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TMI Blog2021 (2) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses made by the AO u/s 37(1) for non-maintenance of books of accounts and acceptance of accommodation entries in the light of the fact that details of bills raised against the company were not produced during the assessment proceedings? ii. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs. 51,73,243/- being 20% of Rs. 2,58,66,2167- on account of labour sub contract expenses made by the AO u/s 37(1) by ignoring the aspect of admittance of fact of non-maintenance of books of accounts in the course of statement recorded by the AO of Mr. Kamal Jagdish Gupta Director of the assessee company during the course of assessment proceedings? iii. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in restricting the addition to Rs. 1,03,24,685/- from Rs. 6,88,31,236/- u/s 69C in respect of Cement purchases from Sagar Cement Ltd. and Chettinad Cement Corpn. Ltd., by ignoring the fact that assessee company failed to produce details of transport etc? iv. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in restricting the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts in brief are that assessee filed the return of income on 29.09.2015 declaring an income of Rs. 112,90,96,360/- which was processed under section 143(1) of the Act. Thereafter, a search and seizure action under section 132(1) of the Act was conducted on the J. Kumar Group on 30.08.2016 at the business premises at 16-A, Andheri Industrial Estate, Vasai Road, Andheri West, Mumbai- 400 058 and also at the residential premises of Shri Jagdish Kumar Madanlal Gupta, promoter of the J Kumar Group located at Ritu Apartment, Plot No.42, JVPD Scheme, N.S. Road No.3, Vile Parle (West), Mumbai. The assessee is engaged in the business of infrastructure development like roads, bridges, flyover bridges, railway over bridges, irrigation products, railway buildings, sports complexes and airport contracts, metro and mono rail projects etc. A notice under section 153A of the Act dated 24.04.2017 was issued to the assessee and duly served on 03.05.2017 which was complied with by the assessee by filing return of income on 25.05.2017 declaring the same income as was offered in the original return of income. During the course of assessment proceedings, a statement under section 132(4) of the Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stay. The statement recorded of the CFO did not specify or admit that such labour sub-contract expenses were bogus. Shri Nalin Gupta Director of the appellant company also did not accept that these expenses claimed were bogus as seen from the extracts of the statements reproduced in the assessment order. A show cause notice was issued by the assessing officer as to why the expenses claimed as labour sub-contract expenses of Rs. 11.63 crores over AY 2010-11 to AY 2015-16 should not be disallowed. The appellant replied that these labour sub-contractors are associated with the company for last 10 years. When they started work they were small contractors and did not have any permanent address and lived in temporary labour colony at the project sites of the appellant. Their bank accounts were opened at same bank where appellant was having bank for their convenience and instant credit to their account. Thus the appellant explained the reason for opening the accounts of the labour contractors at bank where appellant was having their accounts. It was emphasized that none of these persons had denied that they had provided labour to the appellant company. 4.5. The assessing officer had is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur work has also been narrated. It is not unusual for labour contractors to rely on measurements of work and bill preparation by customer. Since the construction sites are varied and temporary, they do not have permanent establishment and employees to maintain accounts in the earlier years when the turnover was low. The labour contractors merely arrange for unskilled manual labourer and pay the daily wage to such labourer in cash. This is the reason for cash withdrawals. The assessing officer has disallowed 20% of labour sub-contract expenses on an ad-hoc basis. Looking at the entire fact matrix, in my view the ad-hoc disallowance is not warranted. The same is deleted. Hence the disallowance of Rs. 51,73,243/- is deleted and ground of appeal no 1 is allowed." 6. We have heard the rival submissions of both the parties and perused the material on record. We find that these individuals have been supplying labour to the assessee for the last for the last 10 years though they do not any permanent residences/addresses. These individuals arrange unskilled labourers for the assessee who are engaged by the assessee in its business activities. The assessee has made payments to these i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch if no incriminating material was found during the course of search. Therefore, we are inclined to dismiss the ground No.1 & 2 raised by the Revenue. 7. The issue raised in ground No.3 & 4 is against the restriction of addition to Rs. 1,03,24,685/- by Ld. CIT(A) as against the addition of Rs. 6,88,31,236/- made by the AO under section 69C of the Act in respect of bogus cement purchases from M/s. Sagar Cement Ltd. and M/s. Chettinad Cement Corporation Ltd. on the ground that assessee has deviated from SOP which could not be explained during the assessment proceedings. 8. The facts in brief are that the AO during the course of assessment proceedings observed that assessee has made huge cement purchases, however, followed no standard operating procedure in respect of such purchases. The AO noted that as is apparent from the statement recorded of transporters, suppliers and other personnel of the assessee company these purchases are bogus as all these bills of purchases of cement were being received by the head office directly and thus not following the standard of operating procedure and consequently AO added a sum of Rs. 6,88,31,236/- by rejecting the books of accounts und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered to be bogus. Statements were recorded of the store keepers and project managers at three Ready Mix Plants (RMC) at Wadala, Gaymukh and Kandiwali. Some bills for February 2016 of Parasakti Cement Industries having marks of RMC division Gaymukh, some bills for January /February 2016 of Sagar Cement and Bhavya Cement having marks of Wadala RMC and some bills for February 2016 of Parasakti Cements and some bills of March 2016 of Bhavya Cements having marks of Kandivali RMC were shown, and in respect of which these persons at the RMCs could not explain why they did not appear in the cements registers at the respective RMCs. Statement of the accountant and account manager, and CFO were also recorded. Shri Ravi Airan Account manager and Shri Ravindra Kulkarni Vice President were shown two bills of Sagar Cements Ltd. dated 24.8.2015 which were compared with a bill of Ambuja Cement Ltd. dated 19.10.2015 and questioned on the differing documentation on them. Shri Arvind Gupta CFO stated that he was aware that some bogus purchases of cement are being made and named Sagar Cements Ltd, Parasakti Cement Industry Ltd., Bhavya Cement Ltd., and South India Cements Ltd. To Shri Devendra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned on the bills itself but was ignored by the assessing officer. Further the copy of bills reproduced in the assessment order such as Deccan Cements Ltd. dated 25.7.2016 shows consignee details as Belapur Barrage, Thane and similarly bill of Penna Cement Industries Ltd dated 24.12.2015 shows consignee details as work site Osman Nagar, Kandhar, Nanded District This does suggest that the conclusion that delivery details are not available or that transport mode is not mentioned is not correct. Further, this also lends credence to the claim of the appellant that the delivery is to project sites and not to the three RMC plant which were covered in hot pursuit. It is also observed that based on a few bills with marking as RMC Gaymukh, Wadala and Kandivali, a sweeping assumption has been made that the entire purchases from all these seven parties for the AY 2012-13 to AY 2016-17 are bogus. 5.11. The assessing officer has conducted verification by calling for details from the seven suppliers of cement. It is clear that they have not denied supply to the appellant, as no adverse findings are indicated in the assessment order. It is noted that the seven companies are manufacturers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company A.Y. Gross profit margin % Operating margin/ (PBT %) JKIL 2011-12 15.11 11.27 2012-13 16,10 10.86 2013-14 16.73 11.11 2014-15 17.34 10.47 2015-16 18.65 10.38 2016-17 17.62 10.91 2011-12 8.71 4.17 2012-13 7.78 2.26 Simplex Infra 2013-14 8.04 1.55 2014-15 9.36 1.55 2015-16 10.07 1.68 2016-17 11.55 2.57 2011-12 17.05 10.46 Supreme Infra 2012-13 16.17 8.39 2013-14 15.52 8.04 2014-15 14.42 6.75 2015-16 16.48 2.20 2016-17 16.11 (-) 2.66 Patel Engineering 2011-12 14.49 5.34 2012-13 13.44 3.75 2013-14 14.22 2.47 2014-15 13.75 1.34 2015-16 17.42 0.88 2016-17 14.88 (-) 1-28 NCC 2011-12 9.57 5.23 2012-13 7.61 1.01 2013-14 8.23 1.71 2014-15 6.62 0.05 2015-16 7.83 1.92 2016-17 8.86 3.87 2011-12 13.22 2.73 2012-13 10.79 (-) 7.98 HCC 2013-14 9.50 (-) 5.05 2014-15 15.58 2.25 2015-16 18.91 3.08 2016-17 19.29 3.35 The above table shows that the margins of the appellant are comparable and somewhat better than the industry. 5.14. I find that the appellant has made out a case that treating the entire cement purchases from seven cement manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. A.R. submitted that during the course of assessment proceedings, the AO carried out verification by calling details from cement suppliers which has been confirmed by the suppliers and none of them denied to have supplied materials to the assessee. The Ld. A.R. submitted that all these suppliers are listed companies of repute in the market. The Ld. A.R. also submitted that payments are made through banking channel and taxes such as VAT and excise have been paid by them. The mere fact that SOP has not been followed can not be a ground for treating these purchases as bogus. The Ld. A.R. submitted that assessee has several sites at which the works are going on and therefore it is very difficult to follow the SOP with regard to small purchases. The Ld. A.R. also drew our attention to the invoices cum delivery challans of these suppliers and submitted that even the part confirmations of disallowance to the extent of 15% of so called bogus cement purchases is contrary to law. The Ld. A.R. relied on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Tejua Rohitkumar Kapadia (2018) 94 taxmann.com 324 (Guj) (HC) and submitted that the SLP filed by the Revenue against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and thus the same can not be sustained. The undisputed facts are that the payments were made through the banking channels, materials were received through invoices cum delivery challans which were furnished before the authorities below and even the suppliers have confirmed to have supplied these materials to the assessee before the AO. We find that even Ld. CIT(A) has prepared a comparability chart of different companies in the same industries comparing their GP and operating margin in para 5.13 of the appellate order and observed that the margin of the assessees are comparable and even better than the average margin in the industry. The gross profit of the assessee has been in the ratio of 23.64% to 31% whereas the net profit before the tax was between 10% to 11% with no abnormal fluctuations in the profits. Further, the Ld. CIT(A) has even observed that AO has declined to examine the gate entry registry, internal transfer challans produced before him. The Ld. CIT(A) has even noted that AO has not examined the claim of the assessee that bills furnished were in fact invoices cum delivery challans with all details and AO has primarily relied on the statements recorded which had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitting therein that the profit made in sub contracting of contracts to five entities M/s. Safal Infraprojects Pvt. Ltd., M/s. Potential Infraprojects Ltd., M/s. Silicon Infracon Pvt. Ltd., M/s. Akruti Infraprojects Ltd. and M/s. Akruti Infrastructure Pvt. Ltd. during financial year 2012- 13 relevant to assessment year 2013-14 and profit from subcontracting to two entities NaftoGaz India Pvt Ltd and Vayu Tradelink Pvt Ltd. during financial year 2011-12 relevant to assessment year 2012-13 have duly been offered to tax in the respective assessment years. The assessee submits that the contracts awarded to assessee from various entities have been sub contracted to these entities on back to back basis after keeping its margin. The assessee filed the copies of work orders, RA bills, sub contract bills, agreements, working of profit earned on sub contracts and bank statements as documentary evidences in support of its claim and thus submitted that income derived from awarding the sub contracts have already been accounted in the books of accounts of the assessee. The AO also issued notices to the sub contractors and recorded their statements. However, nowhere these sub contractors have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and bogus. 15. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: "6.5 I have considered the facts, the assessment order and the submissions of the appellant carefully. The issue that was investigated in the assessment proceedings was the claim of sub-contract expenses of Rs. 187.81 crores for AY 2012-13 to AY 2016-17. In the appellate proceedings, some further details in respect of contracts and sub-contracts were called. From the details filed it is noted that the amount of contracts and subcontracts are as follows. Amount in Rs/ crores AY 2012-13 2013-14 2014-15 2015-16 2016-17 Contract Revenue 879.25 954.72 1145.93 1284.56 1327.66 Total Subcontract Expense 564.40 417.07 362.70 362.27 478.30 Amount in Rs/ crores AY 2012-13 2013-14 2014-15 2015-16 2016-17 Contract Revenue 879.25 954.72 1145.93 1284.56 1327.66 Out of Which contracts Outsourced 383.68 280.06 No back to Back subcontracting No back to Back subcontracting No back to Back subcontracting Subcontract Expense 372.91 271.21 No back to Back subcontracting No back to Back subcontracting No back to Back subcontrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not engaged in labour supply. They in fact carry out labour contract. The payment is received on the basis of per KG of steel fabrication work carried out. The Measurement Book contains the details of measurement which is signed by them and is then taken by JKIPL, the appellant company, for preparation of bills. The originals are kept there. After verification, JKIL makes payments after deducting TDS and retention money. Returns of Income have been duly filed for AY 2011-12 onwards. Shri Vijay Yadav explained that when his statement was recorded on 30.8.2016, he was very nervous and was under stress and to get rid of the questioning, he agreed to whatever was stated by the authorized officer. Thus it is clear that Shri Vijay Yadav has rescinded from the earlier statement recorded and has confirmed that work was actually carried out. 6.8. In his statement recorded on 2.5.2018 before the assessing officer, Shri Rupesh Kumar Director of UTTPL has stated that the company is engaged in construction and infrastructure development as sub-contractor. In Q 17 he has listed down the various Projects and the main contractors for whom he has carried out work. Apart from the appellant com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fact matrix, I do not find the adhoc disallowance made by the assessing officer of 20 % of the expenses claimed in respect of sub-contract paid to M/s. O.P. Engineering and M/s. Umang Town Planner Pvt. Ltd. of Rs. 4.82 crores and Rs. 18.63 crores respectively during AY 2012-13 to AY 2015-16, to be Justified. Hence the disallowance made of Rs. 1,48,60,959/- being 20% of Rs. 7,43,04,797/- claimed as sub contract expenses, is deleted. Ground of appeal no 3 is allowed." 16. The Ld. D.R. vehemently submitted before the Bench that the assessee during the course of search action was found to be indulged in entering into bogus sub contracts with various sub contractors. The Ld. D.R. submitted that this was admitted by the CFO and director of the assessee in their statements recorded under section 132(4) of the Act that they are entering into bogus sub contracts. The DR submitted that it is possible for the AO reconcile the voluminous details and thus justified the adhoc addition. The Ld. D.R., therefore, prayed that the addition has been made by the AO though on adhoc basis may kindly be restored by setting aside the order of Ld. CIT(A) on this issue. 17. The Ld. A.R. vehemently submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by dismissing the ground Nos. 5 & 6 of the Revenue. 18. We have heard the rival submissions of both the parties and perused the material on record. We note that in this case the CFO and director of the assessee company have admitted to taking bogus sub contract expenses but the same was retracted. Thereafter, out of these 9 entities to whom the sub contract work was awarded by the assessee only two were found to be bogus by the AO namely M/s. Umang Town Planners Pvt. Ltd. and M/s. OP Engineering. The Director of M/s. Umang Town Planners Pvt. Ltd. Shri Vijay Kumar Singh and the Managing Director Shri Vijay Yadav of M/s. OP Engineering had admitted while recording statement under section 131 of the Act that they have carried out any work for the assessee as sub contractors and not as labour contractors. When these statements were confronted to Kamal Gupta, Director of the assessee company, he specifically stated that these two sub contractors have been given specific works. M/s. Umang Town Planners Pvt. Ltd. was given sub contracts in Delhi Metro projects, the details whereof were mentioned by Rupesh Kumar, Director of M/s. Umang Town Planners Pvt. Ltd. in his statement recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring these facts and circumstances in the light of the ratio laid down in the decisions as discussed above, we are inclined to uphold the order of Ld. CIT(A). The ground No. 5 & 6 are dismissed. Consequently the appeal of the revenue is dismissed and appeal of the assessee is allowed. 19. The issue of bogus purchases raised in ground no. 1 in ITA No. 3449/Mum/2019 AY 2012-13, 3450/Mum/2019AY 2013- 14, 2452/Mum/2019(All Assessee's Appeals) and ground no. 3 & 4 in ITA No.3884/Mum/2019 AY 2014-15 the cross appeal by the revenue are identical to one as decided by us in Ground No. 1 in ITA No.3451/Mum/2019 assessee's appeal and ground no. 3 & 4 in ITA No.3883/Mum/2019 AY 2015-16 ,cross appeal by the revenue wherein we have allowed the assessee's appeal and dismissed the revenue's appeal on the issue of bogus purchases. Accordingly our decision on ground No. 1 in ITA No.3451/Mum/2019 & ground no. 3 & 4 in ITA No.3883/Mum/2019 AY 2015-16 would, mutatis mutandis, apply to the above grounds as well. Consequently the issue of bogus purchases in assessee's appeals is allowed and in revenue appeals dismissed. 20. The issue of bogus labour sub contract raised in ground no. 5 & 6 in ITA No. 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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