against our companies or individuals of our group in future. Q. No. 20: - During the course of recording of your statement in the office of the undersigned on05/09/2011, you had offered an aggregate amount of ₹ 15 crores to tax in the hands of Jubilant Developers and Management Services Pvt Ltd. Explain the basis of the same. Answer: -. As stated above, it is fact that our company, M/s Jubilant Developers and Management Services Pvt Ltd was executing various construction contracts as allotted by Educomp Infrastructure and Projects Ltd since May/June 2009. In fact we introduced Sh. Sanjay Saini and his group companies, M/s OSN Infrastructure and Projects Pvt. Ltd for meeting the additional requirements of execution of the construction contracts of the above said Educomp Group in the month of June 2010. Various constructions contracts were allotted to them by the Educomp Group on our recommendation and the same are being executed by Sh. Sanjay Saini and his companies till date. I often used to visit the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year 2010-11 and 2011-12, contracts worth ₹ 10 crores and₹ 5 crores respectively were allotted to M/s StartrekBuildconPvt Ltd which could not be fully executed by them. The said sub contractor paid back certain funds given to them in return in cash. However, the payment to the said sub contractor stands reflected as expenditure in our books of account. Therefore, on account of such excessive expenditure, we offer to tax an amount of ₹ 9.45 crores and ₹ 4.90 for the financial years 2010-11 and 2011-12 respectively. Additionally we offer an amount of ₹ 55 lacs and ₹ 10 lacs for the financial years 2010-11 and 2011-12 to cover any other disallowance on account of excessive expenditure, investment, income or issues of any other nature in the hands of Jubilant Developers and Management Services Pvt Ltd. Thus, in aggregate, we hereby offer on amount of ₹ 10 crores and ₹ 5 crores for the financial years 2010-11 and 2011-12 respectively, as income with an understanding that neither any penalty nor any punitive proceedings of any nature will either be initiated or imposed against our companies or individuals of our group in futu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In reply to your questionnaire vide letter No. F.No.. DCIT/CC- 7/2013-14/1324 dated 27/01/2014, under instructions of the assessee, it is clarified at the onset that no search or survey proceedings were conducted against the assessee company. However, certain documents were found and seized from rhjj business premises of third party on the basis of which additional income was offered by the Director, Mr. Arun Kumar in his statement recorded in response to notice issued under section 131 of the Act. It is to reiterate that additional income to the extent of ₹ 5 crores was offered for the captioned assessment year on the basis of various papers found, especially pages 1 to 79 of Annexure AA3 found and seized from the premises as mentioned supra. It may also be appreciated that the assessee company has duly complied with its offer of additional income and has incorporated the same in its return of income duly filed with the department. A copy of the computation of assessable income filed for the relevant period is enclosed to substantiate that the relevant additional income to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or inflating capital cost of the building in order to claim enhanced depreciation. 6.5 The assessee on the other hand submitted that there is no evidence on record that assessee authorised its personal to manage or supervise the affairs of the contractor and no benefit in the form of salary or otherwise derived by the personnel of the assessee from said contactors. In our opinion, the personnel of the assessee shall not act for the contractors in their own sweet will without any remuneration by the contractors and they can act without remuneration only on the implied direction of the assessee for managing the entire game of claiming excess depreciation for reducing the tax liability of the assessee. When documentary evidence of managing affairs of the contractor by the personnel of the assessee are found during search action and the Assessing Officer duly notified the assessee regarding those evidences to suggest that the assessee has acted in collusion with the contractors for enhancing cost of construction of the building, the onus was on the assessee to produce those personnel before the Assessing Officer to bring the truth as on whose direction they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon ble Delhi High Court in the case of Discovery Estate Private Limited (supra) is reproduced as under: 17. It only remains for us to refer to the observations of the assessing officer to the effect that no one makes a loss in real estate business and that the market perceptions indicate that the prices of the immoveable properties are always on the upward trend. These observations have, inter alia, formed the basis of the additions made by the assessing officer. It was even suggested before us on behalf of the revenue that it is a notorious practice prevailing in real estate circles that in all property transactions there is non-disclosure of the Tull consideration. As pointed out earlier, this cannot per se constitute the basis of the addition, though we must hasten to add that it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of depreciation in the case of the assessee to the file of the Assessing Officer for deciding in view of our observation made above. It is needless to mention that assessee shall be afforded adequate opportunity of being heard. 6.9 The ground of the appeal of the Revenue is accordingly allowed party for statistical purposes. ITA Nos.545/Del/2016 193/Del/2017 Assessment years: 2013-14 2014-15 7. Now we take up the appeal of the assessee having ITA No. 545/Del/2016 and ITA No. 1931/Del/2017 for assessment year 2013-14 and 2014-15 respectively. Identical grounds have been raised in both these appeals except the change of the amount, which in assessment year 2013-14 is ₹ 1,89,47,963/- and in assessment year 2014-15 is ₹ 1,70,53,166/-. The ground of the appeal for assessment year 2013-14 is reproduced as under: 1. The of the learned CIT(A) is not correct in law and on facts. 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of ₹ 1,89,47,963/- made by the Assessing Officer on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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