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TMI Blog2024 (6) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, whether the ld.CIT(A) is correct in deleting the addition towards STCG without appreciating the fact that if the value of the shares deserves such a huge price, it is not clear why the earlier company has sold these shares at a meagre price of Rs.10/-." 3. The brief facts of the case are that the assessee e-filed its return of income for the assessment year under consideration on 30.10.2017 admitting loss of Rs. 52,14,82,099/-. Subsequently, the case of the assessee was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) of the Act were issued to the assessee from time to time. The submissions were made by the assessee in response to the above notices. After considering the submissions made by the assessee, the Assessing Officer completed the assessment interalia making additions of Rs. 21,24,00,000/-, Rs. 8,91,35,102/- and Rs. 116,04,55,413/- on account of settlement rights, non-explanation of short term capital gains and excess receipts from contract works, respectively, u/s 68 of the Act. Thereafter, the Assessing Officer passed assessment order on 31.12.2019 u/s 143(3) of the Act. 4. Feeling aggrieved by the order of Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erification of the submissions made by the appellant, the Assessing Officer considered the explanation furnished by the appellant as not satisfactory and without any documentary evidences and considered the actual work done to the extent of Rs. 14,65,65,865/- only and worked out the estimated profit at 8% on the work of Rs. 14,65,65,865/- which came at Rs. 1,27,44,857/-. Hence, the Assessing Officer anticipated that the appellant should have received an amount of Rs. 15,93,10,722/- (Rs 14,65,65,865/- + Rs. 1,27,44,857/-) only instead of Rs. 131,97,66,135/- and accordingly, treated the excess receipt of Rs. 116,04,55,413/- (Rs. 131,97,66,135/- less Rs. 15,93,10,722/-) as unexplained cash credits u/s 68 of the Act. The first issue and the primary issue is to consider the amount received by M/ so MEIL under section 68 of the Income Tax Act, 1961. It is seen that while passing the assessment order, everything has been considered u/s 68 by the Assessing Officer with regard to the additions made. In all the three cases of addition, the appellant has offered the whole quantum in the books of account. and the same has been included in computing the total income of the appellant and none. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out of the primary work order received by it, are mentioned. The details of Tax deducted by Megha Engineering are also furnished. 4.2. As seen from the information filed by the assessee, though it appears to be the assessee proved the identity, creditworthiness and genuineness of the transaction, alternatively, the discussion made by the AO at the last para of Page No. 7 and first para of page No.8 in the Assessment Order towards the addition of unexplained expenditure u/s.69C of the IT Act may also be considered." The Assessing Officer has agreed that the appellant has proved the identity, creditworthiness and genuineness of the transactions with M/s MEIL. Since the Assessing Officer found the contention of the appellant that the addition of Rs. 116,04,55,413/- cannot be made u/s 68 of the Act, to be genuine in the remand report, no further comments on the said addition u/s 68 of the Act are required to be made. Therefore, the said addition cannot be sustained u/ s 68 of the Act. The next issue raised in the remand report is regarding the observation of the AO regarding the addition to be made u/ s. 69C implying that the appellant has done and executed the work with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as enclosures to the same. It seems that the AO in the assessment order had made a passing remark without any proper findings and has made a sweeping remark that they don't pertain to this construction business in a single line without any basis and while in the remand report the veracity of the segment wise breakup of expenditure was not doubted. Thus, as the AO has not doubted or objected to the bifurcation of expenses submitted by the appellant during remand proceedings in principle, there is no basis to presume the idea of unexplained expenditure. It is also important to note that the percentage of net profit is almost close to 16%, than what adopted by the AO of 8% in the assessment order. The AO in the assessment proceedings had only considered direct expenditure without considering the other expenses in the P&L account and further, has connoted that the work has been done but the sum of Rs. 106,76,18,980/- has been incurred outside the books of accounts to complete the said contract to the extent of Rs. 116,04,55,413/-. Thus, the AO considered that the work has been done and executed and further has now stated that to complete the work done after considering profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant and the assessment was completed without any initiation of penalty proceedings and subsequently u/s 153A, no further additions were made. The proceedings for AY 2018-19 and AY 2019-20 u/s 153A were completed at NIL by making no additions. Keeping in view the factual discussion above, accordingly grounds no. 7(a) relating to the said quantum, 8 & 9 of the appeal are allowed. The ground no. 11 & 13 addresses all the three additions made by the AO u/s 68, each of the additions have already been separately adjudicated in the favour of the appellant. Therefore, these grounds are not separately adjudicated. Ground no. 12 is related to invocation of section 115BBE on the above additions made by the Assessing Officer u/s 68 of the Act. Since the above additions are deleted u/s 68 of the Act, the invocation of section 115BBE which is consequential in nature, is not valid. Accordingly, ground no.12 of the appeal is in consequential for adjudication. However, any addition made u/ s. 68 or 69C will be liable for charge u/s. 115BBE. In ground no.6, the appellant contended that the AO did not consider the explanation of the appellant submitted vide letter 30.12.2019 and did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 14,65,65,865/- works out to Rs. 1,27,44,857/-. Hence, assessee should have received an amount of Rs. 15,93,10,722/- whereas the assessee received an amount of Rs. 131,97,66,135/-. In spite of giving opportunities, the assessee has not produced any evidence explaining the strange situation. Hence, the excess receipt of (-) has to be treated as unaccounted cash credit u/s.68 of the IT Act in the books of accounts of the assessee. Alternatively, in the normal course of contract works, the profit margin will be 12%. However, the assessee got the works on a sub-contract basis where in the profit margin will be at the most 8%. Moreover, most of these works are allotted to the M/s.Mega Engineering & Infrastructures Limited, Hyderabad by Govt. of Telangana, Govt of Andhra Pradesh. Since the assessee has recognized the revenue in its books of accounts, the work thereon was completed by incurring commensurate expenditure. Such expenditure incurred in the normal course should be Rs. 121 where as the company actually claimed to have incurred Rs. 14,65,6,5865/- which is beyond human comprehension. Hence the excess expenditure to the extent of which is actually incurred but not shown in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer was with respect to addition u/s 68 of the Act. It was submitted that once the Assessing Officer in the remand report had satisfied himself with the identity, creditworthiness and genuineness of M/s. MIEL, then the ld.CIT(A) has rightly dropped the proceedings u/s 68 of the Act. Further, it was submitted that for the purpose of making the alternative addition u/s 69C of the Act, it is required to prove that there was unexplained expenditure incurred by the assessee. It was submitted that the expenditure incurred by the assessee were forming part of the profit and loss account of the assessee in the consolidated financial statements given and reproduced here in above in the submissions of the ld. DR. Further, the expenditure may not have been reflected in the manner as pointed by the ld. DR but nonetheless, the expenditure was duly accounted for, and that sufficient explanation was given by the assessee giving breakup of the expenditure. It was submitted that once the assessee has shown the entire contract receipts in the books of accounts and had suffered the taxes thereon, then there was no question of making the alternative addition u/s 69C of the Act. 10.1. Ground no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26AS submitted to your perusal." 11.4 The Assessing Officer had also issued a letter dt. 24.12.2019 to M/s MEIL and called for the details. In response thereto, MEIL filed the details of the work allotted to LEPL Projects Ltd. and the works contract agreements but had not furnished the ledger extracts of the assessee in the books of M/s.MEIL. 11.5 Thereafter, the Assessing Officer considering the reply of the assessee had treated the amount of Rs. 1,16,04,55,413/- as excess receipts and treated as unexplained cash credit u/s 68 of the Act in the books of accounts. The findings of the Assessing Officer vide page 7 of its order is to the following effect : "1. Income from Contract Receipts : From the above discussion it is clear that assessee company is never able to explain the reasons for earning huge profit of Rs. 117,32,00,270/- in carrying out construction work wherein he incurred expenditure of Rs. 14,65,65,865/- only. No prudent business man can give an amount of Rs. 131,97,66,135/- for any work the cost of which will be Rs. 14,65,65,865/-. Hence earning such a huge profit of Rs. 117,32,00,270/- being 88.89% of the total receipts of Rs. 131,97,66,135/- is beyond human c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld.CIT(A) is contrary to record. 11.9 The assessee in its reply dt. 03.04.2019 had mentioned that during the year, company has incurred lease rentals of Rs. 54,97,59,539/- towards aircrafts leasing and also incurred fuel expenses of Rs. 113,09,79,932/-. Quite contrary to the above, the reply given before the Assessing Officer, it was wrongly submitted by the assessee before the ld.CIT(A) that instead of spending Rs. 54,97,59,539/-, the assessee has spent only Rs. 38.12 crores towards the aircraft leasing. Similarly, fuel expenses of Rs. 113,09,79,932/- were mentioned before the Assessing Officer and quite contrary to this, the assessee had wrongly mentioned before the ld.CIT(A) that Rs. 84.48 crores were spent towards fuel charges. In fact, the details of the fuel expenses incurred by the assessee towards the aircraft lease and the construction / real estate business are available on record. At page 40 of the paper book, the amount spent towards fuel charges and construction work is available, which shows that assessee had spent only Rs. 9.94 crore as against Rs. 28.62 crore claimed before the ld.CIT(A). This claim of Rs. 28.62 crore as fuel charges was false and incorrect. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees' expenses for the year ending as on 31.03.2016 was Rs. 70,12,23,921/- and as against that the salary / employee benefit expenses for the year ending as on 31.03.2017 was Rs. 52,21,01,421/-. Thus, the employee expenditure for the year under consideration is far less than the previous year. However, during this year the assessee had additionally undertaken the new construction activities, therefore, the necessary corollary would be that there would be increase in the employee cost. No such details have been given by the assessee before the Assessing Officer or the ld.CIT(A). 11.13 In our view, the findings recorded by the ld.CIT(A) that the Assessing Officer has not doubted or objected to the bifurcation of expenses, is contrary to record which was available with ld.CIT(A) and against the duties casted on the ld.CIT(A) by virtue of the provisions of the Income Tax Act. In our opinion, the expenditure claimed by the assessee for executing the work, over and above the cost of construction work of Rs. 14,65,65,865/- has not been thoroughly examined by the ld.CIT(A), though he has co-terminus powers. In our opinion, prima facie, the entire expenditure of Rs. 94.46 crores (Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had called upon the remand report from the Assessing Officer. The submissions of the assessee were captured by the ld.CIT(A) in his order in Paragraphs 13 to 16, which is to the following effect : 11.17 Before the ld.CIT(A), the assessee filed written submissions. The ld. AR had drawn our attention to paragraphs 13 to 16, which is to the following effect : - left intentionally - 11.18 The above said submission of the assessee, if compared with the reply submitted by M/s. MEIL which is at page 130 of the paper book, then it is apparent that running bills have been raised by the assessee immediately after the grant of the work order by M/s. MEIL. In fact, the details of the project and the date of award given by MEIL can be summarized as under : Sl. No. Name of project Work order No. Date of work order 1 Akbar Nalagonda Project MEIL/AKBR-Nalgonda Water Grid/4126/W.O.No.135/16-17 for a total value of Rs.18,36,73,470/- 22.07.2016 2 Nellore WSS Project MEIL/NWSS/16-17/744 for a total value of Rs.6,29,76,000/- 26.09.2016 3 Purushothappatnam Lif Irrigiation Project MEIL/PPLIS/16-17/1083 for a total value of Rs.26,15,05,000/- 14.12.2016 4 Kaleswwaram - Medigadda MEIL/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount was paid by MEIL to the assessee. There is no corresponding expenditure incurred by the assessee for executing the above said projects as mentioned in the preceding paragraphs except the small sum of Rs. 14,65,65,865/-. In our opinion, when the 12 work orders were given by M/s. MEIL to the assessee, only after October, 2016, therefore, there is no occasion for the assessee to claim any running bills from M/s. MEIL in the assessment year under consideration. In our view, the observation of the Assessing Officer that no prudent businessman can grant such a sub- contract and permit the assessee to earn such a huge profit by spending meager amount of 8% of the contract value, is correct. 11.20 Before the ld.CIT(A), the assessee had filed submissions and in those submissions, the assessee had mentioned that it obtained the sub-contract work from M/s. Megha Engineering and Infrastructures Limited, Hyderabad ("MEIL") through the Government of Telangana and Government of Andhra Pradesh. The assessee claimed to have earned such a huge profit approximately more than 92% of the total cost of the project. Out of which, assessee had only spent a sum of Rs. 14,65,65,865/- on the const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., aircraft business of the assessee. In our view, the notion of earning a profit of 90% is unimaginable and in other words, is Contractual Loot under the guise of the alleged development activities. 11.23 It is correct that the assessee, in its wisdom, has disclosed the entire amount as income in the assessment year under consideration. However, we fail to understand whether any revenue, that is illegally and unlawfully received by the assessee can be considered as legal income. Tribunal being the final fact- finding authority has a duty to ensure that the Government funds meant for the development should be used for development and nor to be used for growth or enrichment of any individual. Though it is correct that the assessee disclosed the entire receipts and attempted to provide back-to-back verification form the contract justifying payment to the assessee but however, except providing the copy of contract by MEIL, MEIL had not provided the ledger account and other details of the expenditure to the lower authorities. As observed hereinabove, that 12 work contracts were issued after October, 2016, therefore, it is highly unimaginable and unfathomable that the major work has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment agencies to find out the terms of the allotment of the contract, execution, performance, quality control etc., and whether the assessee can divert the funds meant for development to its other activities namely, aircraft / solar power business. Thereafter, considering the inputs from the State Government and other enforcement agencies the Assessing Officer shall decide the matter in accordance with law after granting due opportunity of hearing to the assessee. 11.26 In case, the Assessing Officer comes to the conclusion that no work has been executed by the assessee or only a small part of the work has been executed then to pass the assessment order accordingly. Thus, ground no.2 is allowed for statistical purposes. GROUND NO.3 12. The third ground raised by the Revenue is with respect to the deletion of addition towards Short Term Capital Gains. In this regard, the ld.DR for the Revenue had not made any argument and has relied upon the order passed by the Assessing Officer. Similarly, the ld.AR relied upon the order passed by the ld.CIT(A). 12.1 We have heard the rival contentions and perused the material on record. Since we are remanding ground no.2 back to the file of As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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