L&T SUCG JV CC27, New Delhi V. Addl.CIT, Range-62, New Delhi

ITA 4351/DEL/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9094 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 07-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Capital asset; Gift; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; Deemed to accrue or arise in india; Additional evidence; Notional interest; Capital receipt; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 143(3); 40(a)(ia); 143(1); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES D: DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA.NO.4351/DEL./2018 ASSESSMENT YEAR 2014-2015 L & T SUCG JV JV CC 27 S-268, LGF, GREATER KAILASH-I, NEW DELHI. PIN 110 048. PAN AAAAL6623M VS., THE ADDL. CIT, RANGE-62, DELHI. (APPELLANT) (RESPONDENT) ITA.NO.4457/DEL./2018 ASSESSMENT YEAR 2014-2015 THE DCIT, CIRCLE 62 (1), ROOM NO.2202, 22 ND FLOOR, CIVIC CENTRE, MINTO ROAD, NEW DELHI 110 002. VS., L & T SUCG JV JV CC 27 61, 11 TH & 14 TH FLOOR, IFCI TOWER, NEHRU PLACE, NEW DELHI - 110 019. PAN AAAAL6623M (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI HIREN MEHTA, SHRI ANUP MEHTA SHRI SAURABH GOEL, C.AS AND SHRI NIRBHAY MEHTA, ADVOCATE. FOR REVENUE : SHRI J.K. MISHRA, CIT - DR SHRI RAJESH GUPTA, A.O. DATE OF HEARING : 28 .0 5 .2019 DATE OF PRONOUNCEMENT : 10 .0 7 .2019 2 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ORDER PER BHAVNESH SAINI, J.M. BOTH THE CROSS-APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-20, NEW DELHI, DATED 30.03.2018, FOR THE A.Y. 2014-2015. ASSESSEES APPEAL IS FILED ON FOLLOWING GROUNDS : GROUND-1 ADDITION OF NEGATIVE INVENTORY OF RS. 7,70,79,009/- THE COMMISSIONER OF APPEAL - 20 (DELHI) [ CIT(A)] ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING AN AMOUNT OF RS. 7,70,79,009/- ON ACCOUNT OF NEGATIVE INVENTORY WITHOUT APPRECIATING THE FACT THAT THERE IS NO NEGATIVE INVENTORY AS AT 31.03.2013. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS. 7,70,79,009/- ON ACCOUNT OF INVENTORY . GROUND NO.2 ADDITION OF RS.4,77,817/-. THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING AN AMOUNT OF RS.4,77,817/- ON ACCOUNT OF MISMATCH IN THE PHYSICAL AND BOOK BALANCE OF DIESEL 3 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. WITHOUT APPRECIATING THE EXPLANATIONS SUBMITTED BY THE APPELLANT. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS.4,77,817/- ON ACCOUNT OF DIESEL. GROUND- 3 ADDITION OF RS.2,40,00,000/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING AN AMOUNT OF RS.2,40,00,000/- ON ACCOUNT OF MISMATCH IN THE PHYSICAL AND BOOK BALANCE OF STEEL AS REPORTED BY THE SPECIAL AUDITOR WITHOUT APPRECIATING THE EXPLANATIONS SUBMITTED BY THE APPELLANT. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS.2,40,00,000/- ON ACCOUNT ALLEGED DISCREPANCY IN THE STOCK OF STEEL. GROUND 4 - ADDITION OF RS.25,00,000/-. THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING AN AMOUNT OF RS. 25,00,000/- ON ACCOUNT OF ALLEGED STOCK OF SCRAP DETERMINED BASED ON THEORETICAL COMPUTATION WITHOUT APPRECIATING THE EXPLANATIONS SUBMITTED BY THE APPELLANT. 4 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS. 25,00,000/- ON ACCOUNT OF ALLEGED DISCREPANCY IN STOCK OF SCRAP. GROUND-5 DISALLOWANCE OF AMORTIZATION EXPENSES OF RS.1,54,12,773/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING DISALLOWANCE OF RS.1,54,12,773/- BY TREATING THE SAME AS DEPRECIATION AS AGAINST THE AMORTIZATION OF EXPENSES. IN DOING SO, THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT HAD IN FACT AMORTIZED THESE EXPENSES OVER THE LIFETIME OF THE PROJECT. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT(A) TO THE A.O. BE QUASHED AND A.O. BE DIRECTED TO ALLOW AN AMOUNT OF RS.1,54,12,773/- ON ACCOUNT OF AMORTIZATION EXPENSES. GROUND -6 DISALLOWANCE OF DEPRECIATION ON ALLEGED EXCESS PAYMENT FOR ACQUIRING FIXED ASSETS OF RS.18,52,44,595/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING DISALLOWANCE OF DEPRECIATION CLAIMED ON 5 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ALLEGED EXCESS PAYMENT OF RS.18,52,44,595/- MADE FOR ACQUIRING TUNNEL BORING MACHINE ('TBM') AND RELATED EQUIPMENTS FROM M/S SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT CO. LTD. IN DOING SO, THE CIT(A) FAILED TO APPRECIATE THE BENEFITS POINTED OUT BY THE APPELLANT IN DEFERRING THE PAYMENT AND ALSO THE FACT THAT PRICE HAD BEEN AGREED WITHOUT OBLIGATION FOR OPENING OF LETTER OF CREDIT. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO TO DISALLOW DEPRECIATION CLAIMED ON ALLEGED EXCESS PAYMENT OF RS.18,52,44,595/- BE QUASHED. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY HOLDING THE PAYMENT TO BE EXCESS AT AN AD-HOC RATE OF 25% ON THE VALUE OF THE TRANSACTIONS WITH SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT CO. LTD. GROUND- 7 ADDITION ON ACCOUNT OF SPARES OF RS.6,94,66,924/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF EXPENSES ON ACCOUNT OF MACHINERY SPARES OF RS.6,94,66,924/- BY TREATING THE SAME AS CAPITAL IN NATURE. IN DOING SO, THE CIT(A) FAILED TO APPRECIATE THAT SPARES PURCHASED WERE REPLACEMENT 6 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SPARES AND WERE USED TO REPLACE THE WORN OFF SPARES. THE CIT(A) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT THESE SPARES DID NOT INCREASE THE CAPACITY OF TBMS AND WERE MEANT FOR MAINTENANCE OF TBMS. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO ALLOW EXPENSES INCURRED ON ACCOUNT OF MACHINERY SPARES AS A REVENUE EXPENSE. GROUND -8 DISALLOWANCE OF AMORTIZATION EXPENSES OF RS.4,90,78,282/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF AMORTIZATION EXPENSES OF RS.4,90,78,282/- BEING THE DIFFERENCE BETWEEN AMORTIZATION EXPENSES CLAIMED BY APPELLANT BASED ON THE LIFETIME OF THE PROJECT AS PER BOOKS VIS-A-VIS DEPRECIATION CALCULATED UNDER INCOME TAX RULES, 1962. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO ALLOW DEDUCTION OF RS.4,90,78,282/- ON ACCOUNT OF AMORTIZATION EXPENSES. 7 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. GROUND- 9 ADDITION ON ACCOUNT OF FOREIGN EXCHANGE GAIN OF RS.4,15,68,750/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING AN AMOUNT OF RS.4,15,68,750/- ON ACCOUNT OF FOREIGN EXCHANGE GAIN ON RESTATEMENT OF LIABILITIES ON ACCOUNT OF CAPITAL PURCHASE. IN DOING SO, THE CIT(A) DISREGARDED THE FACT THAT GAIN ON TRANSLATION/ CONVERSION OF FOREIGN CURRENCY LIABILITY IN RESPECT OF PURCHASE OF CAPITAL ASSET WAS CAPITAL RECEIPT NOT SUBJECT TO TAX. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS.4,15,68,750/-. GROUND -10 DISALLOWANCE OF DESIGN EXPENSES OF RS. 5,51,31,704/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF DESIGN EXPENSES OF RS.5,51,31,704/- BY TREATING IT TO BE DEFERRED REVENUE EXPENDITURE. IN DOING SO, THE CIT(A) FAILED TO APPRECIATE THAT MAKING DESIGN AND APPROVAL THEREOF IS AN INITIAL ACTIVITY FOR THE PURPOSE OF EXECUTION OF THE PROJECT. ACCORDINGLY, THE CIT(A) OUGHT TO HAVE APPRECIATED THAT EXPENDITURE TOWARDS DESIGN CHARGES WAS ALLOWABLE AS DEDUCTION IN THE YEAR OF INCURRENCE. 8 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO ALLOW DEDUCTION OF RS.5,51,31,704/- ON ACCOUNT OF DESIGN EXPENSES. GROUND -11 DISALLOWANCE OF BANK GUARANTEE EXPENSES OF RS.2,22,37,267/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF BANK GUARANTEE CHARGES OF RS.2,22,37,267/- WHICH COMPRISES OF RS.1,84,77,400/- ACTUALLY SPENT BY THE APPELLANT AND TREATED BY AO AS DEFERRED REVENUE EXPENSES AND RS.37,59,867/- AS PAYABLE BY THE JV PARTNER, SUCG AND NOT LIABLE TO BE BORNE BY THE APPELLANT. THE CIT(A) ERRED IN INADVERTENTLY QUANTIFYING THE DISALLOWANCE AS RS.2,22,37,267/- (REFER TO PAGE 138 OF THE APPELLATE ORDER). IN DOING SO, HE CONTRADICTED HIS OWN DECISION TO GRANT THE DEDUCTION OF EXPENSES TO THE EXTENT PAID THE APPELLANT OF RS.1,84,77,400/- (REFER TO PAGE 137 OF THE APPELLATE ORDER FOR QUANTIFICATION OF THE AMOUNT). THE CIT(A) FURTHER ERRED IN ERRONEOUSLY QUANTIFYING THE ACTUAL ALLOWANCE AT RS.37,59,867/- (REFER PAGE 138 OF THE APPELLATE ORDER) INSTEAD OF CORRECT AMOUNT OF RS.1,84,77,400/-. 9 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO ALLOW CHARGING TO P&L ACCOUNT AN AMOUNT OF RS.2,22,37,267/- ON ACCOUNT OF BANK GUARANTEE CHARGES. GROUND -12 DISALLOWANCE OF EXPENSES OF RS. 9,99,67,544/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING DISALLOWANCE OF EXPENSES AMOUNTING TO RS.9,99,67,544/- BY TREATING IT TO BE PRIOR PERIOD EXPENDITURE WITHOUT ANY BASIS BY IGNORING THE ACCOUNTING PRACTICE FOLLOWED BY THE APPELLANT. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.9,99,67,544/-. GROUND -13 DISALLOWANCE OF EXPENSES OF RS. 50,00,000/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING AD-HOC DISALLOWANCE TO THE EXTENT OF RS.50,00,000/- BY TREATING IT AS PERQUISITES IN THE HANDS OF EMPLOYEES AND ACCORDINGLY THE APPELLANT FAILED TO DEDUCT TDS THEREON. IN DOING SO, THE CIT(A) DISREGARDED THE DETAILS OF EXPENDITURE SUBMITTED BY THE APPELLANT SUCH AS STAFF MEAL EXPENSES, FOOD EXPENSES, 10 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. RENT AND CAR HIRE CHARGES INCURRED FOR ALL EMPLOYEES. THE CIT(A) ACCORDINGLY FAILED TO APPRECIATE THAT EXPENSES INCURRED BY THE APPELLANT WERE TOWARDS STAFF WELFARE AND NOT IN THE NATURE OF PERQUISITES. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.50,00,000/-. GROUND -14 ADDITION OF RS. 90,29,913/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING ADDITION OF RS.90,29,913/- ON ACCOUNT ALLEGED MISMATCH IN BALANCE CONFIRMATION OF VENDOR M/S S.B. PROTECH DISREGARDING THE REVISED RECONCILIATION OF BALANCE AS PER BOOKS OF APPELLANT AND THE CONFIRMATION. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS.90,29,913/-. GROUND-15 ADDITION OF RS.8,66,87,701/-. THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING ADDITION OF RS.8,66,87,701/- ON ACCOUNT OF ALLEGED MISMATCH IN THE BALANCE CONFIRMATION SOUGHT FROM APPROX. 300 VENDORS ON THE FOLLOWING LOGIC : 11 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. A. DISCREPANCY IN RECONCILIATION STATEMENTS FILED BY THE APPELLANT IN RESPECT OF DIFFERENCE OF RS.4,12,78,764/-. B. NON-SUBMISSION OF CONFIRMATIONS OF VENDORS AMOUNTING TO RS.4,54,08,937/-. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS.8,66,87,701/-. GROUND 16 ADDITION OF RS.34,00,000/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING ADDITION OF RS.34,00,000/- ON ACCOUNT OF ALLEGED MISMATCH IN BALANCE OF L&T AS PER THE BOOKS OF APPELLANT VIS-A-VIS THE VALUE OF INVESTMENT AS PER BOOKS OF L&T. IN DOING SO, CIT(A) DISREGARDED THE FACT THAT INVESTMENTS MADE IN THE APPELLANT WERE RECORDED IN THE BOOKS OF L&T UNDER THE HEAD 'TRADE RECEIVABLES' IN ACCORDANCE WITH NET ASSET METHOD. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS.34,00,000/-. 12 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. GROUND 17 ADDITION OF RS.44,68,235/-. THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ADDITION OF NOTIONAL INTEREST INCOME OF RS.44,68,235/- ON THE GROUND THAT JV PARTNER FAILED TO INFUSE FUNDS IN THE APPELLANT. IN DOING SO, THE CIT(A) ERRED IN DISREGARDING THE TERMS OF JV AGREEMENT WHEREIN THE JV PARTNER WAS NOT REQUIRED TO INFUSE FUNDS. THE CIT(A) FAILED TO APPRECIATE THAT THIS ADDITION TO INCOME IS NOT SUPPORTED BY ANY PROVISION OF THE ACT. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE ADDITION OF RS.44,68,235/-. GROUND 18. DISALLOWANCE OF EXPENSES OF RS.12,01,000/-. THE CIT(A) ERRED IN LAW ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING DISALLOWANCE OF AN EXPENSE OF RS.12,01,000/- INCURRED ON GIFTS GIVEN TO CLIENTS AND BUSINESS ASSOCIATES DISREGARDING THE SAME AS A NORMAL BUSINESS PRACTICE. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT (A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.12,01,000/-. 13 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. GROUND -19 ADDITION ON ACCOUNT DETERMINATION OF ALP IN RESPECT OF TRANSACTION WITH AE OF RS.25,90,46,464/- THE CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING ADDITION TO THE EXTENT OF RS.25,90,46,464/- IN RESPECT OF TRANSACTIONS WITH AN ASSOCIATE ENTERPRISE VIZ. M/S L&T GEOSTRUCTURE LLP BY DETERMINING THE ARM'S LENGTH PRICE ('ALP') OF THE TRANSACTION ON AN AD- HOC BASIS IN CONTRAVENTION OF THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE APPELLANT RESPECTFULLY PRAYS THAT THE DIRECTIONS OF THE CIT(A) TO THE AO BE QUASHED AND AO BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.25,90,46,464/-. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERRED IN DETERMINING ALP OF THE ENTIRE BY MERELY RESORTING TO OF ALP DETERMINED BY HIM PERTAINING TO LABOUR CHARGES. IN DOING SO, THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE CONTRACT AWARDED TO L&T GEOSTRUCTURE LLP WAS A COMPOSITE CONTRACT FOR EXECUTION OF THE PROJECT INVOLVING MATERIAL AND LABOUR. 14 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. GROUND - 20 REQUEST FOR LEAVE TO ADD, ALTER, AMEND AND/ OR SUPPLEMENT THE GROUNDS OF APPEAL THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/ OR SUPPLEMENT ANY GROUND OR GROUNDS IF NECESSARY, AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE RETURN OF INCOME IN THIS CASE WAS FILED ON 25.11.2014 DECLARING INCOME AT RS.8,11,82,250/- THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER 'COMPLETE SCRUTINY' UNDER CASS. THE REASONS FOR CASS SELECTION UNDER COMPLETE SCRUTINY ARE AS UNDER. (1) LARGE DIFFERENCE IN THE CLOSING STOCK SHOWN IN BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF CURRENT YEAR AS PER RETURN OF INCOME. (2) MISMATCH IN AMOUNT PAID TO RELATED PERSONS UNDER SECTION 40A(2)(B) REPORTED IN AUDIT REPORT AND ITR. 15 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 2.1. STATUTORY NOTICES WERE ISSUED FOR COMPLETION OF THE ASSESSMENT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE IS ENGAGED IN A JOINT VENTURE IN THE BUSINESS OF DESIGN & CONSTRUCTION OF TUNNEL WHICH IS AWARDED BY DELHI METRO RAIL CORPORATION (DMRC). THE A.O. OBSERVED THAT ASSESSEE HAD NOT PROVIDED COMPLETION INFORMATION AT ASSESSMENT STAGE, THEREFORE, HAVING REGARD TO THE NATURE / COMPLEXITY OF ACCOUNTS, VOLUME OF THE ACCOUNTS, DOUBT OF THE CORRECTNESS OF THE ACCOUNTS, MULTIPLICITY OF TRANSACTIONS AND IN THE INTEREST OF REVENUE, A SHOW CAUSE NOTICE TO THE ASSESSEE WAS GIVEN AS TO WHY THE BOOKS OF ACCOUNTS MAY NOT BE REFERRED FOR SPECIAL AUDIT UNDER SECTION 142(2A) OF THE I.T. ACT, 1961. THE A.O. AFTER GETTING APPROVAL OF PR. CIT, NEW DELHI REFERRED THE MATTER FOR SPECIAL AUDIT. THE ASSESSEE FILED A PETITION BEFORE HONBLE DELHI HIGH COURT WHICH WAS DISMISSED. FURTHER, THE EMPANELLED AUDITOR M/S ASAP & ASSOCIATES SUBMITTED ITS AUDIT REPORT VIDE DATED 05.06.2017. THE BASIC OBSERVATION OF THE AUDIT REPORT IS REPRODUCED IN THE ASSESSMENT ORDER. IN THE SPECIAL AUDIT SO REPRODUCED IN THE ASSESSMENT ORDER, THE AUDITOR HAS NOTED THAT ASSESSEE 16 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. IS A JOINT VENTURE (IN SHORT JV) COMPRISING OF TWO MEMBERS HAVING THE PARTICIPATING INTEREST (I.E., PROFIT/LOSS SHARING RATIO) AS UNDER : SL.NO. NAME OF MEMBER PARTICIPATING INTEREST. A. SHANGHAI URBAN CONSTRUCTION (GROUP) CORPORATION, (SUCG) 32.0% B. LARSEN & TOUBRO LIMITED (L&T) 68.0% 2.2. DELHI METRO RAIL CORPORATION LIMITED (DMRC') IN SHORT) HAD INVITED BIDS FOR THE DESIGN AND CONSTRUCTION OF TUNNEL FROM END OF UNDERGROUND RAMP (NEAR SHANKAR VIHAR METRO STATION) TO HAUZ KHAS METRO STATION AND UNDERGROUND RAMP NEAR SHANKAR VIHAR METRO STATION AND UNDERGROUND METRO STATIONS AT VASANT VIHAR, MUNIRKA, R.K PURAM, IIT AND HAUZ KHAS ON JANAKPURI WEST- BOTANICAL GARDEN CORRIDOR OF DELHI MRTS PROJECT OF PHASE-III THE ABOVE PARTIES ENTERED INTO A PRE-BID UNINCORPORATED JV AGREEMENT ON 30 TH APRIL 2012 TO JOINTLY SUBMIT THE BID FOR THE PROJECT AND TO JOINTLY EXECUTE THE WORKS IN THE EVENT OF AWARD OF THE CONTRACT TO THEM. SUBSEQUENTLY A JOINT VENTURE AGREEMENT WAS ALSO SIGNED ON 05.11.2012 BY THE SAID PARTIES TO 17 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. FORMALIZE THEIR MUTUAL UNDERSTANDING. FINALLY, DMRC ISSUED A LETTER OF ACCEPTANCE DATED 01.11.2012 IN FAVOR OF THE JV FOR DESIGN AND CONSTRUCTION OF THE TUNNEL PROJECT. IN THE SPECIAL AUDIT REPORT AS REPRODUCED IN THE ASSESSMENT ORDER, THE AUDITOR HAS POINTED-OUT CERTAIN ITEMS WHICH HAVE NOT BEEN CLARIFIED BY THE ASSESSEE. THE A.O. ON THE BASIS OF THE OBSERVATIONS MADE IN THE SPECIAL AUDIT REPORT ISSUED A DETAILED SHOW CAUSE NOTICE TO THE ASSESSEE. THE A.O. AFTER CONSIDERING THE EXPLANATION OF ASSESSEE ON EACH ITEMS POINTED OUT BY THE SPECIAL AUDITOR NOTED THAT ASSESSEE DID NOT COOPERATE AND NO PLAUSIBLE ANSWERS HAVE BEEN GIVEN TO THE QUERY RAISED BY THE AUDITOR, MADE CERTAIN ADDITIONS. THE A.O. ASSESSED THE INCOME OF ASSESSEE AT RS.297,18,46,560/- VIDE ASSESSMENT ORDER UNDER SECTION 143(3)/142(2A) OF THE I.T. ACT, 1961 DATED 04.08.2017. THE ASSESSEE CHALLENGED ALL THE ADDITIONS BEFORE THE LD. CIT(A) AND THE APPEAL OF ASSESSEE WAS ALLOWED PARTLY. THE ASSESSEE IS IN APPEAL ON ABOVE GROUNDS OF APPEALS. WE DEAL ALL THE GROUNDS SEPARATELY ALONG WITH COMMON GROUNDS RAISED BY REVENUE. 18 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE FINDINGS OF THE AUTHORITIES BELOW. 4. IT MAY BE NOTED THAT WHILE HEARING OF THE CASE WAS GOING ON, VIDE ORDER DATED 06.02.2019 IT WAS NOTED THAT ON GROUND NOS. 1 TO 4 AND 19 OF THE APPEAL OF ASSESSEE, VERIFICATION IS REQUIRED AT THE END OF THE A.O. BOTH PARTIES SUGGESTED THAT ASSESSEE MAY PRODUCE THE ENTIRE RECORD BEFORE A.O. FOR HIS VERIFICATION AND FINAL OF REMAND REPORT. THE A.O. WAS DIRECTED TO FILE REMAND REPORT ON THESE GROUNDS. THE A.O. HAS FILED THE REMAND REPORT WHICH IS TAKEN ON RECORD. THE GROUNDS ARE DECIDED AS UNDER. ITA.NO.4351/DEL./2018 ASSESSEES APPEAL A.Y. 2014-15 5. ON GROUND NO.1, ASSESSEE CHALLENGED THE ADDITION OF RS.7,70,79,009/- ON ACCOUNT OF NEGATIVE INVENTORY. DURING THE COURSE OF ARGUMENTS WHILE ARGUING THE GROUNDS OF APPEAL ON MERITS, IT WAS BROUGHT TO OUR NOTICE THAT ASSESSEE HAS BEEN FOLLOWING THE PERCENTAGE OF 19 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. COMPLETION METHOD WHILE RECOGNIZING THE REVENUE. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT THIS ADDITION WOULD BE ACADEMIC IN NATURE. THE ASSESSEE ALSO FILED WRITTEN SUBMISSIONS ON THIS ISSUE WHICH READS AS UNDER. 1. DURING THE RELEVANT ASSESSMENT YEAR THE APPELLANT JV WAS ENGAGED IN EXECUTION OF A PROJECT AWARDED BY DELHI METRO RAIL CORPORATION (DMRC). THE WORK AWARDED TO THE JV INVOLVED CONSTRUCTION OF UNDERGROUND TUNNEL FROM SHANKAR VIHAR METRO STATION TO HAUZ KHAS METRO STATION AND CONSTRUCTION OF FIVE METRO STATIONS AT VASANT VIHAR, MUNIRKA, R.K. PURAM, IIT AND HAUZ KHAS IN DELHI METRO PHASE-III. 2. THE TOTAL VALUE OF THE WORK AWARDED BY DMRC TO JV WAS RS.12,60,86,50,700/- . THE WORK OF DMRC PROJECT WAS COMMENCED BY JV DURING THE FINANCIAL YEAR 2012-13 ITSELF. HOWEVER, SINCE 25% COMPLETION OF THE PROJECT WAS NOT ACHIEVED, THE 20 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 WAS FILED DECLARING NIL INCOME. 3. DURING THE FINANCIAL YEAR 2012-13, THE ASSESSEE JV RECOGNISED THE REVENUE FROM SALES AND SERVICE UNDER THE HEAD INCOME OF PROFIT & LOSS ACCOUNT WHICH IS EQUIVALENT TO THE EXPENDITURE INCURRED DURING THE ASSESSMENT YEAR. THE REVENUE COMPRISES ONLY CLOSING WIP AMOUNTING TO RS.27,30,48,673/- EQUIVALENT TO THE EXPENDITURE INCURRED, SINCE 25% COMPLETION OF THE PROJECT WAS NOT ACHIEVED, THE REVENUE COULD NOT BE RECOGNISED ON THE BASIS OF PERCENTAGE OF COMPLETION APPLIED ON THE CONTRACT REVENUE. 4. DURING THE FINANCIAL YEAR 2013-14 THE PERCENTAGE OF COMPLETION OF PROJECT WAS MORE THAN 25% AND THEREFORE REVENUE WAS RECOGNIZED UNDER PERCENTAGE OF COMPLETION METHOD AS PER AS-7. THE PROFIT BEFORE TAX AS PER PROFIT AND LOSS FOR THE YEAR ENDED 31-03-2014 WAS RS.8,11,57,341/- 21 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. COMPRISING OF OTHER INCOME AMOUNTING TO RS.1,56,66,920/-. 5. TILL FINANCIAL YEAR 2013-14, THE ASSESSEE JV INCURRED EXPENDITURE TO THE TUNE OF RS.430,05,37,654/-. THE CONTRACT VALUE OF THE PROJECT WAS RS.12,60,86,50,700/-. TOTAL ESTIMATED CONTRACT COST FOR THE COMPLETION OF THE PROJECT WAS RS.12,41,95,20,939/-. THE ESTIMATED PROFIT MARGIN WAS RS.18,91,29,761/- WHICH WAS 1.50% OF TOTAL ESTIMATED REVENUE. THE PERCENTAGE OF COMPLETION AS ON 31-03-2014 WAS 34.63%. THIS PERCENTAGE IS ARRIVED AT BY DIVIDING THE TOTAL EXPENDITURE INCURRED TILL F.Y. 2013-14 WITH TOTAL ESTIMATED CONTRACT COST FOR THE COMPLETION OF THE PROJECT. 6. THAT THE REVENUE FOR THE FINANCIAL YEAR 2013-14 COMES TO RS.436,60,28,076/- BY APPLYING PERCENTAGE OF COMPLETION METHOD. THIS IS CALCULATED BY APPLYING PERCENTAGE OF COMPLETION ON CONTRACT VALUE OF THE PROJECT I.E. RS.12,60,86,50,700 * 34.63%. 22 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 7. THAT THE TOTAL EXPENDITURE OF RS.430,05,37,654/-, ON THE BASIS OF WHICH PERCENTAGE OF COMPLETION WAS WORKED OUT FOR THE F.Y. 2013-14 INCLUDES TOTAL EXPENDITURES OF RS.27,30,48,673 INCURRED IN THE F.Y. 2012-13. IN THE F.Y. 2012-13, 25% COMPLETION OF THE PROJECT WAS NOT ACHIEVED; THEREFORE CLOSING WORK-IN-PROGRESS WAS RECOGNISED AS REVENUE TO THE EXTENT OF TOTAL EXPENDITURE INCURRED IN THAT YEAR. 8. THE TOTAL REVENUE RECOGNISED BASED ON TOTAL EXPENDITURE INCURRED TILL WAS RS.436,60,28,076/-. THE TOTAL EXPENDITURE INCLUDED COST OF RS.27,30,48,673/- INCURRED IN F.Y. 2012-13. HENCE, THE REVENUE AS PER POCM WAS RECOGNISED CONSIDERING THE COST OF RS.27,30,48,673/- INCURRED IN F.Y. 2012-13. IN THE PROFIT & LOSS A/C THE OPENING WIP OF RS.27,30,48,673/- WAS SHOWN IN SCHEDULE-K BY REDUCING THE SAME FROM REVENUE. THE TOTAL PROFIT BEFORE OTHER INCOME OF RS.1,56,66,920/- WAS RS.6,54,90,421/- WHICH IS 1.50% OF REVENUE OF RS.436,60,28,076/- 23 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 9. ALTERNATIVELY, THE OPENING WIP OF RS.27,30,48,673/- COULD HAVE BEEN SHOWN UNDER EXPENSE IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31-03-2014 AND THEREFORE NOT REDUCING THE SAME FROM REVENUE RECOGNISED THE PROFIT WOULD HAVE STILL BEEN THE SAME. 10. FROM THE ABOVE IT IS CLEAR THAT REDUCTION IN THE REVENUE BY AN AMOUNT OF OPENING WIP IS MERELY A DIFFERENCE IN PRESENTATION IN THE PROFIT AND LOSS ACCOUNT AND HAS NO IMPACT ON THE PROFIT AS PER PROFIT AND LOSS FOR THE YEAR ENDED 31-03-2014. THE REVENUE WAS CORRECTLY RECOGNISED BY CONSIDERING TOTAL COST INCURRED UP TO 31.03.2014. 5.1. IN SUPPORT OF THE SAME, THE ASSESSEE ALSO FILED A CHART OF PRECEDING ASSESSMENT YEARS, ASSESSMENT YEAR UNDER APPEAL AS WELL AS SUBSEQUENT ASSESSMENT YEARS TO SHOW AS TO HOW THE REVENUE HAS BEEN RECOGNISED ON PERCENTAGE COMPLETION METHOD. THE SAME IS READS AS UNDER: 24 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. L & T SUCG JV CC 27 DELHI AS ON MARCH 31, 2013 AS ON MARCH 31, 2014. AS ON MARCH 31, 2015. AS ON MARCH 31, 2016 REVISED CONTRACT VALUE (A) 12,60,86,50,700 12,60,86,50,700 12,94,62,49,412 13,04,40,61,740 REVISED ESTIMATED CONTRACT COST (B) 12,41,95,20,939 12,41,95,20,939 12,91,49,03,647 13,45,16,06,509 ESTIMATED PROFIT MARGIN (C) = (A) - (B) 18,91,29,761 18,91,29,761 3,13,45,765 (40,75,44,769) TOTAL COST INCURRED TILL THE END OF FINANCIAL YEAR (D) 27,30,48,673 4,30,05,37,654 9,95,83,65,195 12,86,38,95,727 COST INCURRED IN THE PREVIOUS FINANCIAL YEARS (E) - 27,30,48,673 4,30,05,37,654 9,95,83,65,195 COST INCURRED DURING THE FINANCIAL YEAR (F) = (D) - (E) 27,30,48,673 4,02,74,88,981 5,65,78,27,541 2,90,55,30,531 COST OF COMPLETION (%AGE ) (G) = (D) / (B) 2.20% 34.63% 77.11% 95.63% TOTAL REVENUE AS PER POCM (H) = (A) * (G ) - REFER NOTE 27,30,48,673 4,36,60,28,076 9,98,25,35,915 12,47,41,60,664 REVENUE RECOGNISED IN PREVIOUS FINANCIAL YEARS (1) - 27,30,48,673 4,36,60,28,076 9,98,25,35,915 REVENUE RECOGNISED DURING THE FINANCIAL YEAR (J) = (H)-(I) 27,30,48,673 4,09,29,79,403 5,61,65,07,839 2,49,16,24,749 INVOICES RAISED DURING THE FINANCIAL YEAR (K) - 3,29,51,03,593 8,58,31,40,998 11,07,51,75,004 CLOSING WIP (L) = (H) - (K) 27,30,48,673 1,07,09,24,483 1,39,93,94,917 1,39,89,85,660 NOTE : IN THE FINANCIAL YEAR 2012-13, JV RECOGNISED 100% COST INCURRED AS REVENUE AS THE MINIMUM PERCENTAGE OF COMPLETION WAS NOT ACHIEVED AS PER ACCOUNTING STANDARD-7 5.2. THE ASSESSEE FILED COPIES OF THE BALANCE-SHEET FOR ALL THESE YEARS IN SUPPORT OF THE ABOVE STATEMENT WHICH WAS PROVIDED TO THE LD. D.R. FOR HIS COMMENTS ALSO. THE A.O. MADE THE ADDITION OF RS.7,70,79,009/- ON THE GROUND THAT THE SPECIAL AUDITOR HAS MENTIONED IN HIS SPECIAL AUDIT 25 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. REPORT [SAR] THAT IN THE INVENTORY LEDGER, THERE IS A NEGATIVE BALANCE OF THIS AMOUNT WHICH WAS NOT TAKEN INTO ACCOUNT BY THE ASSESSEE. THE ASSESSEE, HOWEVER, SUBMITTED BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT ON RECEIPT OF MATERIAL, MATERIAL RECEIPT NOTE (MRN) IS PREPARED WHICH IS THEN ENTERED INTO THE INVENTORY MODULE OF THE SYSTEM. THE INVENTORY RECOGNISES THE RECEIPT OF MATERIAL AND DISPLAYS THAT INTO STOCK AS ON THAT TIME. AT THIS STAGE, AS PER THE STORES, MATERIAL IS READY FOR ISSUE. THE MRN SO PREPARED GO THROUGH VARIOUS CONTROLS OF APPROVAL I.E., RECONCILIATION WITH THE PURCHASE ORDER PREPARED THROUGH THE SYSTEM. ON COMPLETION OF THE APPROVAL PROCESS, RECEIPT OF THE MATERIAL GETS ENTERED INTO THE ACCOUNTING MODULE OF EIP SYSTEM AND IT RECOGNISES THE LIABILITY BY DEBITING THE STOCK IN TRADE AND CREDITING THE VENDORS LIABILITY. IN THE INITIAL STAGES OF THE MOBILIZATION DUE TO SHORTAGE OF TIME THE STORES GET ISSUED FROM THE INVENTORY MODULE BEFORE THAT RECEIPT OF MATERIAL GETS RECOGNISED IN THE ACCOUNTING SYSTEM. THIS PROCESS SOME TIME RESULTS IN STOCK ACCOUNT SHOWING NEGATIVE AMOUNTS AS IT REPRESENTS THE ISSUE OF STOCK. THE INVENTORY 26 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. MODULE WILL NEVER ACCEPT THE ISSUE UNLESS IT HAS THAT MATERIAL IN ITS STOCK AT THAT PARTICULAR MOVEMENT. AS THE RECORDING OF THE MRN GOES THROUGH VARIOUS CONTROLS SOME TIMES IT GETS DELAYED AND THEREBY RESULTING IN LATE RECORDING OF THE STOCK INTO ACCOUNTING SYSTEM. HOWEVER, AS AND WHEN THE MRN GETS APPROVED THE RECEIPT AND ULTIMATELY THE STOCK GETS RECOGNISED INTO SYSTEM AND CORRECTLY REFLECTS THE STOCK IN HAND. BASED ON THIS PREMISE AFTER THE RECORDING OF ENTRIES, STOCK IN HAND REFLECTED AN AMOUNT OF RS.3,71,19,081/- AS ON 31.03.2013 AND NOT A NEGATIVE FIGURE OF RS.7,70,79,009/- AS POINTED OUT BY THE SPECIAL AUDITOR. THE ASSESSEE TRIED TO EXPLAIN THIS ISSUE MANY TIMES CLEARLY EXPLAINING THE FLOW OF ENTRIES INTO THE SYSTEM BUT SOME HOW THEY WERE BENT UPON REPORTING THE SAID FIGURE OF ISSUE IN ISOLATION. 5.3. THE A.O. HOWEVER DID NOT ACCEPT THE REASONS GIVEN BY THE ASSESSEE AND MADE THE ADDITION. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) EXPLAINING THEREIN THE SAME FACTS THAT THERE WAS NO NEGATIVE STOCK. THE LD. CIT(A) REPRODUCED THE CLARIFICATION OF THE SPECIAL AUDITOR IN THE IMPUGNED ORDER REITERATING THE SAME FACTS THAT THERE 27 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. WAS A NEGATIVE BALANCE OF STOCK IN MAIN DEPOT A/C LEDGER AS ON 31.03.2013. THE SPECIAL AUDITOR ALSO REFERRED TO REPLY OF THE ASSESSEE AS TO HOW THE DIFFERENCE OF NEGATIVE INVENTORY ADJUSTED IN THE BOOKS. THE A.O. IN THE REMAND REPORT ALSO STATED AND REITERATED THAT THERE WAS A NEGATIVE BALANCE AS ON 31.03.2013. THE LD. CIT(A) ASKED THE ASSESSEE TO PRODUCE LEDGER ACCOUNT OF MAIN DEPOT ACCOUNT AND OTHER MATERIALS OF STOCK AND DETAILS OF SUNDRY CREDITORS. THE WRITTEN SUBMISSIONS OF THE ASSESSEE FILED BEFORE THE LD. CIT(A) IS REPRODUCED AT PAGES 118 TO 120 OF THE IMPUGNED ORDER IN WHICH THE ASSESSEE REITERATED THE SAME FACTS AND EXPLAINED THAT THE FIGURES GIVEN BY THE A.O. IN ITS REPORT ARE WRONG AND ACTUAL DEFECTS SHOWS THAT THERE WAS NO NEGATIVE BALANCE. THE COPIES OF LEDGER ACCOUNT AND FINANCIAL STATEMENT ON 31.03.2013 WERE ALSO FILED. WHATEVER WAS THE CLOSING STOCK AS ON 31.03.2013 IS THE OPENING STOCK AS ON 01.04.2013. IT WAS ALSO EXPLAINED THAT CLOSING AS ON 31.03.2013 IN RESPECT OF SUNDRY CREDITORS WAS RS.[-]12,55,31,618/- AND NOT RS.[- ]20,26,10,627/- AS REPORTED BY THE SPECIAL AUDITOR. THE ASSESSEE FILED COPY OF THE LEDGER ACCOUNT OF SUNDRY CREDITORS 28 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. AS ON 31.03.2013 AND 31.03.2014 IN SUPPORT OF THE ABOVE EXPLANATION. THE SPECIAL AUDITOR IS TRYING TO JUSTIFY THE DIFFERENCE BETWEEN RS.20,26,10,627/- AND RS.12,55,31,618 AS BEING WRITTEN OFF IN BOOKS. WHEREAS THE FACT IS AMOUNT OF RS.7,70,79,009/- WORTH PURCHASES OF MATERIAL WAS BOOKED IN 31.03.2013 THEREBY REDUCING THE BALANCE AS ON 31.03.2013 FROM RS.20,26,10,627/- TO RS.12,55,31,618/-. THIS LED TO INCREASE IN VALUE OF STOCK INVENTORY BY RS.7,70,79,009/- THEREBY MAKING THE INVENTORY POSITIVE AS ON 31.03.2013 AND REDUCING THE CREDITORS BY THE SAME AMOUNT. IT WAS SUBMITTED THAT SINCE SUNDRY CREDITORS BALANCE WAS REDUCED BY THE IMPUGNED AMOUNT, THEREFORE, THERE WAS NO DIFFERENCES. THE ASSESSEE ALSO FILED COPY OF THE MAIN DEPOT STOCK LEDGER FOR PRECEDING ASSESSMENT YEAR AS WELL AS ASSESSMENT YEAR UNDER APPEAL WHICH IS REPRODUCED IN THE IMPUGNED ORDER IN WHICH THE ASSESSEE EXPLAINED THAT THERE WAS A DEBIT AND CREDIT ENTRY OF THE IMPUGNED AMOUNT OF RS.7,70,79,009/- AS ON 31.03.2013 AND THAT REVERSAL ENTRY OF THE SAME AMOUNT WAS MADE IN THE BOOKS, COPY OF WHICH IS FILED AT PAGE-120 OF THE IMPUGNED ORDER. 29 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 5.4. THE LD. CIT(A) INSTEAD OF DECIDING THE ISSUE ON MERIT NOTED THAT NO SUCH CLAIM OR DOCUMENTARY EVIDENCES COULD BE PRODUCED BEFORE THE SPECIAL AUDITOR OR BEFORE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND NO EXPLANATION IS GIVEN REGARDING THE CONTRA ENTRY MADE. THE LD. CIT(A) GOING BY THE SPECIAL AUDIT REPORT [SAR] AND FINDINGS OF THE A.O. CONFIRMED THE ADDITION. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS REFERRED TO PB-A1/4 WHICH IS P & L A/C OF ASSESSEE TO SHOW ASSESSEE DECLARED PROFIT OF RS.8,11,57,341/-. PB-A1/11 AND 19 AS ON 31.03.2013 SHOWS CLOSING INVENTORY AT RS.3,71,19,081/- IN SCHEDULES-G & M. HE HAS, THEREFORE, SUBMITTED THAT THERE WAS NO NEGATIVE STOCK. IT IS AN ACCEPTED PROPOSITION IN ACCOUNTING THAT THE CLOSING STOCK OF THE PREVIOUS YEAR IS CONSIDERED AS OPENING STOCK OF THE SUBSEQUENT YEAR. AN EXAMINATION OF SCHEDULE-M AT PAGE-19 OF THE PB-A1 WOULD REVEAL THAT OPENING STOCK IN THE BALANCE- SHEET AS ON 31.03.2013 HAS BEEN RECKONED AT THE FIGURE OF RS.3,71,19,081/-. THEREFORE, THERE IS NO INFIRMITY IN THE 30 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. FINANCIAL FIGURES IN BOTH THE BALANCE-SHEETS. PB-A1/32 IS THE ASSESSMENT ORDER FOR PRECEDING A.Y. 2013-2014 UNDER SECTION 143(3) DATED 18.03.2016 IN WHICH SOME ROUTINE DISALLOWANCE OF EXPENSES HAVE BEEN MADE. THE A.O. ACCEPTED THE BOOKS OF ACCOUNT OF ASSESSEE AND THE BANK STATEMENTS. PB-1 TO 6 ARE THE REPORT OF THE SPECIAL AUDITOR. PB-24 IS TRIAL BALANCE AS ON 31.03.2013 SHOWING STOCK ON SITE AT RS.3,71,19,081/-. PB-26 TO 42 IS DETAILS OF PURCHASES OF RS.7,70,79,009/- WHICH IS SUPPORTED BY BILLS AND VOUCHERS, COPIES OF THE SAME ARE FILED ON RECORD. PB-43 AND 44 ARE THE DETAILS OF ADVANCES GIVEN TO CREDITORS/SUPPLIERS OUTSTANDING BEFORE ADJUSTMENT OF MATERIAL RECEIVED PRIOR TO 31.03.2013 AND APPROVED INTERNALLY AFTER 31.03.2013 IN A SUM OF RS.20,26,10,627/-. PB-45 IS THE DETAILS OF CREDITORS/ SUPPLIERS SUPPLIED MATERIAL PRIOR TO 31.03.2013 AND APPROVED INTERNALLY AFTER 31.03.2013 IN A SUM OF RS.7,70,79,009/-. PB-46 TO 48 ARE THE DETAILS OF ADVANCES GIVEN TO CREDITORS/SUPPLIERS OUTSTANDING IN THE BALANCE- SHEET AS ON 31.03.2013 IN A SUM OF RS.12,55,31,619/- WHICH TALLY WITH PB-7, SCHEDULE-H OF THE BALANCE-SHEET. 31 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT THIS ENTRY WOULD HAVE NO IMPACT ON TAXABILITY OF INCOME SUBJECTED TO TAXES. HE HAS SUBMITTED THAT AS REGARDS THE OBSERVATION OF SPECIAL AUDITOR, IT MAY BE EXPLAINED THAT CLOSING CREDITORS AS ON 31.03.2013 WAS RS.[-]20,26,10,627/-, THEREFORE, THERE WAS AN ADVANCE RECOVERABLE FROM THE SUNDRY CREDITORS AS ON 31.03.2013. AGAINST THESE ADVANCES, CERTAIN MATERIAL WAS RECEIVED AND WAS LYING WITH THE ASSESSEE ON 31.03.2013. AN AMOUNT OF RS.7,70,79,009/- WAS BOOKED AS PURCHASES AND CORRESPONDINGLY THE DEBIT BALANCE IN THE SUNDRY CREDITORS ACCOUNT WAS REDUCED BY CORRESPONDING AMOUNT. THUS, THE CLOSING DEBIT BALANCE IN SUNDRY CREDITORS ACCOUNTS AS ON 31.03.2013 IS REFLECTED AT RS.12,55,31,168/- WHICH CAN BE CHECKED WITH THE FIGURE REPORTED IN SCHEDULE- 11 OF THE AUDITED BALANCE-SHEET FILED AT PAGE-15 OF PB-A1. THEREFORE, THE NEGATIVE STOCK OF RS.[-]3,99,59,928/- GOT CONVERTED INTO A POSITIVE FIGURE OF RS.3,71,19,081/- WHICH HAVE BEEN SHOWN IN THE BALANCE-SHEET. THE DETAILS ARE NOTED IN THE BALANCE-SHEET AND ENTRIES ARE PASSED AS ON 31.03.2013 OF THE IMPUGNED AMOUNT, THEREFORE, THERE IS NO 32 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. NEGATIVE STOCK. LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PAGE-6 OF THE REMAND REPORT FILED BY THE A.O. DURING PROCEEDINGS BEFORE THE TRIBUNAL IN WHICH THE A.O. HAS STATED THAT ASSESSEE INSISTED FOR COPY OF THE TRIAL BALANCE COMPILED BY THE AUDITORS SHOULD BE PROVIDED TO IT. THE A.O. HOWEVER STATED THAT THE TRIAL BALANCE IS AN INTERNAL DOCUMENT AND THE CONCLUSION OF THE SPECIAL AUDITOR HAD BEEN COMMUNICATED TO THE ASSESSEE. THERE WAS NO REASON WHY THE COPY OF THE SAME WAS REQUIRED BY THE ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT COPY OF THE TRIAL BALANCES PREPARED BY THE SPECIAL AUDITOR WAS NOT SUPPLIED TO THE ASSESSEE WHICH IS SOLE BASIS TO MAKE ADDITION. THEREFORE, THERE WAS NO DEFAULT ON THE PART OF ASSESSEE IN REPLYING BEFORE THE SPECIAL AUDITOR OR THE A.O. THE ASSESSEE FILED PURCHASES ENTERED INTO THE BOOKS SUPPORTED BY BILLS AND VOUCHERS. HE HAS, THEREFORE, SUBMITTED THAT THERE WAS NO DIFFERENCE IN THE ACCOUNTS OR IN THE BALANCE-SHEET. SINCE THE ASSESSEE FOLLOWED PERCENTAGE OF COMPLETION METHOD (POCM) AND OFFERED INCOME ACCORDINGLY, THEREFORE, THIS ADDITION COULD NOT BE MADE AGAINST THE ASSESSEE. 33 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 7. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TRIAL BALANCE OF THE SPECIAL AUDITOR WAS NOT SUPPLIED TO THE ASSESSEE. THE ASSESSEE DID NOT COOPERATE WITH THE SPECIAL AUDITOR OR THE A.O. LD. D.R. SUBMITTED THAT ASSESSEE FAILED TO EXPLAIN THE TRANSACTIONS AND NO PROPER VERIFICATION OR INVESTIGATION COULD BE DONE FOR DEFAULT OF THE ASSESSEE. THE LD. D.R, THEREFORE, SUGGESTED THAT IN VIEW OF THE ABOVE FACT MATTER MAY BE SET ASIDE TO THE FILE OF A.O. FOR FRESH CONSIDERATION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS FILED COMPLETE DETAILS OF PURCHASES IN A SUM OF RS.7,70,79,009/- SUPPORTED BY ALL THE BILLS AND VOUCHERS. THE ASSESSEE ALSO FILED COPIES OF THE AUDITED REPORT TO SHOW THAT IN PRECEDING A.Y. 2013-2014, THE CLOSING STOCK WAS OF RS.3,71,19,081/- WHICH IS OPENING BALANCE IN ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE ALSO FILED ASSESSMENT ORDER FOR PRECEDING A.Y. 2013-2014 UNDER SECTION 143(3) ON RECORD IN WHICH THE A.O. DID NOT DISTURB THE BOOK RESULTS OF THE 34 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ASSESSEE. HOWEVER, TWO SMALL ADDITIONS ON ACCOUNT OF DISALLOWANCES OF EXPENSES HAVE BEEN MADE. IT IS, THUS, CLEAR THAT IN PRECEDING A.Y. 2013-2014 THE A.O. ACCEPTED THE BOOK RESULTS DECLARED BY THE ASSESSEE WHICH INCLUDES THE CLOSING BALANCE OF THE STOCK AS ON 31.03.2013 IN A SUM OF RS.3,71,19,081/-. THE ASSESSEE ALSO FILED COPY OF THE TRIAL BALANCE AS ON 31.03.2013 WHICH ALSO SUPPORT THE FACT THAT STOCK AT SITE HAVE BEEN DECLARED IN A SUM OF RS.3,71,19,081/-. THE ASSESSEE HAS ALSO FILED OTHER DETAILS OF PURCHASES ADVANCES GIVEN TO SUPPLIERS AND DETAILS OF ADVANCES GIVEN TO CREDITORS/SUPPLIERS AND HOW THE ENTRIES HAVE BEEN MADE IN THE BOOKS OF ACCOUNT WHICH ARE SUPPORTED BY THE BILLS AND VOUCHERS. IT APPEARS THAT SPECIAL AUDITOR HAS CONSIDERED THE ISSUE OF NEGATIVE BALANCE AS ON 31.03.2013 WHICH COULD NOT BE SUBJECT MATTER OF DISPUTE IN ASSESSMENT YEAR UNDER APPEAL I.E., 2014-2015 AS THE A.O. HAS ACCEPTED ALL THE FIGURES OF PRECEDING A.Y. 2013-2014 IN THE ASSESSMENT ORDER UNDER SECTION 143(3). THE ASSESSEE EXPLAINED THE REASONS FOR MAKING THE CONTRA ENTRY BECAUSE OF THE PURCHASES RECEIVED COULD NOT BE RECORDED IN THE BOOKS 35 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. OF ACCOUNT AS THAT SAME WERE NOT APPROVED. THE ASSESSEE FURTHER EXPLAINED THAT THERE WAS ADVANCE RECOVERABLE FROM SUNDRY CREDITORS AS ON 31.03.2013. AGAINST THESE ADVANCES CERTAIN MATERIAL WAS RECEIVED AND LYING WITH THE ASSESSEE ON 31.03.2013. THE AMOUNT OF RS.7,70,79,009/- WAS BOOKED AS PURCHASES AND CORRESPONDING DEBIT BALANCE IN THE SUNDRY CREDITORS ACCOUNT WAS REDUCED BY CORRESPONDING AMOUNT. THUS THE CLOSING DEBIT BALANCE IN SUNDRY CREDITORS ACCOUNT AS ON 31.03.2013 WAS REFLECTED AT RS.12,55,31,168/- WHICH IS ALSO MENTIONED IN THE AUDITED ACCOUNTS. IN VIEW OF THESE FACTS, CONTRA ENTRY WAS MADE IN THE BOOKS OF ACCOUNT ON 31.03.2013 WHICH ALSO BELONG TO THE PRECEDING ASSESSMENT YEAR AND COULD NOT BE SUBJECT MATTER OF DISPUTE IN ASSESSMENT YEAR UNDER APPEAL I.E. 2014.2015. THUS, THE EXPLANATION OF ASSESSEE IS PLAUSIBLE AND REASONABLE WHICH SHOULD NOT HAVE BEEN REJECTED BY THE AUTHORITIES BELOW. SINCE TRIAL BALANCE COMPILED BY THE AUDITOR WAS NOT PROVIDED TO THE ASSESSEE CONSIDERING IT TO BE AN INTERNAL DOCUMENT AT ASSESSMENT STAGE, THEREFORE, IT CANNOT BE USED IN EVIDENCE AGAINST THE ASSESSEE SO AS TO MAKE THIS ADDITION. FURTHER, IT 36 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. IS WELL SETTLED LAW THAT ENTRIES MADE IN THE BOOKS OF ACCOUNT ARE NOT DETERMINATIVE OF QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSSES. WHAT IS NECESSARY IS TO CONSIDER, IS THE TRUE NATURE OF TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE TAXED EVEN THOUGH IN BOOK KEEPING AN ENTRY MADE BY VIRTUE OF HYPOTHETICAL INCOME WHICH DOES NOT MATERIALIZE. THUS, THE INCOME TAX ACT DOES NOT RECOGNISE HYPOTHETICAL OR NOTIONAL INCOME WHICH IS NOT RECEIVED OR ACCRUED TO THE ASSESSEE. WE RELY UPON JUDGMENTS OF HONBLE SUPREME COURT IN THE CASES OF SUTLEZ COTTON MILLS VS. CIT 116 ITR 1 (SC); TUTICORIN ALCALI CHEMICALS AND FERTILIZERS LTD., 227 ITR 172 (SC) AND GODHRA ELECTRICITY CO. LTD., 225 ITR 746 (SC). IF THIS ADDITION IS CONSIDERED IN ASSESSMENT YEAR UNDER APPEAL AND STOCK POSITION IS TAKEN DIFFERENTLY, IT HAS TO BE GIVEN EFFECT IN CLOSING STOCK OF THIS YEAR, RESULTANTLY, OPENING STOCK OF NEXT ASSESSMENT YEAR WOULD BE ENHANCED BY SAME AMOUNT. IT WOULD BE TAX NEUTRAL EXERCISE ONLY. THE EXPLANATION OF ASSESSEE IS ACCEPTED THAT THERE WAS NO JUSTIFICATION TO MAKE 37 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THIS ADDITION. SAME IS LIABLE TO BE DELETED. IT MAY ALSO BE NOTED HERE THAT FOR THE FIRST TIME IT IS COME ON RECORD THAT ASSESSEE ADOPTED PERCENTAGE OF COMPLETION METHOD [POCM] FOR RECOGNIZING THE REVENUE, DETAILS OF THE SAME ARE NOTED ABOVE. IT WOULD, THEREFORE, SHOW THAT WHEN ASSESSEE FOLLOWED POCM FOR RECOGNIZING THE REVENUE, THEN THE TOTAL COST INCURRED BY ASSESSEE DURING ASSESSMENT YEAR UNDER APPEAL, SHALL HAVE TO BE VERIFIED BY THE A.O. IN ORDER TO VERIFY THE INCOME DETERMINED BY THE ASSESSEE FOR ASSESSMENT YEAR UNDER APPEAL. THE OTHER DETAILS OF PRECEDING ASSESSMENT YEAR AS WELL AS SUBSEQUENT YEARS HAVE ALSO BEEN REPRODUCED ABOVE WHICH SUPPORT THE EXPLANATION OF ASSESSEE THAT REVENUE WAS RECOGNISED ON POCM METHOD. WE MAY NOTE CERTAIN SALIENT FEATURE OF POCM AS UNDER. 8.1. THE PERCENTAGE OF COMPLETION METHOD IS AN ACCOUNTING METHOD IN WHICH THE REVENUES AND EXPENSES OF LONG-TERM CONTRACTS ARE RECOGNIZED AS A PERCENTAGE OF THE WORK COMPLETED DURING THE PERIOD. THIS IS IN CONTRAST TO THE COMPLETED CONTRACT METHOD, WHICH DEFERS THE REPORTING OF INCOME AND EXPENSES UNTIL A PROJECT IS COMPLETED. THE 38 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. PERCENTAGE-OF-COMPLETION METHOD OF ACCOUNTING IS COMMON FOR THE CONSTRUCTION INDUSTRY. UNDER THIS METHOD, CONTRACT REVENUE IS MATCHED WITH THE CONTRACT COSTS INCURRED IN REACHING THE STAGE OF COMPLETION, RESULTING IN THE REPORTING OF REVENUE, EXPENSES AND PROFIT WHICH CAN BE ATTRIBUTED TO THE PROPORTION OF WORK COMPLETED. THIS METHOD PROVIDES USEFUL INFORMATION ON THE EXTENT OF CONTRACT ACTIVITY AND PERFORMANCE DURING A PERIOD. UNDER THE PERCENTAGE OF COMPLETION METHOD, CONTRACT REVENUE IS RECOGNISED AS REVENUE IN THE STATEMENT OF PROFIT AND LOSS IN THE ACCOUNTING PERIODS IN WHICH THE WORK IS PERFORMED. CONTRACT COSTS ARE USUALLY RECOGNISED AS AN EXPENSE IN THE STATEMENT OF PROFIT AND LOSS IN THE ACCOUNTING PERIODS IN WHICH THE WORK TO WHICH THEY RELATE IS PERFORMED. THE PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING REQUIRES THE REPORTING OF REVENUES AND EXPENSES ON A PERIOD-BY-PERIOD BASIS, AS DETERMINED BY THE PERCENTAGE OF THE CONTRACT THAT HAS BEEN FULFILLED. THE CURRENT INCOME AND EXPENSES ARE COMPARED WITH THE TOTAL ESTIMATED COSTS TO DETERMINE THE TAX LIABILITY FOR THE YEAR. FOR EXAMPLE, A PROJECT THAT IS 20% COMPLETE IN YEAR ONE AND 39 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 35% COMPLETE IN YEAR TWO WOULD ONLY HAVE THE INCREMENTAL 15% OF REVENUE RECOGNIZED IN THE SECOND YEAR. THE RECOGNITION OF INCOME AND EXPENSES ON THIS WORK-IN-PROGRESS BASIS APPLIES TO THE INCOME STATEMENT. THE STEPS NEEDED FOR THE PERCENTAGE OF COMPLETION METHOD ARE AS FOLLOWS : 1. SUBTRACT TOTAL ESTIMATED CONTRACT COSTS FROM TOTAL ESTIMATED CONTRACT REVENUES TO ARRIVE AT THE TOTAL ESTIMATED GROSS MARGIN. 2. MEASURE THE EXTENT OF PROGRESS TOWARD COMPLETION, BY COMPARING TOTAL ACTUAL COST INCURRED TILL DATE WITH TOTAL ESTIMATED COST TO ARRIVE AT PERCENTAGE THAT CONTRACT COSTS INCURRED FOR WORK PERFORMED UP TO THE REPORTING DATE BEAR TO THE ESTIMATED TOTAL CONTRACT COSTS. 3. MULTIPLY TOTAL ESTIMATED CONTRACT REVENUE BY THE ESTIMATED COMPLETION PERCENTAGE TO ARRIVE AT THE TOTAL AMOUNT OF REVENUE THAT CAN BE RECOGNIZED. 4. SUBTRACT THE CONTRACT REVENUE RECOGNIZED TO DATE THROUGH THE PRECEDING PERIOD FROM THE TOTAL AMOUNT OF REVENUE THAT CAN BE RECOGNIZED. RECOGNIZE THE 40 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. RESULT IN THE CURRENT ACCOUNTING PERIOD. 5. CALCULATE THE COST OF EARNED REVENUE IN THE SAME MANNER. THIS MEANS MULTIPLYING THE SAME PERCENTAGE OF COMPLETION BY THE TOTAL ESTIMATED CONTRACT COST AND SUBTRACTING THE AMOUNT OF COST ALREADY RECOGNIZED TO ARRIVE AT THE COST OF EARNED REVENUE TO BE RECOGNIZED IN THE CURRENT ACCOUNTING PERIOD. 8.2. IT MAY ALSO BE NOTED HERE THAT THE CHART REPRODUCED ABOVE WOULD REVEAL THE REVISED CONTRACT VALUE WHICH WOULD REQUIRE INCURRING OF SUBSTANTIAL AMOUNT TOWARDS COST. THEREFORE, IT WOULD NOT BE POSSIBLE TO ASSESSEE TO EARN INCOME OF RS.297.18 CRORES IN ASSESSMENT YEAR UNDER APPEAL AS IS COMPUTED BY THE A.O. IN THE ASSESSMENT ORDER. THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES AND TOTAL COST OF THE PROJECT SHALL HAVE TO BE SEEN AND CONSIDERED BY THE AUTHORITIES BELOW. SINCE THE POCM IS PLEADED FOR THE FIRST TIME WHICH HAVE AN IMPACT ON THIS ADDITION AND OTHER PROJECT COMPLETION EXPENSES DISALLOWED BY THE AUTHORITIES BELOW AND THESE ADDITIONS ARE LEFT WITH ACADEMIC DISCUSSION 41 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ONLY, THEREFORE, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE A.O. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE MATTER IN ISSUE TO THE FILE OF A.O. WITH A DIRECTION TO VERIFY POCM ADOPTED BY THE ASSESSEE AND THE COST INCURRED BY THE ASSESSEE IN COMPLETING THE CONTRACT WITH CONTRACT VALUE AS PER OBSERVATION MADE IN THIS ORDER. THE A.O. SHALL GIVE REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, GROUND NO.1 OF THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8.3. ON GROUND NO.2, ASSESSEE CHALLENGED THE ADDITION OF RS.4,77,817/- ON ACCOUNT OF MISMATCH IN THE PHYSICAL AND BOOK BALANCE OF DIESEL. THE A.O. HAS MENTIONED THAT IN THE SPECIAL AUDIT REPORT [SAR] THERE IS A DIFFERENCE OF 8610.86 LITRES OF DIESEL WHICH WAS UNEXPLAINED AS PER THE DETAILED DISCUSSION MADE BY THE A.O. IN THE ASSESSMENT ORDER AND BY TAKING THE RATE OF RS.5,549/- THE ADDITION OF RS.4,77,817/- WAS MADE BY THE A.O. THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE LD. CIT(A) AND IT WAS MENTIONED THAT SPECIAL AUDITOR HAS CONSIDERED ONE COST CENTRE WHICH 42 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. WAS 717 LITRE AND IGNORED THE OTHERS. HOWEVER, THE LD. CIT(A) NOTED THAT ASSESSEE DID NOT FILE MATCHING FIGURE, THEREFORE, ADDITION WAS CONFIRMED. 8.4. LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB- 183 WHICH IS REPLY FILED BEFORE THE AUTHORITIES BELOW IN WHICH IT WAS EXPLAINED THAT THE DIESEL STOCK AS PER STOCK STATEMENT AS ON 31.03.2014 WAS 5000 LITRES. THIS COMPRISE OF 717 LITRES OF COST CENTRE CODE LS 125002 AND 4283 COST CENTRE CODE LS125001. HE HAS REFERRED TO PB-A1/172 AND 173 IN SUPPORT OF THIS CONTENTION THAT THIS MUCH STOCK WAS AVAILABLE TO ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT SINCE ASSESSEE RECONCILED DIFFERENCE OF 4283 LITRES, THEREFORE, ASSESSEE WOULD NOT BE PRESSING FOR THE REMAINING DIFFERENCE OF 4328 LITRES OF DIESEL WHICH WILL BE AGGREGATING TO RS.2,40,160/-. 9. ON THE OTHER HAND, LD. D.R. SUBMITTED THAT NO DOCUMENTS WERE FILED BEFORE A.O. THEREFORE, ADDITION IS LIABLE TO BE SUSTAINED. 43 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 10. AFTER CONSIDERING THE RIVAL SUBMISSION AND IN THE LIGHT OF DOCUMENTS AVAILABLE ON RECORD I.E., PB-A1/172 AND 173 IT IS CLEAR THAT ASSESSEE HAS BEEN ABLE TO RECONCILE THE DIFFERENCE OF 4283 LITRES, THEREFORE, TO THAT EXTENT ADDITION IS LIABLE TO BE DELETED. HOWEVER, FOR THE REMAINING AMOUNT, LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND FOR A SUM OF RS.2,40,160/-. WE, ACCORDINGLY, SET ASIDE THE PART ADDITION AND RESTRICT THE ADDITION OF RS.2,40,160/-. GROUND NO.2 OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 11. ON GROUND NO.3, THE ASSESSEE CHALLENGED THE ADDITION OF RS.2.40 CRORES ON ACCOUNT OF MISMATCH IN PHYSICAL AND BOOK BALANCE OF STEEL. THE A.O. MADE THIS ADDITION ON THE GROUND THAT THERE IS A DIFFERENCE IN THE BALANCE OF TMT AS PER STOCK STATEMENT GIVEN BY THE SPECIAL AUDITOR AND AS PER PHYSICAL VERIFICATION, THE DETAIL OF WHICH IS GIVEN BY THE A.O. IN THE ASSESSMENT ORDER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS MENTIONED THAT THIS DIFFERENCE IS ON ACCOUNT OF THEORETICAL VERIFICATION OF RECONCILIATION. THE SPECIAL AUDITOR HAS POINTED OUT IN SAR THAT THIS IS RELATED TO INFLATION OF STOCK AND REDUCTION OF 44 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. PROFIT OF THE ACTUAL WEIGHT ON A PARTICULAR DATE. THE A.O. DID NOT ACCEPT THE EXPLANATION OF ASSESSEE. THE LD. CIT(A) ON THE SAME REASONING CONFIRMED THE ADDITION. 11.1. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT IN THE ASSESSMENT ORDER AN ALLEGED TABLE HAS BEEN REPRODUCED AT PAGE-18 WHEREBY THE DIFFERENCE OF ABOUT 600 MT HAS BEEN WORKED OUT BETWEEN BOOK STOCK AND THE PHYSICAL STOCK. THE SAME IS READS AS UNDER : PARTICULARS AS PER STOCK STATEMENT (AS PER ANNEXURE 4 AT PAGE NO. 45 OF SPECIAL AUDIT REPORT AS PER PHYSICAL VERIFICATION'S ON 25 TH MARCH 2014) (ANNEXURE 20 AT PAGE NO. 122 OF SPECIAL AUDIT REPORT DIFFERENCE 10MM DIA 55.45 MT 101.74 MT -46.29 MT 8 MM DIA 47.05 MT 32.58 MT 14.47 MT 12 MM DIA 354.93 MT 446.29 MT -91.36 MT 16 MM DIA 312.49 MT 335.96 MT -23.47 MT 20 MM DIA 352.58 MT 270.33MT 82.25 MT 25 MM DIA 149.49 MT 466.96 MT -317.47 MT 32 MM DIA 377.52 MT 597.74 MT -220.02 MT GRAND TOTAL -601.89 MT 45 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 11.2. THE A.O. MADE THE ADDITION BY HOLDING THAT ASSESSEE HAS BOOKED HIGHER EXPENSES OF THE MATCHING AMOUNT BY BOOKING EXCESS CONSUMPTION OF TMT BARS. APART FROM THE ABOVE HYPOTHESIS, THERE IS NO OTHER REASON, EVIDENCE OR MATERIAL IN THE ORDERS TO MAKE THE ADDITION. HE HAS SUBMITTED THAT DETAILS MENTIONED IN THE ABOVE TABLE ARE APPEARING IN THE ANNEXURE FILED IN THE PAPER BOOK. AS PER THE ABOVE TABLE, THE FIGURES INDICATED IN COLUMN-A ARE AS PER STOCK STATEMENT IN ANNEXURE-4 AND FIGURES MENTIONED IN COLUMN-B ARE AS PER PHYSICAL VERIFICATION REPORT AS ON 25.03.2014 AND DIFFERENCE IS WORKED OUT AS PER COLUMN-C. THE COMPARISON MADE IN THE TABLE IN THE SPECIAL AUDIT REPORT IS TOTALLY INCORRECT. SUCH AN INCORRECT COMPARISON WAS BOUND TO LEAD ABSURD RESULTS. ON EXAMINATION OF ANNEXURE-20 REFERRED ABOVE WOULD SHOW THAT PHYSICAL QUANTITY AS ON 25.03.2014 TMT BARS HAS BEEN COMPARED WITH THE BOOK STOCK AND THE RESULTANT DIFFERENCE IS 428.32 MT ON ACCOUNT OF SCRAP GENERATED. THUS THE PHYSICAL STOCK WAS SHORT AND NOT IN EXCESS AS INCORRECTLY COMPUTED IN THE SPECIAL AUDIT REPORT. IN THE SPECIAL AUDIT REPORT, THE BOOK 46 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. STOCK WORKED-OUT IN ANNEXURE-20 IN LINE ITEM-4 HAS BEEN TREATED AS PHYSICAL VERIFICATION STOCK THEREBY CREATING AN ARTIFICIAL NEGATIVE STOCK. HE HAS SUBMITTED THAT ANY EXCESS QUANTITY IN THE PHYSICAL STOCK CANNOT AUTOMATICALLY LEAD TO A CONCLUSION THAT THERE IS AN EXCESS CONSUMPTION OF MATERIAL AND THAT EXCESS EXPENSES HAVE BEEN INFLATED. LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB-52 TO 54. IN PAGE-54 THE DIFFERENCE BETWEEN THEORETICAL AND ACTUAL STOCK IN 428.32 MT HAVE BEEN MENTIONED. HE HAS SUBMITTED THAT SPECIAL AUDIT REPORT WAS FILED LATER ON FOR A.Y. 2014-2015, THEREFORE, ADDITION IS WHOLLY UNJUSTIFIED. 13. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT A.O. HAS VERIFIED THE FACTS MENTIONED IN THE SPECIAL AUDIT REPORT. THE ASSESSEE HAS NOT POINTED OUT THE DIFFERENCES. THE ASSESSEE HAS NOT PRODUCED ANY FRESH EVIDENCE AND HAS CHANGED THE STAND AT DIFFERENT LEVEL. STOCK IN THE REBAR YARD IS ALREADY ISSUED TO CONSUMPTION IS NOT PART OF THE STOCK. THEREFORE, THE ADDITION MAY BE CONFIRMED. 47 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A.O. HAS REPRODUCED THE ABOVE TABLE WHICH IS THE BASIS FOR MAKING THE ADDITION AS PREPARED BY THE SPECIAL AUDITOR. THE A.O. ON THAT BASIS NOTED THAT THE ABOVE INSTANCE INDICATED EXCESS ISSUE OF STOCK IN BOOKS OF ACCOUNT RESULTING IN EXCESS EXPENDITURE BY THE ASSESSEE. HOWEVER, THE ABOVE TABLE WOULD SHOW THAT PHYSICAL QUANTITY OF THE STOCK AS ON 25.03.2014 TMT BARS HAS BEEN COMPARED WITH THE BOOK STOCK AND THE RESULTING DIFFERENCE WAS 428.32 MT ON ACCOUNT OF SCRAP GENERATED. THEREFORE, THE PHYSICAL STOCK WAS SHORT AND NOT IN EXCESS AS NOTED BY THE AUDITOR. THE ASSESSEE COMPANY HAS FILED RE-ENFORCEMENT DETAILS AT PAGE-54 OF THE PB EXPLAINING THE ABOVE ISSUE IN WHICH THE DIFFERENCES BETWEEN THEORETICAL AND ACTUAL STOCK HAVE BEEN MENTIONED IN 428.23 MT AND SCRAP AT 2.30%. THE ASSESSEE EXPLAINED BEFORE A.O. THAT TMT BAR SUPPLIERS GIVE THE WEIGHT OF THE SUPPLIES WITH 2% TO 5% MARGIN IN THE ACTUAL WEIGHT AND THIS WEIGHT OF THE TMT BAR SUPPLIED IS CALLED THEORETICAL WEIGHT I.E., THE REASON FOR USING THIS TERM IN THE RECONCILIATION STATEMENT OF TMT BAR. THE ASSESSEE ALSO EXPLAINED THAT THE SAME FACTS ARE 48 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. MENTIONED IN THE SPECIAL AUDIT REPORT OF PHYSICAL QUANTITY VS. THEORETICAL QUANTITY. IT WAS ALSO EXPLAINED THAT IT IS A NORMAL PRACTICE. THE ASSESSEE ALSO EXPLAINED THAT TMT IS NOT USED IN THE SAME LENGTH IN WHICH IT IS SUPPLIED, RATHER IT WAS CUT INTO VARIOUS SIZES AS PER REQUIREMENTS. THIS PROCESS RESULT IN SOME OF THE PERMITTED WASTAGE. THE ABOVE EXPLANATION OF ASSESSEE HAVE NOT BEEN REBUTTED BY THE AUTHORITIES BELOW OR THE SPECIAL AUDITOR. THE SAME FACTS ARE MENTIONED IN THE RECONCILIATION STATEMENT AT PAGE-54 OF THE PB. EVEN BY THE NATURE OF THE ITEM I.E., TMT USED IN CONSTRUCTION WOULD ALSO SUPPORTS THE EXPLANATION OF ASSESSEE THAT TMT COULD NOT BE USED IN THE SAME SHAPE AS HAVE BEEN SUPPLIED BY THE SUPPLIER. THE ASSESSEE ALSO EXPLAINED THAT TMT BAR SUPPLIERS GIVEN THE WEIGHT OF SUPPLIES WITH 2 TO 5% MARGIN IN ACTUAL WEIGHT. SINCE ALL THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE AUTHORITIES BELOW, THEREFORE, IT APPEARS TO BE AN ADHOC ADDITION WITHOUT ANY BASIS OR MATERIAL ON RECORD. FURTHER, THE A.O. MERELY PRESUMED THAT THERE IS AN EXCESS ISSUE OF STOCK IN THE BOOKS OF THE ASSESSEE RESULTING IN EXCESS EXPENDITURE BY THE 49 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ASSESSEE FOR WHICH NO EVIDENCE HAS BEEN BROUGHT ON RECORD. FURTHER ANY EXCESS QUANTITY IN PHYSICAL STOCK CANNOT AUTOMATICALLY LEAD TO CONCLUSION THAT THERE IS EXCESS CONSUMPTION OF MATERIAL TO INFLATE EXPENSES. THEREFORE, IT APPEARS THAT THE ADDITION IS BASED ON MERELY ON PRESUMPTIVE RECONCILIATION WHICH IS NOT JUSTIFIED. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. GROUND NO.3 OF THE APPEAL OF ASSESSEE IS ALLOWED. 15. ON GROUND NO.4, ASSESSEE CHALLENGED THE ADDITION OF RS.25 LAKHS ON ACCOUNT OF ALLEGED STOCK OF SCRAP DETERMINED BASED ON THEORETICAL CONSUMPTION. THE A.O. MADE THE ABOVE ADDITION AS THE SPECIAL AUDITOR HAS IDENTIFIED IN SAR THAT THERE IS A DIFFERENCE OF 88.50MT ON PHYSICAL VERIFICATION REPORT OF TMT SUBMITTED BEFORE SPECIAL AUDITOR. DURING THE ASSESSMENT PROCEEDINGS ASSESSEE HAS GIVEN THE SAME LOGIC OF THEORETICAL CALCULATION AND DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO ASSESSEE HAS EXPLAINED THAT HERE IS ALWAYS A GAP BETWEEN THEORETICAL CALCULATION VIS- -VIS ACTUAL CALCULATION. THE LD. CIT(A) HOWEVER, CONFIRMED THE ADDITION. 50 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 16. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ADDITION IS MADE ON THE BASIS OF DIFFERENCE IN QUANTITY OF SCRAP GENERATED AND SOLD. AS PER BOOKS, SCRAP WAS OF 428.82 MT BUT THE SCRAP SOLD AS PER BOOKS WAS 340.325 MT. THUS THE DIFFERENCE WAS FOUND OF 88.50 MT. HE HAS SUBMITTED THAT ON EXAMINATION OF ANNEXURE-21 WOULD REVEAL THAT SCRAP WEIGHING APPROXIMATELY 340.325MT HAVE BEEN SOLD AND RECOGNISED AS INCOME. FURTHER REMAINING SCRAP STOCK WAS SOLD IN SUBSEQUENT YEAR AND THEREFORE, CORRESPONDING INCOME HAS BEEN BOOKED IN A.Y. 2015-2016. IN ORDER TO SUBSTANTIATE THE SAME, HE HAS REFERRED TO PB-A1- 182 AND 183 WHICH IS DISPOSAL ORDER DATED 27.02.2014 FOR DISPOSAL OF 100 MT OF SCRAP @ RS.30,000/- PER MT. THIS FACT WAS ALSO EXPLAINED BEFORE THE LD. CIT(A) AS WELL AS BEFORE A.O. IN THE REMAND PROCEEDINGS WHO HAS NOT BEEN ABLE TO CONTROVERT THE SAME. HE HAS ALSO SUBMITTED THAT IT IS INTERESTING TO POINT-OUT THAT ON THE ISSUE PERTAINING TO EXCESS CONSUMPTION OF TMT BARS THE SPECIAL AUDITOR REPORTED A FINDING OF EXCESS PHYSICAL QUANTITY WHEREAS DIAMETRICAL CONTRARY TO THE SAME ON THE ISSUE OF SCRAP SALE, 51 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE SPECIAL AUDITOR IS HIGHLIGHTING DEFICIT IN PHYSICAL QUANTITY, THEREFORE, CONTRADICTORY ALLEGATION HAVE BEEN MADE IN THE PHYSICAL STOCK WHICH CANNOT EXIST. THE SALE OF SCRAP IN SUBSEQUENT YEAR HAVE BEEN SHOWN AS INCOME AND ACCOUNTED FOR IN A.Y. 2015-2016. LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB-61 TO 66 TO SHOW SALE OF SCRAP. 17. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE HAS NOT ACCOUNTED FOR THE VALUE OF THE REMAINING STOCK IN THE BOOKS. HE HAS SUBMITTED THAT THE SALE OF SCRAP IN SUBSEQUENT YEAR MAY BE VERIFIED BY THE A.O. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THIS GROUND IS CO-RELATED WITH GROUND NO.3 ABOVE IN WHICH WE HAVE DELETED THE ADDITION ON ACCOUNT OF THEORETICAL AND ACTUAL STOCK WHICH IS THE BASIS FOR MAKING THIS ADDITION AS WELL. THE ASSESSEE HAS PRODUCED SUFFICIENT EVIDENCE ON RECORD TO PROVE THAT IN SUBSEQUENT YEAR ASSESSEE HAS SOLD FURTHER SCRAP WHICH HAVE BEEN ACCOUNTED FOR AS INCOME IN 52 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SUBSEQUENT YEAR. THE A.O. HAS GIVEN CONTRADICTORY FINDING ON GROUND NOS. 3 AND 4 ON THE IDENTICAL ISSUE. THE A.O. HAS MERELY RELIED UPON AUDIT REPORT FOR MAKING THE ADDITION WITHOUT BRINGING ANY EVIDENCE OR MATERIAL ON RECORD. THEREFORE, NO ADDITION COULD BE SUSTAINED OF THIS NATURE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO.4 OF THE APPEAL OF ASSESSEE IS ALLOWED. 19. ON GROUND NO.5, ASSESSEE CHALLENGED THE ADDITION OF RS.1,54,12,773/- ON ACCOUNT OF DISALLOWANCE OF AMORTIZATION EXPENSES. 19.1. THE A.O. MADE THE ABOVE ADDITION AS ASSESSEE WAS AMORTIZING THE ASSETS LIKE T.VS, REFRIGERATORS, AIR- CONDITIONERS, FURNITURES ETC., @ 5% PER MONTH I.E., 60% PER ANNUM AGAINST THE NORMAL DEPRECIATION RATE WHICH WAS TO BE ALLOWED @ 10% PER ANNUM AND DIFFERENCE OF THE SAME WAS ADDED BY THE A.O. THE ASSESSEE SUBMITTED THAT SINCE JOINT VENTURE HAS BEEN FORMED FOR LIMITED PURPOSE FOR EXECUTING THE PROJECT FOR DMRC, THE ASSETS EMPLOYED FOR THE PROJECT 53 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CANNOT BE HELD LONG TERM BENEFIT. THE ASSESSEE HAS MENTIONED THAT STATEMENT OF TEMPORARY STRUCTURE IS ENCLOSED. THE LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTION OF ASSESSEE BECAUSE ASSESSEE IS NOT ENTITLED UNDER INCOME TAX ACT AND RULES TO CLAIM EXCESS DEPRECIATION. THE ADDITION WAS, THEREFORE, CONFIRMED. 20. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS SUBMITTED THAT THERE ARE SEVERAL ITEMS DESCRIBED IN THE ANNEXURES. SOME OF THEM ARE IN THE NATURE OF FURNITURE AND FIXTURES ON WHICH RATE OF DEPRECIATION IS 10%. FURTHER, THERE ARE SEVERAL ITEMS WHICH ARE IN THE NATURE OF PLANT AND MACHINERY SUCH AS CONCRETE BLOCK MAKING MACHINE, PLATE COMPACTOR, FAX MACHINE, COMPUTERS AND PERIPHERIES. THERE ARE ALSO SEVERAL ITEMS IN THE NATURE OF CONSUMABLES SUCH AS COFFEE POWER, SUGAR CUBES ETC., IT WAS SUBMITTED THAT ITEMS IN THE NATURE OF PLANT AND MACHINERY QUALIFIED FOR DEPRECIATION @ 15%, COMPUTER AND PERIPHERALS ARE ELIGIBLE FOR DEPRECIATION @ 60% AND CONSUMABLES CAN BE CHARGED OFF IN ENTIRETY. HE HAS REFERRED TO DETAILS OF THE SAME AT PB-77 TO 54 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 81 OF THE PB. HE HAS SUBMITTED THAT THIS ISSUE NEEDS RECONSIDERATION FOR COMPUTING THE EXACT AMOUNT OF ELIGIBLE DEPRECIATION. LD. D.R. ALSO SUGGESTED THAT MATTER MAY BE SENT BACK TO THE FILE OF A.O. TO ASCERTAIN THE CORRECT AMOUNT OF DEPRECIATION. 21. CONSIDERING THE SUBMISSIONS OF THE PARTIES IN THE LIGHT OF FACT RECORDED BY THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE A.O. BECAUSE THE A.O. SHALL HAVE TO VERIFY THE EXACT ITEM AND EXACT DEPRECIATION ALLOWABLE AS PER RULES. THE ASSESSEE HAS FILED COMPLETE DETAILS IN THE PAPER BOOK WHICH REQUIRES VERIFICATION AT THE END OF THE A.O. AS TO ON WHICH ITEM SPECIFIC DEPRECIATION IS ALLOWABLE TO THE ASSESSEE AS PER RULES. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF A.O. WITH A DIRECTION TO CONSIDER EACH ITEM ON WHICH DEPRECIATION IS CLAIMED AND ALLOW DEPRECIATION TO ASSESSEE AS PER RULES, BY GIVING REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.5 OF APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 55 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 22. ON GROUND NO.6, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF DEPRECIATION ON ACCOUNT OF EXCESS PAYMENT FOR ACQUIRING FIXED ASSETS OF RS.18,52,44,595/-. 22.1. THE A.O. MADE THE ADDITION OF RS.30 CRORES ON THE GROUND THAT SPECIAL AUDITOR HAS PROPOSED THIS ADDITION AS THE TUNNEL BORING MACHINE (TBM) PURCHASED FROM SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT CO. LTD., A CHINA BASED COMPANY FOR RS.59,71,20,670/- DURING THE YEAR UNDER CONSIDERATION WHICH GOT CAPITALIZED ON 30.01,2014, THIS TBM WAS PURCHASED WITHOUT ANY 'LETTER OF CREDIT' WHICH IMPLIES THAT THERE IS A FIDUCIARY RELATIONSHIP BETWEEN THE ASSESSEE AND THE PARTY. THE A.O. ALSO OBSERVED THE FINDINGS OF THE SPECIAL AUDITOR THAT ASSESSEE WAS IMPORTING CONSUMABLES FROM THE GERMAN ENTERPRISE, HERRENKNECHT, WHICH IS SUBSIDIARY IN INDIA IN THE NAME OF 'HERRENKNECHT INDIA PVT. LTD', BUT DESPITE THIS, ASSESSEE HAS IMPORTED TBM FROM SHANGHAI PUDONG, FOR WHICH 90% OF PAYMENT WAS TO BE MADE AFTER GETTING THE SHIPPING DOCUMENTS, BUT TILL THE YEAR END, NO PAYMENT WAS MADE SHOWING THE FIDUCIARY RELATIONSHIP BETWEEN THE ASSESSEE AND 56 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE COMPANY. THE ASSESSEE AT THE APPELLATE STAGE MENTIONED THAT SUCG I.E., MEMBER OF THE JV HAS LONG-STANDING RELATIONS WITH THE VENDOR SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT CO. LTD WHO AGREED TO SUPPLY TBM WITHOUT LETTER OF CREDIT AND QUOTATION OF THE GERMAN COMPANY WHICH WAS USD 9.75 MILLION WITH LC CONDITION WAS NOT ECONOMICAL OVER THE PROPOSAL OF USD 9.8. WITHOUT L.C. AS IT WAS BENEFICIAL TO THE ASSESSEE. SIMILAR DISCREPANCIES WERE POINTED-OUT BY THE A.O. REGARDING TBM PURCHASE FROM HUBEI TIANDI FOR RS.32,43,95,142/- AND 3 RD TBM PURCHASED FROM ONE OF THE JV OF L & T I.E., RELATED PARTY FOR RS.28,18,18,901/- AND THAT THE WEBSITE OF THIS COMPANY IS ACTUALLY A BETTING SITE WHICH IS TAKEN FROM WARRANTY CERTIFICATE BY SPECIAL AUDITOR. FURTHER IT WAS ALSO OBSERVED THAT TWO BATCHING PLANTS WERE PURCHASED FROM JINAN JUFU, THE L1 PARTY, WHILE ANOTHER BATCHING PLANT WAS IMPORTED FROM SG ELECTRIC WHICH IS HIGHER THAN THE PRICE QUOTED BY THE L1. ON THE BASIS OF THIS, SPECIAL AUDITOR OBSERVED THAT ASSESSEE HAS ARBITRARILY FACTORED INTO THE TRANSACTIONS WITH THE RELATED PARTIES AND HE PROPOSED FOR AN 57 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ADDITION OF RS.30 CRORES WHICH IS 25% OF THE TOTAL VALUE OF THE TRANSACTION. THE A.O. ACCORDINGLY MADE THE ADDITION AFTER DETAILED DISCUSSION. 22.2. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND WRITTEN SUBMISSIONS WAS FILED, COPY OF WHICH IS GIVEN TO THE SPECIAL AUDITOR AND THE A.O. FOR COMMENTS. THE ASSESSEE HAS MENTIONED THAT THERE IS A COMMERCIAL RATIONALE FOR THIS TRANSACTION AND REPEATED THE REPLY GIVEN BEFORE A.O. FURTHER, THE SPECIAL AUDITOR HAS MENTIONED THAT ASSESSEE HAS NEITHER EXPLICITLY STATED NOR SUBMITTED EVIDENCE IN RELATION TO INDEPENDENT STATUS OF SHANGHAI PUDONG. FURTHER, THE SPECIAL AUDITOR HAS MENTIONED THAT QUOTATION SUBMITTED BY THE ASSESSEE TO THE AUDITOR ARE DIFFERENT FROM ONE SUBMITTED DURING THE APPELLATE PROCEEDINGS. THE A.O. IN THE REMAND PROCEEDINGS REITERATED THE FACTS STATED IN THE ASSESSMENT ORDER AND ALSO EXPLAINED THAT THE REMITTANCE AGAINST IMPORTS SHOULD BE COMPLETED NOT LESS THAN SIX MONTHS FROM THE DATE OF SHIPMENT. THEREFORE, THERE IS A VIOLATION OF FEMA. THE LD. CIT(A) NOTED THAT ASSESSEE HAS NOT PRODUCED ANY DETAILS OF RELATIONSHIP WITH THIS COMPANIES 58 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. NEITHER THIS EXERCISE HAVE BEEN DONE BY THE A.O. ASSESSEE WAS ASKED TO PRODUCE DETAILS AND ASKED TO GIVE DETAILS OF SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN THE MEMBER OF JV SUCG AND THE COMPANY VIZ., SHANGHAI - PUDONG. THE ASSESSEE IN THE WRITTEN SUBMISSIONS HAS MENTIONED AND CLAIMED THAT IN ORDER TO ESTABLISH THAT SHANGHAI URBAN CONSTRUCTION (GROUP) CORPORATION AND SHANGHAI PUDONG ARE NOT RELATED PARTIES, ENCLOSED HEREWITH THE SHAREHOLDING OF BOTH THE COMPANIES AS SENT BY THE RESPECTIVE COMPANIES. IT WOULD ESTABLISH THAT BOTH ARE NOT RELATED COMPANIES. THE SHAREHOLDING PATTERN WAS ALSO GIVEN WHICH IS REPRODUCED IN THE APPELLATE ORDER. THE LD. CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. THE LD. CIT(A) NOTED THAT ASSESSEE HAS CLAIMED THAT IT WAS NOT RELATED TO THE PARTY BECAUSE IT WAS ACTUALLY OWNED BY STATE OWN ASSETS SUPERVISION AND ADMINISTRATION COMMISSION (SASAC) ONLY. FOR THIS, THE INFORMATION IS GATHERED FROM DIFFERENT WEBSITES AND RELEVANT INFORMATION IS NOTED IN THE ORDER. IT IS NOTED THAT SHANGHAI PUDONG COMPANY LIMITED WAS ESTABLISHED IN APRIL, 1992 APPROVED THE ESTABLISHMENT OF THE ORIGINAL 59 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SHANGHAI CITY ECONOMIC COMMISSION IS THE LARGE STATE OWNED ENTERPRISE UNDER SHANGHAI MACHINERY COMPLETE EQUIPMENT (GROUP) COMPANY LTD., THE EXPLANATION OF ASSESSEE WAS, THEREFORE, NOT ACCEPTED. THE LD. CIT(A) UPHOLD THE FINDINGS OF THE SPECIAL AUDITOR AND THE A.O. THAT EXCESS PAYMENT HAS BEEN MADE TO THESE COMPANIES. FURTHER, NO T.P. STUDY HAVE BEEN PROVIDED AND FULL INFORMATION HAVE NOT BEEN GIVEN TO THE AUDITOR. THE LD. CIT(A) IN THE BACKGROUND OF THESE FACTS FURTHER NOTED THAT THE QUESTION WOULD ARISE WHETHER THE ESTIMATE MADE BY THE SPECIAL AUDITOR AND THE A.O. IS CORRECT OR NOT. THE LD. CIT(A) CONSIDERING THE FACT THAT PURCHASE WAS MADE IN RELATION TO FIXED ASSETS FROM THE ASSOCIATE CONCERN I.E., SHANGHAI PUDONG, THE A.O. SHOULD HAVE DISALLOW ONLY DEPRECIATION PART. THE LD. CIT(A), ACCORDINGLY, DIRECTED THE A.O. TO DISALLOW 25% OF THE DEPRECIATION IN RELATION TO TRANSACTIONS MADE WITH SHANGHAI PUDONG AND DISALLOW RS.18,52,44,595/- WHICH WAS CONSIDERED AS EXCESS PAYMENT TO THE ASSOCIATED CONCERN AND REST OF THE ADDITION WAS DELETED. 60 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 22.3. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT ADMITTEDLY THE ASSESSEE PURCHASED THE CAPITAL ASSET. NO EXPENSES HAVE BEEN CLAIMED IN P & L A/C. THE LD. CIT(A) DISALLOWED PART OF THE DEPRECIATION. PB-89 IS CHART EXPLAINING RELATIONSHIP BETWEEN THE SUCG (PARTNERS OF L & T SUCG JV) AND SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT COMPANY LTD., IT WAS EXPLAINED THAT THERE WAS NO RELATIONSHIP BETWEEN ASSESSEE AND SHANGHAI PUDONG. HE HAS FURTHER SUBMITTED THAT THERE WAS NO BASIS FOR A.O. OR THE LD. CIT(A) TO MAKE THE ADDITION. HE HAS SUBMITTED THAT THE LD. CIT(A) ACCEPTED THE CONTENTION OF ASSESSEE THAT THIS ISSUE RELATES TO PURCHASE OF FIXED ASSETS. NO EVIDENCE HAS BEEN BROUGHT ON RECORD FOR EXCESS PAYMENT MADE TO THIS PARTY. HE HAS SUBMITTED THAT THE PRICE OFFERED BY THE GERMAN COMPANY HERRENKNECHT FOR TBM WAS USD 9.75 MILLION WITH L.C AND THAT OFFERED BY THE SHANGHAI PUDONG WAS USD 9.78 MILLION WITHOUT L.C. THE AUTHORITIES BELOW DISREGARDED THE INTEREST SAVINGS AND THE L.C. COST WHICH WERE INFLUENCED BY MERE DIFFERENCE OF USD 0.03 61 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. MILLION. THE ASSESSEE MADE SAVINGS IN THE INTEREST AND WORKING CAPITAL AS THE PARTY WAS NOT PAID TILL 31.03.2014. COPIES OF QUOTATION OF BOTH THE PARTIES ARE FILED IN THE PAPER BOOK AT PB-A1 189 TO 196 AND 198 TO 200. THE A.O. WITHOUT ANY REASONS DOUBTED THE GENUINENESS OF M/S. HUBEI TIANDI ON THE BASIS OF ALLEGATION THAT WEBSITE OF THE PARTY IS BETTING WEBSITE ONLY. AS REGARDS LESSER NUMBER OF RTMS IN RESPECT OF MACHINERY PURCHASED FROM L & T JV, IT MAY BE NOTED THAT CORRESPONDINGLY THE PRICE COMPUTED WAS ALSO LESS BY AN AMOUNT OF RS.4 CRORES. FURTHER GERMAN COMPANY HERRENKNECHT HAS SET-UP MANUFACTURING PLANT IN CHINA AND TBM PURCHASED FROM SHANGHAI PUDONG WAS MANUFACTURED FOR THIS PLANT. THERE IS A TIME GAP BETWEEN INSTALLATION AND COMMISSIONING IN BOTH THE CASES. THERE IS NO DIFFERENCE BETWEEN CUSTOM DUTY EXEMPTION IN BOTH THE CASES. THERE WERE NO BASIS FOR THE AUTHORITIES BELOW TO MAKE ANY ADDITION. TBM WAS PURCHASED DURING F.Y. 2012-2013 FOR WHICH ASSESSMENT UNDER SECTION 143(3) HAD ALREADY BEEN COMPLETED AFTER EXAMINING THE T.P. REPORT WHICH INCLUDES PURCHASE OF THIS MACHINERY. LEARNED COUNSEL FOR THE 62 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ASSESSEE WITHOUT PREJUDICE TO THE ABOVE ALSO SUBMITTED THAT SHANGHAI PUDONG IS NOT A RELATED PARTY. IT WAS SUBMITTED THAT 100% SHAREHOLDING IN THE J.V. PARTNER SHANGHAI URBAN CONSTRUCTION (GROUP) CORPORATION IS HELD BY SHANGHAI STATE ASSET SUPERVISION AND COMMISSION (SASAC). WHEREAS, THE SHAREHOLDER OF SHANGHAI PUDONG IS HELD BY SHANGHAI MACHINERY COMPLETE EQUIPMENT (GROUP) CORPORATION LTD., THE FACT THAT SHAREHOLDER OF BOTH THE ENTITIES ARE GOVERNMENT ORGANISATIONS CANNOT LEAD TO A CONCLUSION THAT THESE ARE RELATED PARTIES. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT THE ADDITION IS WITHOUT ANY JUSTIFICATION. 23. THE LD. D.R. ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT REVENUE IS ALSO IN APPEAL ON GROUND NO.2 AGAINST THE ORDER OF THE LD. CIT(A) IN DELETING THE PART ADDITION. THE ASSESSEE PAID EXCESS PRICE FOR PURCHASE OF TBM AND BENEFIT WOULD ACCRUE TO THE J.V. THE ASSESSEE CHANGED THE STAND BEFORE THE LD. CIT(A). 63 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE AUTHORITIES BELOW CONSIDERED THIS ISSUE IN THE LIGHT OF SPECIAL AUDIT REPORT WHICH REPORTED THAT ASSESSEE PURCHASED FIXED ASSETS AT UNFAVOURABLE PRICE. IT WAS NOTED THAT M/S. SHANGHAI PUDONG IS RELATED PARTY TO THE ASSESSEE, BUT, THE DETAILS SUBMITTED ON RECORD CLEARLY SUGGEST THAT ONE OF THE J.V. OF ASSESSEE SUCG WAS CONTROLLED BY SASAC WHO HAD CONTROLLED OTHER ENTITIES AS MENTIONED AT PAGE-89 OF THE PB AND ULTIMATELY, FAR-REACHING CONTROLLED COMPANY IS, SHANGHAI PUDONG. THEREFORE, ASSESSEE IS NOT DIRECTLY RELATED TO THE SELLER PARTY. THE ASSESSEE PURCHASED THE CAPITAL ASSET FOR BUSINESS PURPOSE, FOR WHICH, NO EXPENSES HAVE BEEN CLAIMED IN THE P &L A/C. NO DEFINITE EVIDENCE OR MATERIAL HAS BEEN BROUGHT ON RECORD AS TO HOW THE ASSESSEE MADE EXCESSIVE PAYMENT TO THE SELLER FOR PURCHASE OF TBM. THE ASSESSEE HAS EXPLAINED THAT DIFFERENCE IN THE PRICE OF GERMAN COMPANY HERRENKNECHT AND M/S. SHANGHAI PUDONG WAS MERELY USD 0.03 MILLION. THE AUTHORITIES BELOW HAVE NOT CONSIDERED THAT THE TRANSACTION WITH SHANGHAI PUDONG WAS WITHOUT L.C. AND IN THAT EVENT ASSESSEE WOULD 64 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. HAVE SAVED THE INTEREST AND L.C. COST. FURTHER THERE WAS A DIFFERENCE BETWEEN THE INSTALLATION OF MACHINERY AND COMMISSIONING AS SHANGHAI PUDONG SPECIALLY MANUFACTURE TBM FOR ASSESSEES REQUIREMENTS. THE DETAILS OF ALL INVOICES/BILLS ETC., ARE BROUGHT ON RECORD WHICH CLEARLY REVEAL THAT ASSESSEE HAS PAID REASONABLE PRICE FOR PURCHASE OF TBM TO M/S. SHANGHAI PUDONG. THE ASSESSEE HAS, THEREFORE, BEEN ABLE TO EXPLAIN THAT ASSESSEE HAS PAID REASONABLE PRICE FOR PURCHASE OF TBM. THE AUTHORITIES BELOW HAVE NOT BROUGHT ANY EVIDENCE OR MATERIAL ON RECORD TO JUSTIFY THEIR FINDING. THE FINDINGS OF THE AUTHORITIES BELOW ARE BASED ON MERE PRESUMPTION AND SURMISES. THE A.O. CANNOT STEP INTO THE SHOES OF A BUSINESSMAN TO DETERMINE THE PRICE. THE ASSESSEE ALSO EXPLAINED THAT TBM WAS PURCHASED IN PRECEDING ASSESSMENT YEAR IN WHICH ASSESSMENT UNDER SECTION 143(3) HAVE ALREADY BEEN COMPLETED. THEREFORE, SUCH AN ITEM COULD NOT BE DISPUTED IN ASSESSMENT YEAR UNDER APPEAL. THE LD. CIT(A) WITHOUT ANY BASIS OR JUSTIFICATION HELD THAT ASSESSEE HAS PAID EXCESS PAYMENT FOR PURCHASE OF TBM. THE LD. CIT(A) WITHOUT ANY JUSTIFICATION HAS DISALLOWED 65 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. DEPRECIATION @ 25%. IT MAY ALSO BE NOTED THAT WHILE DECIDING GROUND NO.15 IN THIS APPEAL, THE LD. CIT(A) NOTED THAT ALL THE TRANSACTIONS WITH M/S. SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT LTD., HAVE BEEN CONFIRMED BY THE COMMISSIONER OF CUSTOMS (IMPORTS) AND ALL THE INVOICES WERE FOUND GENUINE AND AS PER PREVAILING RATES. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY JUSTIFICATION FOR THE AUTHORITIES BELOW TO MAKE ANY ADDITION AGAINST THE ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO.6 OF THE APPEAL OF ASSESSEE IS ALLOWED. HOWEVER, GROUND NO.2 OF THE DEPARTMENTAL APPEAL IS DISMISSED. 25. ON GROUND NO.7, ASSESSEE CHALLENGED THE ADDITION OF RS.6,94,66,924/-. THE A.O. MADE THIS ADDITION IN THE LIGHT OF OBSERVATIONS OF THE SPECIAL AUDITOR THAT AS PER AS-10 AND AS-2, THE MACHINERY SPARES WHICH ARE NOT SPECIFIED A PARTICULAR ITEM OF FIXED ASSET SHOULD BE TREATED AS INVENTORY AND THE MACHINERY SPARES WHICH ARE SPECIFIED TO A PARTICULAR CLASS OF ASSET SHOULD BE CAPITALIZED AS IT BELONG TO A 66 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. PARTICULAR CLASS OF FIXED ASSET. THE SPECIAL AUDITOR HAS MENTIONED THAT IN THE CASE OF TBM WHICH IS PRIMARY FIXED ASSET AND ITS SPARES NEEDED TO BE CAPITALIZED, THEREFORE, ASSESSEE HAS WRONGLY CLAIMED IT TO BE REVENUE EXPENDITURE. THE REPLY OF THE ASSESSEE BEFORE A.O. WAS THAT J.V. HAS ADOPTED POLICY OF NOT REMOVING THE ORIGINAL SPARES FROM THE GROSS BLOCK AND THE REPLACEMENT SPARES ARE CHARGED TO REVENUE IN THE YEAR OF PURCHASE WHICH WAS NOT ACCEPTED BY THE A.O. AND DISALLOW THE SAME AMOUNT AFTER ALLOWING DEPRECIATION. THE ASSESSEE IN THE WRITTEN SUBMISSIONS BEFORE THE LD. CIT(A) HAS CLAIMED THAT SPARES ARE PURCHASED AND UTILIZED FOR REPLACEMENT AND DID NOT INCREASE THE CAPACITY OF TBM WHICH WERE MEANT FOR MAINTENANCE OF TBM, THEREFORE, IT SHOULD BE ALLOWED. THE LD. CIT(A) HOWEVER, DISMISSED THIS GROUND OF APPEAL OF ASSESSEE. 25.1. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT TBM MACHINE WAS USED FOR BORING TUNNEL. ORIGINAL SPARES ARE TAKEN AS CAPITAL AND REPLACEMENTS WERE CLAIMED AS REVENUE EXPENDITURE. THE DETAILS OF THE SAME ARE GIVEN AT PAGE-93 OF THE PB. IT WOULD NOT ENHANCE THE CAPACITY OF TBM 67 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. MACHINERY. HE HAS SUBMITTED THAT TBM WAS USED FOR MECHANIZED TUNNELING TO CARRY-OUT TUNNEL BORING. THE SAID OPERATION INVOLVES THE CUTTING THE GROUND WITH THE HELP OF CUTTER HEAD WHICH IS FIXED IN FRONT OF THE TBM, REMOVING, EXCAVATED MATERIAL FROM CUTTER HEAD CHAMBER TO THE BACK OF THE MACHINE, RING BUILDING AND FILLING THE ANNULAR SPACE BETWEEN THE RINGS AND THE CUT GROUND WITH GROUT. ALL THE OPERATIONS ARE CARRIED OUT WITH THE HELP OF BACK-UP SYSTEM INSTALLED IN THE SHIELDS AND GANTRIES I.E., LUBE SYSTEM, GREASE SYSTEM, BELT CONVEYOR SYSTEM, HYDRAULIC SYSTEM, WATER SYSTEM ETC., THE ABOVE SYSTEMS ARE COMPRISED OF DIFFERENT COMPONENTS LIKE PUMPS, MOTORS, HOSES, SWITCHES SENSORS, TRANSMITTERS, BELTS, ROLLERS PULLEYS, PRESSURES GAUGES ETC., THESE ITEMS ARE REPLACED FROM TIME TO TIME FOR COMPLETING THE OPERATION. HE HAS, THEREFORE, SUBMITTED THAT THESE WERE REVENUE EXPENDITURE IN NATURE AND COULD NOT BE TERMED AS CAPITAL EXPENDITURE. HE HAS RELIED UPON JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BANCO ALUMINIUM LTD., 93 TAXMANN.COM 52 IN WHICH IT WAS HELD THAT WHERE ASSESSEE ENGAGED IN BUSINESS OF MANUFACTURING OF 68 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ALUMINIUM EXTRUDED SECTIONS, CLAIMED DEDUCTION OF EXPENDITURE INCURRED ON TOOLS AND DIES, IN VIEW OF THE FACT SAID TOOLS AND DIES WERE CONSUMABLE IN NATURE, AMOUNT SPENT ON THE SAME WAS TO BE ALLOWED AS BUSINESS EXPENDITURE. IN THIS CASE, IT WAS NOTED BY THE TRIBUNAL THAT DUE TO FREQUENT CHANGE IN DESIGN OF PRODUCTS AND HEAVY WEAR AND TEAR AT THE TIME OF USE, LIFE OF DIES AND TOOLS WAS VERY SHORT. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AUTHORITIES BELOW SHOULD HAVE ALLOWED THE CLAIM OF EXPENDITURE AS REVENUE IN NATURE. 26. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE HAS CAPITALIZED THE ITEMS IN THE FIXED ASSETS WHICH SHOWS THE SAID ASSETS WERE IN THE NATURE OF FIXED ASSETS. THE CLAIM OF ASSESSEE COULD BE ALLOWED AS PER LAW ONLY. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE EXPLAINED BEFORE THE AUTHORITIES BELOW THAT IT HAD ADOPTED A POLICY OF NOT REMOVING THE ORIGINAL SPARES FROM GROSS BLOCK AND THE REPLACING CONSUMABLE SPARES ARE 69 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CHARGED TO REVENUE IN THE YEAR OF PURCHASE. THE CONTENTION OF ASSESSEE BEFORE LD. CIT(A) HAD BEEN THAT SPARES ARE PURCHASED AND UTILISED FOR REPLACEMENT AND DID NOT INCREASE THE CAPACITY OF TBM. THE SAME WERE MEANT FOR MAINTENANCE OF TBM. THE CONTENTION OF ASSESSEE WAS NOT FOUND INCORRECT. THE ASSESSEE FILED DETAILS OF TBM CONSUMABLE SPARE PARTS AT PAGE-93 OF THE PB WHICH GIVES ITEM DESCRIPTION WHICH WERE CLAIMED AS CONSUMABLES WHICH ARE BOLT, STOCK SENSOR, HYDRO CYLENDERS, BELT, PIPE, CABLE, SINGLE DISC CUTTER ETC., THE NATURE OF THESE ITEMS THUS SHOWS THAT THESE ARE CONSUMABLE IN NATURE AND NEED FOR DAY-TO-DAY WEAR AND TEAR. THE NATURE OF TUNNEL BORING MACHINE ITSELF SHOWS THAT IT IS DOING A SPECIFIED JOB OF CUTTING THE GROUND, REMOVING THE EXCAVATED MATERIAL AND MAKE A TUNNEL. IN THIS PROCESS, THE BACK-UP CONSUMABLE ITEMS ARE FREQUENTLY REQUIRED FOR COMPLETING THE OPERATION RELATED TO THE BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE DID NOT REMOVE THE ORIGINAL SPARES FROM THE BLOCK OF ASSETS, THEREFORE, REPLACEMENT OF THE ITEMS HAVE BEEN RIGHTLY CLAIMED AS REVENUE EXPENDITURE IN NATURE. CONSIDERING THE NATURE OF THE MACHINE AND THE ITEMS 70 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. REPLACED IN THE MACHINERY, IT IS CLEAR THAT THE TMB SPARE PARTS ARE CONSUMABLE IN NATURE, THEREFORE, ASSESSEE RIGHTLY CLAIMED IT TO BE REVENUE EXPENDITURE. THE AUTHORITIES BELOW, THEREFORE, WERE NOT JUSTIFIED IN DENYING THE CLAIM OF EXPENSES UNDER SECTION 37 OF THE I.T. ACT. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO.7 OF THE APPEAL OF ASSESSEE IS ALLOWED. 28. ON GROUND NO.8, THE ASSESSEE CHALLENGED THE ADDITION OF RS.4,90,78,282/- ON ACCOUNT OF DISALLOWANCE OF AMORTIZATION EXPENSES. 28.1. THE A.O. MADE THIS ADDITION WHICH IS THE DIFFERENCE BETWEEN DEPRECIATION CLAIMED BY ASSESSEE AS PER BOOKS AND DEPRECIATION CALCULATED AS PER INCOME TAX RULES. THE SPECIAL AUDITOR HAS OBSERVED THAT ASSESSEE HAS PROVIDED DEPRECIATION BASED ON USEFUL LIFE OF THE ASSET OVER THE CONTRACTUAL PERIOD OF THE PROJECT AND THE RATE PRESCRIBED IN RULE-5 OF THE INCOME TAX RULES ARE NOT FOLLOWED. WHEREAS, IT IS MANDATORY FOR ALL THE COMPANIES TO PREPARE THEIR ANNUAL ACCOUNTS IN ACCORDANCE WITH THE MANDATORY ACCOUNTING STANDARD ISSUED BY THE ICAI, YET ADJUSTMENTS DECLARED TO THE 71 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. P & L A/C ARE REQUIRED TO BE MADE IN ORDER TO ARRIVE AT ASSESSABLE INCOME AS PER THE ACT AND RULES. THE SPECIAL AUDITOR HAS ALSO MENTIONED THAT THE CONTENTION OF THE ASSESSEE THAT IT HAS NOT CHARGED DEPRECIATION, BUT, IN FACT AMORTIZED THE COST OF THE ASSET IS NOT ACCEPTABLE UNDER SECTION 37 OF THE I.T. ACT AS THE CAPITAL EXPENDITURE IS NOT ALLOWABLE. THE SPECIAL AUDITOR HAS WORKED-OUT ALLOWABLE DEPRECIATION OF RS.9.34 CRORES AS AGAINST CLAIM OF RS.14.25 CRORES AND EXCESS CLAIM OF DEPRECIATION OF THE IMPUGNED AMOUNT WAS DISALLOWED. 28.2. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). IT WAS ALSO SUBMITTED THAT DISALLOWANCE SHOULD BE RESTRICTED TO RS.2,94,44,949/- AS PER CALCULATION GIVEN BEFORE A.O. THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO LOOK INTO THE ALTERNATE PLEA RAISED BY THE ASSESSEE AND ALLOW DEPRECIATION TO THE ASSESSEE AS PER INCOME TAX ACT AND RULES, AS APPLICABLE DURING THE ASSESSMENT YEAR UNDER APPEAL. SINCE NO CALCULATION OF THE CLAIM SO MADE IN ALTERNATE CONTENTION WAS GIVEN, THEREFORE, CLAIM OF ASSESSEE WAS REJECTED. LEARNED COUNSEL FOR THE 72 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ASSESSEE SUBMITTED THAT A.O. MAY ALLOW THE DEPRECIATION AS PER RULES. HE HAS ALSO SUBMITTED APPLICATION OF ASSESSEE UNDER SECTION 154 IS ALSO PENDING BEFORE A.O. 29. THE LD. D.R. ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 30. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE LD. CIT(A) HAS ALREADY DIRECTED THE A.O. TO LOOK INTO THE ALTERNATE CLAIM OF ASSESSEE AND ALLOW DEPRECIATION TO ASSESSEE AS PER INCOME TAX ACT AND RULES. THEREFORE, NO FURTHER INTERFERENCE IS REQUIRED IN THE MATTER. A.O. IS, THEREFORE, DIRECTED TO VERIFY THE ITEMS ON WHICH DEPRECIATION IS CLAIMED AND ALSO DECIDE APPLICATION UNDER SECTION 154 OF I.T. ACT AS PER LAW AND ALLOW DEPRECIATION AS PER I.T. ACT AND RULES. WITH THESE OBSERVATIONS, GROUND NO.8 OF THE APPEAL OF ASSESSEE IS DISPOSED OF. 31. ON GROUND NO.9, ASSESSEE CHALLENGED THE ADDITION OF RS.4,15,68,750/- ON ACCOUNT OF FOREIGN EXCHANGE GAIN. 73 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 31.1. THE A.O. MADE THIS ADDITION BASED ON OBSERVATION OF THE SPECIAL AUDITOR THAT REGARDING FOREIGN EXCHANGE GAIN AS ON 31.03.2014, THE ASSESSEE WAS REQUIRED TO RESTATE THE FOREIGN CURRENCY VALUE INTO INDIAN CURRENCY AS PER AS-11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS GIVEN REPLY RELATING TO THE PROVISIONS OF SECTION 43A OF THE I.T. ACT, WHICH WAS NOT ACCEPTED BY THE A.O. ON THE GROUND THAT SECTION 43A APPLIES TO THE EXCHANGE REFERENCE DETERMINED AT THE TIME OF PAYMENT FOR THE EQUIPMENT OR AT THE TIME OF ACTUAL REPAYMENT OF ITS LOAN. WHEREAS, THE PROCESS OF ASCERTAINING THE EXCHANGE RATE DIFFERENCE (PROFIT OR LOSS) AT THE END OF EACH FINANCIAL YEAR IS NOT GOVERNED BY SECTION 43A. DURING THE APPELLATE PROCEEDINGS ASSESSEE FILED WRITTEN SUBMISSIONS IN WHICH IT WAS CLAIMED THAT IN RESPECT OF FOREIGN EXCHANGE CURRENCY TRANSACTION, AS-11 IS REGULARLY FOLLOWED BY THE ASSESSEE. ASSESSEE HAS CLAIMED AGAIN THAT ON TRANSACTION OF FOREIGN CURRENCY LIABILITY IN RESPECT OF PURCHASE OF CAPITAL ASSET, IT IS THE CAPITAL RECEIPT AND NOT SUBJECT TO TAX IN THE HANDS OF THE ASSESSEE. THE LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND 74 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. NOTED THAT ASSESSEE HAS WRONGLY RELIED UPON PROVISIONS OF SECTION 43A WHICH SHOULD BE APPLIED AT THE TIME OF PAYMENT OF CAPITAL EXPENDITURE AND NOT FOR THE YEAR END VALUATION OF FOREIGN EXCHANGE. THE LD. CIT(A), THEREFORE, CONFIRMED THE ADDITION. 32. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE ADMITTEDLY PURCHASED THE MACHINE I.E., TBM AND GAIN ON FOREIGN EXCHANGE IS NOT TAXABLE BECAUSE IT IS CAPITAL RECEIPT. SECTION 43A APPLY TO CAPITAL EXPENDITURE, DETAILS ARE FILED AT PAGES-98 AND 99 OF THE PB. THE ASSESSEE RESTATED THE AMOUNT OF OUTSTANDING LIABILITY PAYABLE IN FOREIGN CURRENCY AS ON 31.03.2014. THE RESULTANT FOREIGN EXCHANGE FLUCTUATION GAIN WAS CAPITALIZED BY THE ASSESSEE. THE ASSESSEE HAS BEEN FOLLOWING THE AS-11 IN RESPECT OF THE FOREIGN CURRENCY TRANSACTION AND ACCORDINGLY HAS CREDITED THE GAIN ON END OF THE YEAR TO THE COST OF FIXED ASSET AS THE LIABILITY AGAINST THE SAID ASSET WAS STILL PENDING. THE GAIN ON TRANSACTION OF FOREIGN CURRENCY LIABILITY IN RESPECT OF CAPITAL ASSET WAS CAPITAL RECEIPT. HENCE, NOT 75 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SUBJECT TO TAX IN THE HANDS OF THE ASSESSEE. HE HAS RELIED UPON JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SUTLEZ COTTON MILLS LTD., 116 ITR 1 (SC) IN WHICH IT WAS HELD AS UNDER : 'WHETHER THE LOSS SUFFERED BY THE ASSESSEE WAS A TRADING LOSS OR NOT WOULD DEPEND ON WHETHER THE LOSS WAS IN RESPECT OF A TRADING ASSET OR A CAPITAL ASSET. IN THE FORMER CASE, IT WOULD BE A TRADING LOSS BUT NOT SO IN THE LATTER. THE LAW IS WELL SETTLED THAT WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HELD BY IT, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMBARKED IN THE BUSINESS. BUT, IF ON THE OTHER HAND, THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL, SUCH PROFIT OR LOSS WOULD BE OF CAPITAL NATURE. NOW, IN THE INSTANT CASE, NO FINDING WAS GIVEN BY THE TRIBUNAL AS TO WHETHER THE SUMS WERE 76 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. HELD BY THE ASSESSEE IN WEST PAKISTAN ON CAPITAL ACCOUNT OR REVENUE ACCOUNT AND WHETHER THEY WERE PART OF FIXED CAPITAL OR OF CIRCULATING CAPITAL EMBARKED AND ADVENTURED IN THE BUSINESS IN WEST PAKISTAN. IF THE AMOUNTS IN QUESTION WERE EMPLOYED IN THE BUSINESS IN WEST PAKISTAN AND FORMED PART OF THE CIRCULATING CAPITAL OF THAT BUSINESS, THE LOSS RESULTING TO THE ASSESSEE ON REMISSION OF THOSE TWO AMOUNTS IN INDIA, ON ACCOUNT OF ALTERATION IN THE RATE OF EXCHANGE, WOULD BE A TRADING LOSS, BUT IF, INSTEAD, THOSE AMOUNTS WERE HELD ON CAPITAL ACCOUNT AND WERE PART OF FIXED CAPITAL, THE LOSS WOULD PLAINLY BE A CAPITAL LOSS. THE QUESTION WHETHER THE LOSS SUFFERED BY THE ASSESSEE WAS A TRADING LOSS OR A CAPITAL LOSS COULD NOT, THEREFORE, BE ANSWERED UNLESS IT WAS FIRST DETERMINED WHETHER THE AMOUNTS IN QUESTION WERE HELD BY THE ASSESSEE ON CAPITAL ACCOUNT OR ON REVENUE ACCOUNT OR, TO PUT IT DIFFERENTLY, AS PART OF FIXED CAPITA! OR OF CIRCULATING CAPITAL. 32.1. HE HAS FURTHER RELIED UPON JUDGMENT IN THE CASE OF CIT VS. JAGATJEET INDUSTRIES LTD., 199 TAXMANN.COM 54 IN 77 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. WHICH IT WAS HELD THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN ACCRUE ON ACCOUNT OF MONEY RAISED THROUGH ISSUE OF EQUITY SHARE AND IT WAS HELD THAT FLUCTUATION GAIN IS TO BE TREATED AS CAPITAL RECEIPT IN THE EVENT OF SUCH SHARE CAPITAL HAS BEEN COLLECTED IN FOREIGN EXCHANGE IRRESPECTIVE OF END USE OF SHARE CAPITAL. LEARNED COUNSEL FOR THE ASSESSEE WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS SUBMITTED THAT IN CASE IT IS HELD THAT PROVISIONS OF SECTION 43A ARE NOT APPLICABLE SINCE THERE WAS NO ACTUAL SETTLEMENT AND LIABILITY DURING THE YEAR, THEN, THERE WOULD NOT BE ANY NEED TO PASS ANY ACCOUNTING ENTRY AT THE CLOSE OF THE YEAR AND SAME ENTRY WOULD HAVE TO BE BASED ON DATE OF SETTLEMENT OF THE OUTSTANDING LIABILITY. IN SUCH A SCENARIO, THE FLUCTUATION GAIN CANNOT BE BROUGHT TO TAX IN THE HANDS OF ASSESSEE BEING ON ACCOUNT OF CAPITAL TRANSACTION. HE HAS ALSO RELIED UPON JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWORD GOVERNOR PVT. LTD., 312 ITR 254 (SC). 33. ON THE OTHER HAND LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT AFTER AMENDMENT OF SECTION 43A W.E.F. 01.04.2003 PROVISIONS OF 78 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SECTION 43A ARE ATTRACTED ONLY AT THE TIME OF ACTUAL PAYMENT AND DO NOT APPLY TO YEAR END ADJUSTMENT FOR EXCHANGE RATE DIFFERENCES. 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT ASSESSEE RESTATED THE AMOUNT OF OUTSTANDING LIABILITY PAYABLE IN FOREIGN CURRENCY AS ON 31.03.2014. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE PURCHASED THE MACHINERY WITH REFERENCE TO THE ABOVE ISSUE. THE RESULTANT FOREIGN EXCHANGE FLUCTUATION GAIN WAS CAPITALIZED BY THE ASSESSEE AT THE YEAR END. THE AUTHORITIES BELOW REJECTED THE CLAIM OF ASSESSEE ON THE GROUND THAT SECTION 43A WOULD NOT APPLY BECAUSE THE SAME PROVISION APPLIES TO THE EXCHANGE DIFFERENCE DETERMINED AT THE TIME OF PAYMENT FOR EQUIPMENT OR AT THE TIME OF ACTUAL PAYMENT OF ITS LOAN. WHEREAS THE PROCESS OF ASCERTAINMENT OF EXCHANGE RATE ITSELF AT THE END OF EACH FINANCIAL YEAR IS NOT GOVERNED BY SECTION 43A OF THE I.T. ACT. THE LD. CIT(A) ALSO NOTED THAT SECTION 43A WOULD NOT APPLY BECAUSE IT WOULD APPLY AT THE TIME OF PAYMENT OF CAPITAL EXPENDITURE AND NOT FOR THE YEAR END VALUATION OF FOREIGN EXCHANGE. HOWEVER, IT IS A FACT THAT THE 79 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ASSESSEE MADE A BOOK ENTRY AT THE END OF THE YEAR WITH REFERENCE TO CAPITAL ASSET ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION GAIN WHICH WAS CAPITALIZED. THUS THE GAIN ON TRANSACTION OF FOREIGN CURRENCY LIABILITY WAS IN RESPECT OF CAPITAL ASSET WHICH SHOULD HAVE BEEN CONSIDERED AS CAPITAL RECEIPT ONLY. FURTHER EVEN IF SECTION 43A WOULD NOT APPLY TO THE MATTER IN ISSUE BECAUSE NO ACTUAL SETTLEMENT OF LIABILITY HAS HAPPENED DURING THE ASSESSMENT YEAR UNDER APPEAL, THEREFORE, BOOK ENTRIES WOULD NOT BE RELEVANT TO DETERMINE THE INCOME OF ASSESSEE. IT IS WELL SETTLED LAW THAT BOOK ENTRIES ARE NOT DETERMINATIVE OF INCOME OF ASSESSEE WHETHER INCOME OF ASSESSEE IS TAXABLE OR NOT, IT HAS TO BE DECIDED AS PER LAW. WE RELY UPON JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF SUTLEZ COTTON MILLS LTD., VS. CIT (SUPRA) AND TUTICORN ALCALI CHEMICALS & FERTILIZERS LTD., (SUPRA). EVEN IF IN THIS CASE ASSESSEE HAS MADE AN ENTRY OF GAIN ON TRANSACTION OF FOREIGN CURRENCY LIABILITY IN RESPECT OF CAPITAL ASSET AT THE YEAR END, WHICH WOULD NOT BE INCOME OF THE ASSESSEE, THEREFORE, NO ADDITION COULD BE MADE AGAINST THE ASSESSEE OF THIS NATURE. WE, ACCORDINGLY, SET ASIDE THE 80 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO.9 OF THE APPEAL OF ASSESSEE IS ALLOWED. 35. ON GROUND NO.10, ASSESSEE CHALLENGED THE DISALLOWANCE OF DESIGN EXPENSES OF RS.5,51,31,704/-. 35.1. THE A.O. DISALLOWED THE ABOVE AMOUNT TOWARDS DESIGN CHARGES AS THE SPECIAL AUDITOR HAS OBSERVED THAT CERTAIN EXPENSES OF DEFERRED NATURE WERE CHARGED FULLY TO PROFIT & LOSS ACCOUNT SUCH AS DESIGN CHARGES ARE IN THE NATURE OF DEFERRED REVENUE EXPENDITURE WHICH IS INCURRED FOR RS.7,71,84,385/- AND THIS EXPENSES HAS TO BE SPREAD OVER THE LIFE OF THE PROJECT WHICH WAS FULLY CLAIMED IN THE INITIAL YEAR OF THE OPERATION OF THE JV. THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT DESIGN IS MADE AND APPROVAL BY DMRC IN THE INITIAL STAGE IS TAKEN AND ON APPROVAL OF THIS ONLY THE EXECUTION OF WORK STARTED, THEREFORE, IT SHOULD BE ALLOWED AT THE START OF THE EXECUTION ITSELF AND IT WOULD NOT FALL IN THE CATEGORY OF DEFERRED REVENUE EXPENDITURE. THE A.O. DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THERE IS NO SEPARATE BILLING ON THE CLIENT TOWARDS THE DESIGN 81 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. AND THIS ACTIVITY IS PART OF SUBSTANTIAL COST RELATED TO THE ENTIRE PROJECT AND THE PROJECT IS BASED ON PROJECT COMPLETION METHOD, THEREFORE, ADDITION WAS MADE. THE LD. CIT(A) ON THE SAME REASONING, CONFIRMED THE ADDITION. 36. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS NO LAW OF DEFERRED REVENUE EXPENDITURE. DESIGNED IS PROVIDED FOR START OF THE PROJECT ITSELF. ONLY THEREAFTER, THE WORK HAS STARTED. SO, IT IS REVENUE IN NATURE. HE HAS SUBMITTED THAT UNDER THE INCOME TAX ACT, THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE. ANY EXPENDITURE OF REVENUE NATURE IS FULLY ALLOWABLE IN THE YEAR IN WHICH IT WAS INCURRED IRRESPECTIVE OF THE FACT THAT BENEFIT FROM THE SAID EXPENDITURE MAY ACCRUE EVEN IN SUBSEQUENT YEAR. HE HAS RELIED UPON ORDER IN THE CASE OF CIT VS. GURUJI ENTERTAINMENT NET WORK LTD., 14 SOT 556 IN WHICH IT WAS HELD THAT THE EXPENDITURE INCURRED ON ACCOUNT OF PRODUCTION WAS DEFERRED IN THE BOOKS OF ACCOUNT BUT TOTAL AMOUNT OF EXPENDITURE WAS CLAIMED IN COMPUTING THE INCOME TAX. IT WAS HELD THAT THE SAME WERE TO BE ALLOWED AS REVENUE 82 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. EXPENDITURE, NOTWITHSTANDING THE FACT THAT PART OF SUCH EXPENDITURE WAS CARRIED TO BALANCE-SHEET AS DEFERRED REVENUE EXPENDITURE. SAME VIEW IS TAKEN IN THE CASE OF ACIT VS. MEDICAMAN BIOTECH LTD., 1 SOT 347, JCIT VS. CHARKA PHARMACEUTICALS 4 SOT 393 AND CIT VS. MODI OLIVETI LTD., 38 TAXMANN.COM 113. 37. ON THE OTHER HAND, LD. D.R. RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT DESIGN CHARGES ARE FOR WHOLE OF THE PERIOD OF THE CONTRACT HAVING ENDURING BENEFIT. THEREFORE, WHOLE EXPENDITURE CANNOT BE ALLOWED. IT WAS DEFERRED REVENUE EXPENDITURE IN NATURE. THEREFORE, ADDITION IS JUSTIFIED. 38. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CASE, THE AUTHORITIES BELOW HAVE ALLOWED PART OF THE EXPENDITURE ON ACCOUNT OF DESIGN CHARGES ON THE PROPOSITION OF DEFERRED REVENUE EXPENDITURE. SECTION 37 OF THE I.T. ACT PROVIDES DEDUCTION OF THE EXPENDITURE, IF THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. UNDER THE INCOME TAX ACT THERE IS NO CONCEPT OF DEFERRED 83 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. REVENUE EXPENDITURE. ANY EXPENDITURE OF REVENUE NATURE IS FULLY ALLOWABLE IN THE YEAR IN WHICH IT WAS INCURRED. IT IS NOT IN DISPUTE THAT THE EXPENSES IN QUESTION IS REVENUE IN NATURE. THE ASSESSEE CLAIMED THAT AMOUNT WAS INCURRED ON ACCOUNT OF DESIGN CHARGES WHICH IS APPROVED BY DMRC IN THE INITIAL STAGE. WHEN THE DESIGN IS APPROVED ONLY THEN THE EXECUTION OF THE WORK WOULD START, THEREFORE, DESIGN CHARGES SHALL HAVE TO BE INCURRED ONCE FOR START OF THE EXECUTION OF THE PROJECT. THEREFORE, IT COULD NOT BE TREATED AS DEFERRED REVENUE EXPENDITURE IN NATURE. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE SQUARELY APPLY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. IN THE RESULT, GROUND NO.10 OF THE APPEAL OF ASSESSEE IS ALLOWED. 39. ON GROUND NO.11, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF BANK GUARANTEE EXPENSES OF RS.2,22,37,267/-. THIS ISSUE RELATES TO DISALLOWANCE OF RS.8.38 CRORES TOWARDS BANK GUARANTEE CHARGES WHICH WAS MADE BY THE A.O. ON THE OBSERVATION OF THE SPECIAL AUDITOR 84 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THAT ASSESSEE HAD DEBITED RS.2,67,28.095/- AS BANK GUARANTEE CHARGES, OUT OF WHICH, CHARGES OF RS.1,84,74,400/- PERTAINS TO SUBSEQUENT YEARS AND CHARGES AMOUNTING TO RS.37,59,867/- PROVIDED BY SUCG SHOULD NOT HAVE BEEN DEBITED IN THE P & L A/C OF THE JV AS PER THE AGREEMENT. THE A.O. DID NOT ACCEPT THE PLEA OF THE ASSESSEE THAT IN CLAUSE 13.1 OF THE AGREEMENT ANY FRONTING GUARANTEE COST PAID TO LOCAL BRANCH SHALL BE PAID DIRECTLY BY UJV. THE ASSESSEE IN THE WRITTEN SUBMISSIONS HAS REPEATED THIS SUBMISSION MADE BEFORE A.O. DURING THE COURSE OF APPELLATE PROCEEDINGS, ASSESSEE WAS ASKED TO GIVE CLARIFICATION REGARDING FRONTING BANK GUARANTEE WHICH WAS GIVEN BY THE ASSESSEE. THE LD. CIT(A) CONSIDERING THE EXPLANATION OF ASSESSEE, DID NOT FIND ANY JUSTIFICATION IN DISALLOWING THIS AMOUNT WHICH IS PAID BY THE ASSESSEE AND THE AMOUNT OF RS.37,59,867/- WAS ALLOWED TO THE ASSESSEE. HOWEVER, THE BANK GUARANTEE CHARGES OF RS.2,22,37,267/- WHICH IS CLAIMED BY ASSESSEE BUT PERTAINS TO LIABILITY OF JV WAS NOT ALLOWED IN VIEW OF TERMS OF THE AGREEMENT. THIS GROUND WAS PARTLY ALLOWED BY THE LD. CIT(A). THE ASSESSEE IS IN APPEAL ON 85 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE ABOVE GROUND AND REVENUE IS IN APPEAL ON GROUND NO.6 CHALLENGING DELETION OF THE ADDITION. 40. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT BANK GUARANTEE EXPENSES ONCE PAID, IT COULD NOT BE DEFERRED REVENUE EXPENSES. HE HAS SUBMITTED THAT IT HAS TWO PARTS AND REFERRED TO JV AGREEMENT IN THE PAPER BOOK. HE HAS SUBMITTED THAT RELEVANT FACTS ARE THAT ASSESSEE DEBITED AN AMOUNT OF RS.2,22,37,267/- AS BANK GUARANTEE CHARGES, BIFURCATION OF THE SAME IS AS UNDER : (I) BANK GUARANTEE CHARGES ALLEGEDLY PERTAINING TO SUBSEQUENT YEARS RS.1,84,77,400/-. (II) BANK GUARANTEE CHARGES TO BE BORNE BY SUCGT AND NOT JV RS.37,59,867/- TOTAL AMOUNTING TO RS.2,22,37,267/-. 40.1. HE HAS REFERRED TO OBSERVATIONS OF THE A.O. BASED ON SPECIAL AUDIT REPORT. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT A.O. HAS DISALLOWED A SUM OF RS.1.84 CRORES AS DEFERRED REVENUE EXPENSES WITHOUT GIVING ANY BASIS. THE LD. CIT(A) WHILE GIVING FINAL RELIEF, HAS ALLOWED AMOUNT WHICH IS PAID BY JV AND DISALLOWED THE BANK GUARANTEE CHARGES 86 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CLAIMED BY THE ASSESSEE JV BUT PERTAIN TO LIABILITY OF JV PARTNER AS PER AGREEMENT. IT WAS SUBMITTED THAT AMOUNT OF RS.1.84 CRORES COULD NOT BE TREATED AS DEFERRED REVENUE EXPENDITURE. IT WAS SUBMITTED THAT BANK GUARANTEE CHARGES MAY HAVE BEEN PAID FOR DURATION OF MORE THAN ONE YEAR AND ONCE THE SAME IS INCURRED, THE SAME ARE NOT RECOVERABLE ONCE CHARGED BY THE BANK. THEREFORE, IT COULD NOT BE DEFERRED REVENUE EXPENDITURE. AN AMOUNT OF RS.37,59,867/- HAVE BEEN DISALLOWED BY THE AUTHORITIES BELOW BECAUSE SAME WAS TO BE BORNE BY THE JV PARTNER. IT WAS SUBMITTED THAT CLAUSE 13.1 OF THE AGREEMENT CLEARLY PROVIDES THAT ANY FRONTING GUARANTEE COST PAID TO THE LOCAL BANK SHALL BE PAID DIRECTLY BY THE JV. SINCE THE ENTIRE AMOUNT IS PAID BY THE JV, THEREFORE, NO DISALLOWANCE COULD BE MADE. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT NO ADDITION SHOULD HAVE BEEN MAINTAINED. IN SUPPORT OF THE CONTENTION, HE HAS RELIED UPON JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SIVAKAMI MILLS LTD., VS. CIT [1979] 120 ITR 211 (MADRAS) IN WHICH IT WAS HELD AS UNDER : 87 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. WHERE THE ASSESSEE-COMPANY PURCHASED FOR ITS BUSINESS SOME MACHINERY FROM ABROAD ON DEFERRED PAYMENT BASIS AND HAD TO PAY SOME COMMISSION TO A BANK WHICH HAD GUARANTEED THE INSTALLMENT PAYMENTS BY IT : HELD THAT THE EXPENDITURE INCURRED FOR THE PURCHASE OF THE MACHINERY WAS UNDOUBTEDLY A CAPITAL EXPENDITURE, FOR IT BROUGHT IN AN ASSET OF ENDURING ADVANTAGE. BUT THE GUARANTEE COMMISSION STOOD ON A DIFFERENT FOOTING. BY ITSELF, IT DID NOT BRING INTO EXISTENCE ANY ASSET OF AN ENDURING NATURE; NOR DID IT BRING IN ANY OTHER ADVANTAGE OF AN ENDURING BENEFIT. THE ACQUISITION OF THE MACHINERY ON INSTALLMENT TERMS WAS ONLY A BUSINESS EXIGENCY. IF INTEREST PAID ON A CREDIT PURCHASE OF MACHINERY COULD BE HELD TO BE REVENUE EXPENDITURE, ONE FAILED TO SEE HOW GUARANTEE COMMISSION PAID TO A BANK FOR OBTAINING EASY TERMS FOR ACQUISITION OF THE MACHINERY COULD BE REGARDED AS CAPITAL PAYMENTS. 40.2. HE HAS SUBMITTED THAT THE AFORESAID DECISION HAS BEEN CONFIRMED BY THE HONBLE SUPREME COURT BY DISMISSING 88 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE DEPARTMENTAL APPEAL IN THE CASE CIT VS. SIVAKAMI MILLS LTD., REPORTED IN [1997] 227 ITR 465 (SC). 41. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT IT HAS TWO PARTS AS EXPLAINED ABOVE. SINCE IT WAS THE LIABILITY OF THE JV PARTNER, THEREFORE, ENTIRE GUARANTEE COMMISSION COULD NOT BE ALLOWED AS EXPENDITURE. 42. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE EXPLAINED THAT IT HAS DEBITED AN AMOUNT OF RS.2,22,37,267/- AS BANK GUARANTEE CHARGES. BIFURCATION OF THE SAME IS GIVEN ABOVE. THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE, THEREFORE, SAME WOULD ALSO NOT APPLY TO BANK GUARANTEE CHARGES. THE LD. CIT(A) HAS CORRECTLY ALLOWED THE RELIEF TO THE ASSESSEE OF THE AMOUNT WHICH IS PAID BY THE ASSESSEE. THE ASSESSEE HAS EXPLAINED ALL THE REASONS, UNDER WHICH, THE AMOUNT HAVE BEEN SPENT FOR BUSINESS PURPOSES. THE LD. CIT(A) ALLOWED PART RELIEF TO THE ASSESSEE FOR SUM OF RS.37,59,867/-. STILL THE ENTIRE AMOUNT OF RS.2.22 CRORES HAD BEEN DISALLOWED WHICH WAS TOTAL 89 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. AMOUNT CONSISTING OF TWO PARTS AS EXPLAINED ABOVE. THE ASSESSEE HAS REFERRED TO JV AGREEMENT WHICH CLEARLY PROVIDE THAT ANY FRONTING GUARANTEE COST PAID TO THE LOCAL BANK SHALL BE PAID DIRECTLY BY THE JV, THEREFORE, THERE WAS NO JUSTIFICATION TO SUSTAIN ANY OF THE ADDITION ON THIS ISSUE. IT IS WELL SETTLED LAW THAT GUARANTEE EXPENSES PAID BY THE ASSESSEE WAS A REVENUE EXPENDITURE AND AN ALLOWABLE DEDUCTION. JUDGMENT IN THE CASE OF SIVAKAMI MILLS LTD. VS. CIT [1979] 120 ITR 211 (MAD.) CLEARLY APPLY TO THE FACTS OF THIS CASE. FOLLOWING THE SAME, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. IN THE RESULT, GROUND NO.11 OF THE ASSESSEE IS ALLOWED AND GROUND NO.6 OF THE DEPARTMENTAL APPEAL IS DISMISSED. 43. ON GROUND NO.12, ASSESSEE CHALLENGED THE DISALLOWANCE OF EXPENSES OF RS.9,99,67,544/-. THE A.O. DISALLOWED THE ABOVE AMOUNT TOWARDS PRIOR PERIOD EXPENDITURE. THE SPECIAL AUDITOR HAS OBSERVED THAT THE PURCHASES OF RS.6.42 CRORES WAS MADE IN F.Y. 2012-2013 BUT THE EXPENSES OF THE SAME HAVE BEEN BOOKED IN THE YEAR UNDER CONSIDERATION. THE A.O, THEREFORE, MADE THE ADDITION 90 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CONSIDERING IT TO BE PRIOR PERIOD EXPENDITURE. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT ASSESSEE FOLLOWS COMMON ACCOUNTING PRACTICE OF REVERSING THE PROVISIONS CREATED AT THE END OF THE PREVIOUS FINANCIAL YEAR ON THE FIRST DAY OF THE NEXT FINANCIAL YEAR. THE AMOUNTS BOOKED ON RECEIPT OF INVOICES DURING FINANCIAL YEAR ARE CHARGED TO THE P & L A/C WHICH HAS THE EFFECT OF KNOCKING OFF THE SAME AGAINST CREDIT IN THE EXPENSES ACCOUNT. THUS, THERE IS NO IMPACT ON THE PROFIT OF THE CURRENT FINANCIAL YEAR AND THIS DOES NOT LEAD TO PRIOR PERIOD EXPENSES BEING DEBITED TO P & L A/C. THE A.O. DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND THE LD. CIT(A) ON THE SAME REASONING CONFIRMED THE ADDITION. 43.1. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE ARE NO PRIOR PERIOD EXPENSES BECAUSE IT IS FIRST YEAR OF BUSINESS OPERATION OF ASSESSEE, SO, NO PRIOR PERIOD EXPENSES COULD BE CONSIDERED. IT WAS SUBMITTED THAT DURING PRECEDING YEAR THE ACTIVITY ON THE PROJECT AWARDED BY THE DMRC WAS COMMENCED. PROJECT DID NOT ACHIEVE A COMPLETION LEVEL OF 25% AND THEREFORE, REVENUE WAS NOT RECOGNISED UNDER PROJECT ON COMPLETION METHOD [POCM]. DURING ASSESSMENT 91 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. YEAR UNDER APPEAL 25% COMPLETION WAS ACHIEVED AND, THEREFORE, REVENUE WAS RECOGNISED BY APPLYING POCM. IT IS ON ACCOUNT OF THIS FACT THE AMOUNT INCURRED ON PURCHASES AND SUB-CONTRACTS DURING F.Y. 2012-2013 WERE CLAIMED AS EXPENDITURE IN WHICH YEAR, IN WHICH, POCM WAS APPLIED FOR THE FIRST TIME. THESE EXPENSES CAN BY NO STRETCH OF IMAGINATION BE TERMED AS EXPENSES PERTAINING TO PRIOR PERIOD, THEREFORE, NO DISALLOWANCE COULD BE MADE. 44. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 45. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. IT IS A FACT THAT IT IS PRACTICALLY FIRST YEAR OF BUSINESS OF ASSESSEE WHEN REVENUE WAS RECOGNISED UNDER POCM. THEREFORE, THERE COULD NOT BE ANY PRIOR PERIOD EXPENSES AS EXPLAINED BY THE ASSESSEE. THE ASSESSEE ALSO EXPLAINED METHOD OF ACCOUNTING WHICH HAS NO IMPACT ON REVENUE RECOGNITION. THUS, THERE WAS NO BASIS BY THE AUTHORITIES BELOW TO MAKE OR SUSTAIN ANY ADDITION. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE 92 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. IN THE RESULT, GROUND NO.12 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 46. ON GROUND NO.13, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF RS.50 LAKHS. THE A.O. MADE DISALLOWANCE IN RESPECT OF EXPENSES INCURRED ON FOUR ITEMS I.E., FOOD EXPENSES FOR STAFF OUTSIDE OFFICE, STAFF MESS EXPENSES, RENT, CO-LEASE BUNG PROJECT RELATED, RENT GUEST HOUSE AND CAR HIRE CHARGES WHICH WERE SPENT BY THE ASSESSEE ON CHINEES EXPATS AS PER THE OBSERVATION OF THE SPECIAL AUDITOR WHICH IS IN THE NATURE OF PERQUISITES IN THE HANDS OF THE EMPLOYEES AND SHOULD HAVE BEEN ADDED TO THE SALARY FOR COMPUTATION OF TDS LIABILITY. THE SPECIAL AUDITOR HAS PROPOSED THE ADDITION OF RS.1,51,72,806/- AS PER THE DETAILS MENTIONED IN THE ASSESSMENT ORDER. HOWEVER, AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE A.O. HAS MADE ADDITION OF RS.50 LAKHS ON THIS ACCOUNT IN ABSENCE OF ANY RELIABLE SUBMISSION. THE ASSESSEE SUBMITTED VARIOUS INVOICE LEDGER ETC., BEFORE A.O. WHICH WERE IGNORED. THE LD. CIT(A) ON THE SAME REASONING, CONFIRMED THE ADDITION. 93 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 47. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT PERQUISITE IS DEFINIED IN SECTION 17(2) OF THE I.T. ACT WHICH INCLUDES VALUE OF RENT FREE OR CONCESSIONAL RENT ACCOMMODATION PROVIDED BY THE EMPLOYER, VALUE OF ANY BENEFIT/AMENITY GRANTED FREE OR AT CONCESSIONAL RATE TO SPECIFIED EMPLOYEES, ANY SUM PAID BY THE EMPLOYER IN RESPECT OF AN OBLIGATION, WHICH WAS ACTUALLY PAYABLE BY THE ASSESSEE, ANY SUM PAID BY THE EMPLOYER FOR ASSURANCE ON LIFE OF THE EMPLOYEE OR TO EFFECT CONTRACT FOR AN ANNUITY AND VALUE OF ANY OTHER FRINGE BENEFIT AS MAY BE PRESCRIBED. HE HAS SUBMITTED THAT ASSESSEE HAS INCURRED EXPENSES FOR BUSINESS PURPOSE WHICH ARE ALLOWABLE DEDUCTION. HE HAS SUBMITTED THAT FINDINGS OF THE AUTHORITIES BELOW ARE INCORRECT. THE ASSESSEE INCURRED FOOD EXPENSES FOR STAFF OUTSIDE OFFICE. THESE ARE THE EXPENSES REIMBURSED TO THE EXPATS STAFF AGAINST FOOD INCLUDING SNACKS IF HE IS OUT OF THE OFFICE ON AN OFFICIAL WORK. IT IS NOT A FIXED ALLOWANCE PAID TO THE STAFF. THE ASSESSEE PROVIDES LUNCH, EVENING SNACK/ DINNER TO THE STAFF ON DUTY AGAIN IRRESPECTIVE OF EXPAT OR 94 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. LOCAL. THE EXPENSES ON THIS ACCOUNT ARE DEBITED TO THE ACCOUNT UNDER THE HEAD STAFF MESS EXPENSES WHICH ARE NOT PERQUISITE IN NATURE. NO SPECIFIC CAR IS ALLOTTED TO ANY EXPATS STAFF. THESE ARE HIRE CHARGES PERTAINS TO CAR TAKEN ON HIRE FOR MOVEMENT OF STAFF INCLUDING EXPATS FROM SITE TO SITE - SITE TO DMRC OFFICE AND OTHER OFFICIAL WORK. NO CAR IS ALLOTTED TO ANY EMPLOYEE OR EXPATS. GUEST HOUSE HAVE BEEN MAINTAINED BY THE ASSESSEE FOR ACCOMMODATING THE STAFF ON TEMPORARY BASIS AT THE TIME OF JOINING OR COMING TO THE CITY. FROM THE NATURE OF THESE EXPENSES, IT IS APPARENT THAT SAME HAVE BEEN INCURRED DURING DISCHARGING OF OFFICIAL DUTIES BY THE STAFF IN THE COURSE OF EXECUTION OF THE PROJECT. THE AUTHORITIES BELOW HAVE NOT BEEN ABLE TO POINT OUT HOW THESE EXPENDITURE WERE PERQUISITE IN NATURE. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS AN ADHOC ADDITION. IN SECTION 40(A)(IA) OF THE I.T. ACT, NO DISALLOWANCE COULD BE MADE ON ACCOUNT OF PAYMENT OF SALARY. THEREFORE, NO ADDITION COULD BE MADE ON THIS HEAD. 95 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 48. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT A.O. HAS VERIFIED THE INFORMATION BEFORE MAKING THE ADDITION. SINCE NO TDS WAS DEDUCTED, SO DISALLOWANCE WAS CORRECTLY MADE. 49. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THE A.O. HAS GIVEN THE DETAILS OF THE EXPENDITURE INCURRED ON ACCOUNT OF FOOD EXPENSES FOR STAFF OUTSIDE OFFICE, STAFF MESS EXPENSES, RENT CUM LEASE BUNG PROJECT RELATED, RENT FOR GUEST HOUSE AND CAR HIRE CHARGES. THE A.O. NOTED THAT THESE EXPENSES MAY BE ALLOWABLE AS BUSINESS EXPENSES. THEREFORE, GENUINENESS OF THE EXPENSES HAVE NOT BEEN DOUBTED BY THE A.O. THAT THESE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HOWEVER, A.O. WAS OF THE VIEW THAT THESE EXPENSES SHOULD BE ADDED TO THE SALARY OF THE EMPLOYEE OF COMPUTATION OF TDS LIABILITY. A.O. HAS HOWEVER, NOT POINTED OUT AS TO HOW THESE BUSINESS EXPENSES WERE PERQUISITE IN NATURE. THE AUDITOR HAS PROPOSED TOTAL AMOUNT OF RS.1.51 CRORES FOR ADDITION. HOWEVER, THE A.O. MADE ADHOC ADDITION OF RS.50 LAKHS ONLY WITHOUT GIVING ANY 96 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SPECIFIC REASONING FOR MAKING PART ADDITION. THE ASSESSEE EXPLAINED BEFORE A.O. THAT THESE EXPENSES WERE INCURRED UPON THE STAFF FOR THE PURPOSE OF BUSINESS AND EXPLANATION OF ASSESSEE HAVE NOT BEEN DISPUTED BY THE A.O. THE NATURE OF THESE EXPENSES APPARENTLY SHOWS THAT SAME HAVE BEEN INCURRED DURING THE OFFICIAL DUTIES BY THE STAFF IN THE COURSE OF EXECUTION OF THE PROJECT. THE NATURE OF BUSINESS OF THE ASSESSEE CLEARLY SHOW THAT MANY STAFF SHALL HAVE TO BE PRESENT AT THE PROJECT AT DIFFERENT PLACES AND LEVELS. THE PROJECT IS EXECUTED IN ODD HOURS ALSO, THEREFORE, IF SMALL AMOUNT HAVE BEEN INCURRED ON STAFF FOR THE PURPOSE OF BUSINESS WHICH HAVE NOT BEEN DISPUTED BY THE A.O. IT WOULD NOT FALL WITHIN THE DEFINITION OF PERQUISITE FOR THE STAFF. IT MAY ALSO BE NOTED HERE THAT THE SPECIAL AUDITOR HAS ADMITTED THAT THESE ARE ALLOWABLE AS BUSINESS EXPENSES, THEREFORE, IT SHOULD HAVE BEEN POINTED OUT IN THE ORDERS AS TO HOW THESE WERE PERQUISITE IN NATURE. IT IS ALSO OBSERVED BY THE SPECIAL AUDITOR THAT THESE PERQUISITES SHOULD BE ADDED TO THE SALARY OF THE EMPLOYEES FOR COMPUTATION OF TDS LIABILITY. IN SECTION 40(A)(IA) THE WORD SALARY HAVE NOT BEEN 97 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. USED SO AS TO MAKE DISALLOWANCE ON ACCOUNT OF NON- DEDUCTION OF TDS. THEREFORE, THERE WAS NO JUSTIFICATION FOR THE AUTHORITIES BELOW TO MAKE ADHOC ADDITION OF RS.50 LAKHS. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. IN THE RESULT, GROUND NO.13 OF THE APPEAL OF ASSESSEE IS ALLOWED. 50. ON GROUND NO.14, THE ASSESSEE CHALLENGED THE ADDITION OF RS.90,29,913/- ON ACCOUNT OF MISMATCHING BALANCE CONFIRMATION OF VENDOR M/S. SB PROTECH. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS MENTIONED THAT ASSESSEE HAS CORRECTLY PAID THE AMOUNT OF RS.90,29,913/- AGAINST THE DULY APPROVED BILL OF THE VENDOR AND RIGHTLY BOOKED THE EXPENSES. THE A.O. HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE AS THE VENDOR HAS GIVEN CONFIRMATION WITHOUT SHOWING CERTAIN BILLS AND SPECIAL AUDITOR HAS ALSO MENTIONED THIS FACT IN THE SPECIAL AUDIT REPORT. DURING APPELLATE PROCEEDINGS, ASSESSEE FILED WRITTEN SUBMISSIONS AND CLAIMED THAT COMPLETE COPY OF BILLS, PAYMENT VOUCHERS AND BANK STATEMENTS TO PROVE ITS GENUINENESS WAS PRODUCED BEFORE THE SPECIAL AUDITOR AND 98 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CONFIRMATION AS FRESH EVIDENCE WAS ALSO FILED. FROM PERUSAL OF THE CONFIRMATION FILED BY THE ASSESSEE, IT WAS GATHERED THAT THIS CONFIRMATION IS DIFFERENT FROM THE VENDOR WHICH WAS GIVEN TO THE SPECIAL AUDITOR. THE LD. CIT(A) NOTED THAT IT IS APPARENT THAT IT IS NOT CLEAR FROM THE RECONCILIATION WHY THE BILL WAS NOT ENTERED FOR THE AMOUNT OF RS.71,99,538/- AND WHY ADVANCE TDS OF RS.44,18,253/- WAS NOT BOOKED BY THE VENDOR. SUCH A VAGUE RECONCILIATION DESERVE TO BE REJECTED. FURTHER FRESH EVIDENCE WAS NOT FILED ALONG WITH APPLICATION UNDER RULE 46A. THE LD. CIT(A), THEREFORE, FOUND THAT DIFFERENCE HAS NOT BEEN RECONCILED. IT WAS ALSO NOTED THAT AS PER SAR THE PARTY HAS NOT BOOKED TDS AMOUNT OF RS.17,04,402/-, WORK ORDER OF RS.80,21,028/- AS WELL AS ADVANCE SHOWN BY THE ASSESSEE OF RS.90,29,913/-. HENCE, THIS ADDITION WAS CONFIRMED BY THE LD. CIT(A). 51. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE PRODUCED COMPLETE COPIES OF BILLS, PAYMENT VOUCHERS AND BANK STATEMENTS TO PROVE ITS GENUINENESS OF THE BOOKS AND RECORDING OF THE LIABILITY. 99 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. LATEST CONFIRMATION WAS ALSO FILED. COPIES OF THE SAME ARE FILED AT PB-A2-474 TO 479. HE HAS SUBMITTED THAT IN THE ASSESSMENT ORDER ADDITION HAS BEEN MADE FOR FAILURE TO PROVIDE VENDORS BALANCE CONFIRMATION WHEREAS APPELLATE ORDER UPHOLDS THE SAID ADDITION ON THE GROUND THAT PAYMENT OF THIS AMOUNT WHICH IS BOOKED BY THE ASSESSEE AS EXPENSES IS NOT SUPPORTED BY CONFIRMATION FROM THE VENDOR. A CLOSE EXAMINATION OF THE RECONCILIATION APPEARING ON PAGE-479 OF PB-A2 WOULD REVEAL THAT INVOICE OF RS.71,99,538/- RAISED BY THE VENDOR M/S. SB PROTECH PVT. LTD., HAVE BEEN BOOKED BY THE ASSESSEE IN NEXT FINANCIAL YEAR ON JUNE, 2014. THEREFORE, THE CIT(A) HAVE FELL IN ERROR IN HOLDING THAT PURCHASES HAVE BEEN BOOKED BY THE HIGHER AMOUNT. THE ASSESSEE HAS RECONCILED ALL THE FIGURES. 52. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE WAS AN DIFFERENCE IN THE ACCOUNT OF PARTY AND FRESH EVIDENCE WAS NOT FILED AS PER I.T. RULES. THERE WERE DIFFERENCE IN TWO CONFIRMATIONS. THEREFORE, MATTER REQUIRES FRESH INVESTIGATION /EXAMINATION AT THE LEVEL OF THE A.O. 100 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 53. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN ISSUE OF MISMATCH IN THE ACCOUNT OF THE ASSESSEE AND THE VENDOR. THE ASSESSEE PRODUCED COPIES OF BILLS AND VOUCHERS ALONG WITH BANK STATEMENTS TO EXPLAIN THAT ENTRIES IN THE BOOKS OF ACCOUNT OF ASSESSEE ARE CORRECT. HOWEVER, THE PARTY HAS FILED THE CONFIRMATION IN WHICH THERE WAS A DIFFERENCE BUT ULTIMATELY ENTRIES HAVE BEEN MADE IN THE SUBSEQUENT YEAR. THE EXPLANATION OF ASSESSEE APPEARS TO BE PLAUSIBLE TO SHOW THAT THERE MAY NOT BE ANY MISMATCH, BUT, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION BECAUSE OF THE TWO DIFFERENT CONFIRMATIONS HAVE BEEN FILED BY THE PARTY. IN CASE, ANY NEED THE A.O. COULD HAVE ALSO EXAMINED THE CONCERNED PARTY FOR VERIFICATION OF ALL THE ENTRIES IN THE BOOKS OF ACCOUNT OF ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE MATTER IN ISSUE TO THE FILE OF A.O. WITH A DIRECTION TO RE-DECIDE THIS ISSUE ON THE BASIS OF THE DOCUMENTARY EVIDENCES PRODUCED BY ASSESSEE AND IN CASE THERE IS ANY NEED A.O. MAY SUMMON THE PARTY AND EXAMINE THEIR RECORDS OR RECORD THEIR STATEMENTS IN 101 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ORDER TO COME TO THE JUST DECISION IN THE MATTER. A.O. SHALL GIVE REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, GROUND NO.14 OF THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 54. ON GROUND NO.15, THE ASSESSEE CHALLENGED THE ADDITION OF RS.8,66,87,701/- ON ACCOUNT OF MISMATCH IN THE BALANCE OF CONFIRMATIONS UNDER SECTION 68 OF THE I.T. ACT, 1961. THE REVENUE ON GROUND NO.3 ON THE SAME ISSUE CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.117.86 CRORES OUT OF SUNDRY CREDITORS UNDER SECTION 68 OF THE I.T. ACT, 1961. 55. THE A.O. HAS MADE THE ADDITION OF RS.126.53 CRORES AS THE SPECIAL AUDITOR MENTIONED AT PAGE-180 AS PER ANNEXURE-30 THAT ASSESSEE IS NOT IN THE PRACTICE OF TAKING VENDOR BALANCE CONFIRMATION AND THIS COULD NOT BE PRODUCED BEFORE THE SPECIAL AUDITOR DURING THE COURSE OF SPECIAL AUDIT EVEN AFTER GIVING THE EXTENDED TIME TO THE ASSESSEE. THE A.O. HAS ALSO MENTIONED THAT VARIOUS CONFIRMATIONS WHICH RELATES TO THE FOREIGN PARTIES COULD ALSO HAVE BEEN ARRANGED BY THE 102 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ASSESSEE BY EMAIL AS THESE CONFIRMATIONS COULD NOT BE PROVIDED BEFORE SPECIAL AUDITOR OR DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. MADE THE AFORESAID ADDITION. 56. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND FILED AN APPLICATION UNDER RULE 46A OF I.T. RULES MENTIONING THAT SPECIAL AUDITOR HAS DIRECTLY ASKED CONFIRMATION FROM 300 PARTIES AND IT WAS RECEIVED FOR ONLY 44 PARTIES AND NO SUGGESTION OF THE ADDITION WAS MADE BY THE SPECIAL AUDITOR ON THIS ACCOUNT AS THE RECONCILIATION OF BALANCE MISMATCH HAS BEEN GIVEN BEFORE THE SPECIAL AUDITOR. HOWEVER, THE A.O. MADE THE ABOVE ADDITION. THE ASSESSEE HAS MENTIONED THAT NOW THE CONFIRMATION OF RS.121.98 CRORES WAS OBTAINED BY THE ASSESSEE WHICH IS SUBMITTED ALONG WITH APPLICATION UNDER RULE 46A OF THE I.T. RULES WHICH COULD NOT BE SUBMITTED BEFORE A.O. AS THESE ARE RECEIVED AFTER FRAMING OF THE ASSESSMENT. THESE CONFIRMATIONS WERE SENT TO THE A.O. FOR REMAND REPORT WHICH WAS RECEIVED BY THE LD. CIT(A). IN THE REMAND REPORT, A.O. HAS MAINLY OBJECTED THE ADMISSION OF THE FRESH EVIDENCE AT THE APPELLATE STAGE. HOWEVER, DISCREPANCIES NOTICED IN THE 103 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CASE OF SOME OF THE PARTIES WERE MENTIONED BY THE A.O. ON MERITS ALSO. THE ASSESSEE FILED REJOINDER TO THE REMAND REPORT. AS THE A.O. HAS NOT GIVEN REPLY ON MERIT ON ALL THE CONFIRMATIONS, THE REPORT FROM THE A.O. WAS SOUGHT. THE A.O. HAS GIVEN HIS COMMENTS ON ALL THE 36 CONFIRMATIONS. THE ASSESSEE ALSO FILED REJOINDER. THE LD. CIT(A) CONSIDERING THE CONFIRMATION OF THE RECORD, REMAND REPORT AND REJOINDER OF THE ASSESSEE, CONSIDERED EACH AND EVERY ASPECT AND SUSTAINED THE ADDITION OF RS.8,66,87,701/- AND DELETED THE REMAINING SUBSTANTIAL ADDITION. THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL ON THIS GROUND. THE FINDINGS OF THE LD. CIT(A) AT PAGES 143 TO 148 OF THE APPELLATE ORDER IN PARAS 22.18.2 (A) TO (F) ARE REPRODUCED AS UNDER : (A) IN THE CASE OF THE SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT CO. LTD., THE ASSESSING OFFICER IN THE REMAND REPORT HAS MENTIONED THAT AS PER BOOKS OF THE APPELLANT, THE BALANCE OF THIS COMPANY IS OF RS.74,09,78,381/- WHEREAS AS PER THE CONFIRMATION GIVEN BY THE VENDOR THIS IS RS.72,64,59,354/- AND THERE IS A DIFFERENCE OF 104 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. RS.1,45,19,027/-. HOWEVER, THE ASSESSING OFFICER HAS CLAIMED THAT ALL THE BILLS HAVE NOT BEEN ATTACHED WITH THE CONFIRMATION, THE CONFIRMATION OF THE PARTY IS NOT ORIGINAL AND THE RECONCILIATION WHICH IS GIVEN IS NEITHER SIGNED NOR STAMPED AND NOT VERIFIED BY THE VENDOR OR BY THE APPELLANT. THE ASSESSING OFFICER HAS ALSO MENTIONED THAT THE APPELLANT HAS TO TAKE RBI RATE FOR CONVERSION OF FOREIGN CURRENCY AS ON 31/03/2014 HENCE, THE RATE GIVEN IN THE RECONCILIATION IS ALSO NOT ACCEPTABLE ON MERIT. WHEN THIS WAS CONFRONTED TO THE APPELLANT IN THE REJOINDER 19/03/2018, THE APPELLANT HAS GIVEN THE RBI RATE AS ON 31/03/2014 OBTAINED FROM THE WEBSITE WHICH IS RS.60.998/- AND NOT RS.59.92/- AS TAKEN BY THE ASSESSING OFFICER. AS THE ASSESSING OFFICER HAS OBJECTED THAT NO BILLS AND VOUCHERS REGARDING THE PURCHASE OF MACHINERY FROM SHANGHAI PUDONG WAS GIVEN BY THE APPELLANT, DURING THE COURSE OF APPELLATE 105 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. PROCEEDINGS, THE APPELLANT WAS ASKED TO PRODUCE THE INVOICES AND THE BILL OF ENTRIES OF CUSTOM CLEARANCE OF THIS PARTY. REGARDING, THE SHORTAGE OF BILLS THE APPELLANT HAS MENTIONED THAT THESE BILLS AND VOUCHERS HAVE ALREADY BEEN GIVEN TO THE ASSESSING OFFICER AND SPECIAL AUDITOR AT THE TIME OF SPECIAL AUDIT AND THESE VOUCHERS ARE AGAIN GIVEN DURING THE COURSE OF APPELLATE PROCEEDINGS BY A SEPARATE LETTER DATED 19/03/2018 MENTIONED SUPRA IN PARA 16. AS THE APPELLANT HAS GIVEN THESE INVOICES ALONG WITH THE CUSTOM CLEARANCE AND NO INQUIRY WAS CONDUCTED BY THE ASSESSING OFFICER REGARDING THE VERIFICATION OF THE SAME AND THE SPECIAL AUDITOR HAS ALSO GIVEN HIS OBSERVATION IN THE SPECIAL AUDIT AGAINST THE GENUINENESS OF THIS TRANSACTION, A LETTER WAS WRITTEN TO THE COMMISSIONER OF CUSTOM (IMPORT) FOR VERIFICATION OF THESE INVOICES WHICH WAS GIVEN BY THE APPELLANT ALONG WITH THE BILLS OF ENTRIES VIDE LETTER 106 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. DATED 22/03/2018. IN RESPONSE, THE COMMISSIONER OF CUSTOMS HAVE CONFIRMED ALL THESE TRANSACTIONS BY E-MAIL AS WELL AS BY HIS LETTER RECEIVED IN THIS OFFICE BY SPEED POST AND SCREEN SHORTS OF ALL THE BILLS OF ENTRIES PERTAINING TO THESE INVOICES HAVE BEEN GIVEN. THE RESULT OF THIS INQUIRY IS ALSO INFORMED TO THE ASSESSING OFFICER FOR VERIFICATION DURING THE COURSE OF APPELLATE PROCEEDINGS. FROM THIS, IT IS GATHERED THAT THE CLAIM MADE BY THE APPELLANT REGARDING THE IMPORT OF MACHINERY AND RELATED SPARE PARTS FROM SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT CO. LTD. CANNOT BE DOUBTED AND THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.74.09 CRORES ON THIS ACCOUNT DESERVES TO BE DELETED. THIS IS ALSO RELEVANT THAT THE APPELLANT HAS CLAIMED THAT THE EXPENSE OF THESE MACHINERIES WHICH WAS IMPORTED FROM SHANGHAI PUDONG MACHINERY COMPLETE EQUIPMENT CO. LTD. ARE 107 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. BOOKED UNDER THE HEAD FIXED ASSET IN THE BOOKS OF THE APPELLANT ON WHICH THE APPELLANT HAS ONLY CLAIMED DEPRECIATION DURING THE YEAR UNDER APPEAL. ON THIS ACCOUNT ALSO THE ASSESSING OFFICER HAS ERRED IN MAKING THE ADDITION OF RS.74,09,78,381.9 AS THE APPELLANT HAS ONLY CLAIMED DEPRECIATION AND NOT DEBITED ENTIRE AMOUNT UNDER REVENUE HEAD. (B) FURTHER IN THE CASE OF DISCREPANCIES MENTIONED BY THE ASSESSING OFFICER FOR SL. NO. 1 & 2 THE DIFFERENCE OF RS.3,36,19,936.54 (1,45,19,027.58 + 1,91,00,908.96) IS ONLY FOR RBI RATE WHICH IS TAKEN BY ASSESSING OFFICER AS RS.59.92 AND BY APPELLANT AS RS.60.998. HOWEVER, THE RATE TAKEN BY THE APPELLANT IS VERIFIED FROM THE WEBSITE OF RBI AND THE RATE OF RBI IS RS.60.998/- FROM 28/03/2014 TO 31/03/2014 AND ON THIS ACCOUNT ALSO THERE IS NO DIFFERENCE IN THE RATE AS GIVEN BY THE ASSESSING OFFICER IN THE REMAND REPORT DATED 09/01/2018 MENTIONED SUPRA IN PARA 7. HENCE, NO ADDITION IS 108 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CALLED FOR ON ACCOUNT OF RATE DIFFERENCE OF THESE PARTIES AND THE APPELLANT WILL GET RELIEF ON THIS ACCOUNT. (C) IN THE REMAND REPORT DATED 13/03/2018, THE ASSESSING OFFICER HAS GIVEN REPLY ON MERIT OF ALL THE 36 PARTIES AND DISCREPANCIES HAVE BEEN POINTED OUT. IN THIS LIGHT, REMAND REPORT OF THE ASSESSING OFFICER GIVEN IN ANNEXURE-A MENTIONED SUPRA IN PARA 12, THE CONFIRMATIONS OF ALL THE PARTIES AND THE REJOINDER OF THE APPELLANT MENTIONED SUPRA IN PARA 15 ARE ANALYZED. HOWEVER, FROM THE DETAILS GIVEN BY THE ASSESSING OFFICER AT SL.NO. 1 TO 36 IN THE REMAND REPORT IN ANNEXURE A, IT IS GATHERED THAT APPELLANT HAS SHOWN LESS CREDIT BALANCE THAN SHOWN BY THE VENDORS IN THE FOLLOWING CASES : SL.NO. NAME OF THE VENDOR AMOUNT AS PER BOOKS OF THE APPELLANT AMOUNT AS PER BOOKS OF VENDOR DIFFERENCE 1. ULTRATECH CEMENT 52242995.04 65070329 (12,827,333.96) 2. L & T GEOSTRUCTURE LLP 28614654 118644050 (90,029,396.00) 3. BASF INDIA LTD (NEW DELHI) 18075892.1 20573772 (2,497,879.90) 4. SHREE GOPALA GRIT CO. 15122800.7 15713472.9 (590,672.20) 5. ORIENTAL FERRO ALLOYS P.LTD. 7097972.9 7097973 (0.10) 6. A.S. TRADERS 4509360.4 4847009 (337,648.60) 7. CONDAT CHINA CHEMICALS CO.LTD. 3959956 3959956.06 (0.06) 8. DEXTRA INDIA P.LTD. 4120071.4 4506134 (386,062.60) 9. ADOADDITIVES TECHNOLOGIES P. LTD. 3671971.8 3785928.84 (113,957.04) 10. VEEJAY SERVICE STATION 3247959 6960237.99 (3,712,278.99) 11. SHIVAM MINERAL SUPPLIERS 283081.7 43670258 (1,536,212.30) 12. MANGLAM ENTERPRISES 2654598.2 3449577 (794,978.80) 13. COMPETENT ENGINEERING CO. 2514128.2 2944232 (430,103.80) 14. K3G ISPAT P.LTD. 2504811 2960613 (455,802.00) 109 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 15. GARG ROADLINES 2465356.2 4226838 (1,761,481.80) 16. S.B.HEAVY EQUIPMENTS 2395017 3891491 (1,496,474.00) 17. MINA CONCRETE SYSTEMS P. LTD. 2047380 2758965 (711,585.00) 18. METROPOLITAN DISTRIBUTORS PVT. LTD. 2046323.1 2292788.18 (246,465.08) 19. GEMINI EQUIPMENTS & RENTALS P.LTD. 1459589 3010404 (1,550,815.00) 20. G.I.GROUP NETWORK SECURITY TECHNOLOGY P.LTD. 1403573 1850822 (447,249.00) 21. JINDAL STEEL & POWER LTD. (NEW DELHI) 116260561 135032265.4 (18,771,704.40) 22. POPAN TRADING CO. 35267142.9 35267143 (0.10) 23. NARAIN ENTERPRISES 6098876.7 6098877 (0.30) 24. A.P. INDUSTRIES 4053035 4357431 (304,396.00) 25. HERRENKNECH INDIA P. LTD. (CHENNAI) 2796238 11336685 (8,540,447.00) 26. SHREE SHYAM ELECTROCRAFT P. LTD. 2029677.5 2092732 (63,054.50) TOTAL 329490752.8 477096751.4 HENCE, THE AMOUNT OF RS.32,94,90,752.8 WHICH IS ADDED BY THE ASSESSING OFFICER ON ACCOUNT OF THESE VENDORS DESERVE TO BE DELETED AS THE CREDIT BALANCE SHOWN BY THE APPLICANT IS LESS THAN THE BALANCE SHOWN BY THESE VENDORS IN THE CONFIRMATION. (D) FURTHER, THE ASSESSING OFFICER IN ANNEXURE A AND ANNEXURE D IN THE REMAND REPORT DATED 13/03/2018 HAS MENTIONED ABOUT THE DISCREPANCIES IN THE CONFIRMATION LETTERS SUCH AS BILLS ARE NOT ATTACHED, THE COPY OF LEDGER IS NOT ATTACHED, PAN AND ADDRESS IS NOT GIVEN AND RECONCILIATION AS WELL AS THE LEDGERS ARE NOT STAMPED OR SIGNED. THESE DISCREPANCIES ARE NOT 110 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. REPEATED HERE FOR THE SAKE OF BREVITY. WHEN THIS HAS BEEN GIVEN TO THE APPELLANT, IN THE REJOINDER DATED 19/03/2018, THE APPELLANT HAS GIVEN THE REPLY THAT RECONCILIATION IS NOT SIGNED BY THE APPELLANT, WE INDICATE TO SIGN/STAMP ALL THE RECONCILIATIONS AND CONSIDER THAT THESE ARE SIGNED AND STAMP BY THE APPELLANT. SURPRISINGLY SUCH STATEMENT ON THE PART OF THE APPELLANT IS NOT ACCEPTABLE AS THE MATTER OF RECONCILIATION OF THE VENDORS ACCOUNT IS RAISED SINCE THE PERIOD OF SPECIAL AUDIT WHICH WAS NOT DONE BY THE APPELLANT. FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO THE APPELLANT HAS FAILED TO DO THIS BEFORE THE ASSESSING OFFICER. NOW, WITH THE APPLICATION UNDER RULE 46A THESE ARE FILED AS ADDITIONAL EVIDENCES AND THE DIFFERENCES IN THE ACCOUNT IS RECONCILED BY THE APPELLANT SHOWING COMPUTERIZED LEDGER ACCOUNT AS PER HIS BOOKS AND UNLESS THIS RECONCILIATION STATEMENT IS SIGNED BY THE APPELLANT THIS HAS NO 111 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. EVIDENTIARY VALUE. THE APPELLANT HAS ALSO CONFIRMED THAT WHENEVER VENDOR HAS ENCLOSED LEDGER ACCOUNT ALONG WITH CONFIRMATION THIS WAS FORWARDED OTHERWISE THE LEDGER ACCOUNT AS PER BOOKS OF THE APPELLANT IS GIVEN. THIS IS NOT ACCEPTABLE AS IN ALL THE CONFIRMATIONS OF THE VENDORS, IT IS MENTIONED THAT LEDGER IS ENCLOSED WHICH IS NOT FURNISHED BY THE APPELLANT REASONS BEST KNOWN TO THEM. IN THIS LIGHT, THE RECONCILIATION OF THE APPELLANT IN THE CASE OF FOLLOWING PARTIES CANNOT BE ACCEPTED AS IT SUFFERS FROM VARIOUS DISCREPANCIES WHICH COULD NOT BE EXPLAINED BY THE APPELLANT EVEN AT APPELLATE STAGE. THE DETAILS ARE AS BELOW : S.NO NAME OF THE VENDOR AMOUNT AS PER BOOKS OF THE APPELLANT AMOUNT AS PER BOOKS OF VENDOR DIFFERENCE 1. JSW STEEL LTD. 47302834.2 208238.06 26479028.20 2. AMBERG. TTI ENG. PVT. LTD. 14349402 486830 13862572 3. TONDON CONSULTANTS PVT. LTD. 38,74,006 3864995 9011 4. JET-FIRST INTL. LOG PVT. LTD. 35,92,539 3581777.92 10761.08 5. CT NOVA EQUIPMENT PVT. LTD. 14,98,465 5,81,073 9,17,392 TOTAL 7,06,17,246.20 87,22,913.98 4,12,78,764.28 112 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. IN THE LIGHT OF THE ABOVE, THE EXCESS CREDIT SHOWN BY THE APPELLANT AS PER THE CONFIRMATION OF THE VENDORS OF RS.4,12,78,764.28 DESERVES TO BE CONFIRMED AS UNEXPLAINED CREDIT U/S68 OF THE ACT. (E) FURTHER THE APPELLANT HAS FILED THE CONFIRMATION FOR THE AMOUNT OF RS.121,98,95,398/.- OUT OF RS.126,53,04,335/.-, HENCE, THE DIFFERENCE OF RS.4,54,08,937/- (126,53,04,335 121,98,95,398) FOR WHICH NO CONFIRMATION COULD BE GIVEN BY THE APPELLANT EVEN AT APPELLATE STAGE DESERVES TO BE CONFIRMED. (F) IN THIS LIGHT, THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.126,53,04,335/- IS RESTRICTED TO RS.8,66,87,701.28 (4,12,78,764.28 + 4,54,08,937) AND THE APPELLANT WILL GET RELIEF ACCORDINGLY. 57. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS SUBMITTED THAT ASSESSEE IS IN A POSITION TO RECONCILE THE DIFFERENCE OF RS.4,12,78,764/- ON ACCOUNT OF DIFFERENCE BETWEEN THE BALANCE AS PER BOOKS OF THE ASSESSEE AND 113 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. BALANCES AS PER BOOKS OF THE RESPECTIVE VENDORS AS MENTIONED IN PARA (D) SUPRA. HE HAS ALSO SUBMITTED THAT AS REGARDS NON-FILING OF THE CONFIRMATIONS OF VARIOUS VENDORS FOR A SUM OF RS.4,54,08,937/- THE SAME CAN ALSO BE FILED. HE HAS SUBMITTED THAT APART FROM THE ABOVE SUBMISSIONS, THE PROVISIONS OF SECTION 68 CANNOT BE APPLIED IN THE CASE OF TRADE CREDITORS. IT NEEDS TO BE APPRECIATED THAT OUT OF TOTAL CREDITORS AGGREGATING TO RS.126.53 CRORES, CONFIRMATIONS TO THE EXTENT OF RS.117.86 CRORES HAVE BEEN FILED. THE A.O. HAVING ACCEPTED THE PURCHASES OF THE ASSESSEE, EVEN IF CERTAIN PARTIES DID NOT FURNISH CONFIRMATIONS WOULD NOT MEAN THAT IT WAS CONCEALED INCOME OR DEEMED INCOME OF THE ASSESSEE WHICH COULD BE SUBJECTED TO TAX UNDER SECTION 68 OF THE I.T. ACT, 1961. HE HAS SUBMITTED THAT SINCE PURCHASES HAVE BEEN DISCLOSED BY ASSESSEE FROM VENDORS AND SUBSTANTIAL PURCHASES HAVE BEEN CONFIRMED, THEREFORE, NO ADDITION UNDER SECTION 68 COULD BE MADE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS : (I) ZAZSONS EXPORTS LTD., VS. CIT 88 TAXMANN.COM 617 (ALLD.) (HC) 114 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. (II) RAGHUBIR SINGH VS. DCIT 83 TAXMANN.COM 187 (III) DCIT VS. DIVINE INTERNATIONAL 16 TAXMANN.COM 262 (IV) BHAGYANAGAR OIL INDUSTRIES VS. ITO ITA.NO.1178/HYD/2012 (HYDERABAD (BENCH). (V) ITO VS. SMT. UMADEVI SHANKARAPPA THIMMAIAH 49 TAXMANN.COM 496. 57.1. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT LD. CIT(A) CORRECTLY DELETED THE SUBSTANTIAL ADDITION AND ON THE PROPOSITION OF THE ABOVE DECISIONS, THE LD. CIT(A) SHOULD HAVE DELETED THE REMAINING ADDITION AS WELL. 58. ON THE OTHER HAND, THE LD. D.R. RELIED UPON THE ORDERS OF THE LD. CIT(A) AS REGARDS THE APPEAL OF THE ASSESSEE AND RELIED UPON THE ORDER OF THE A.O. FOR DELETION OF THE ADDITION. HE HAS SUBMITTED THAT THE A.O. MADE THE ADDITIONS BECAUSE THE ACCOUNTS COULD NOT BE RECONCILED BY THE ASSESSEE AND NO CONFIRMATION HAVE BEEN FILED BY THE ASSESSEE, THEREFORE, APPEAL OF ASSESSEE HAS NO MERIT, SAME MAY BE DISMISSED. HOWEVER, AS REGARDS THE DEPARTMENTAL APPEAL, HE HAS SUBMITTED THAT A.O. DID NOT GET PROPER 115 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. OPPORTUNITY TO EXAMINE THE SUNDRY CREDITORS, THEREFORE, MATTER MAY BE REMANDED TO THE A.O. FOR FRESH VERIFICATION AND INVESTIGATION. 59. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FINDINGS OF THE LD. CIT(A) ARE REPRODUCED ABOVE IN WHICH LD. CIT(A) HAVE DISCUSSED EACH AND EVERY ITEM AND VERIFIED THE FACTS FROM THE RECORD. IT MAY ALSO BE NOTED HERE THAT ASSESSEE FILED APPLICATION UNDER RULE 46A OF THE I.T. RULES BEFORE THE LD. CIT(A) ALONG WITH CONFIRMATIONS FROM THE PARTIES. THE LD. CIT(A) CONSIDERED THESE ADDITIONAL EVIDENCES AS PER RULES AND THE REVENUE IS NOT IN APPEAL, BUT, CHALLENGED THE FINDING OF FACT RECORDED BY THE LD. CIT(A) AFTER CONSIDERING THE ADDITIONAL EVIDENCES. NO GROUND HAVE BEEN RAISED IN THE DEPARTMENTAL APPEAL TO CHALLENGE THE REQUEST OF THE ASSESSEE FOR FILING ADDITIONAL EVIDENCES AT APPELLATE STAGE. EVEN OTHERWISE, WHATEVER ADDITIONAL EVIDENCES WERE CONSIDERED BY THE LD. CIT(A), WERE SENT TO THE A.O. FOR FILING THE REMAND REPORT. THE A.O. OBJECTED TO THE ADMISSION OF THE ADDITIONAL EVIDENCES AND ALSO SUBMITTED A REPLY ON MERIT. THEREFORE, THERE IS A SUFFICIENT COMPLIANCE OF RULE 46A IN THE 116 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. MATTER WHICH IS ALSO NOT IN CHALLENGE IN THE DEPARTMENTAL APPEAL. THE LD. CIT(A) CONSIDERED EACH AND EVERY CASE SPECIFICALLY AND IN THE CASE OF SHANGHAI PUDONG, CONFIRMATION WAS GIVEN WHICH IS SUPPORTED BY BILLS, INVOICES AND BILLS OF ENTRIES OF CUSTOM CLEARANCE. COMMISSIONER OF CUSTOMS (IMPORT) HAS ALSO VERIFIED ALL THE ENTRIES AND CONFIRMED ALL THE TRANSACTIONS AS GENUINE BETWEEN THE PARTIES IN WHICH NO DOUBTS HAVE BEEN RAISED BY THE A.O. THEREFORE, THERE WAS NO BASIS TO CONSIDER THE DISCREPANCIES IN THAT CASE, THEREFORE, ADDITION OF RS.74.09 CRORE WAS CORRECTLY DELETED. FURTHER, ASSESSEE HAS CLAIMED DEPRECIATION ONLY ON THIS ITEM, THEREFORE, THERE COULD NOT BE ANY DISCREPANCY IN THEIR ACCOUNT. AS REGARDS OTHER DIFFERENCE OF RS.3.36 CRORES, IT WAS MAINLY ON ACCOUNT OF RBI RATE WHICH HAVE BEEN CLARIFIED BY THE RBI THROUGH THEIR WEBSITE, IN WHICH, NO DISCREPANCY HAVE BEEN POINTED OUT BY THE LD. D.R. THE LD. CIT(A) HAS ALSO CONSIDERED THE CASES OF 26 VENDORS SPECIFICALLY IN HIS FINDINGS AND FOUND THAT CREDIT BALANCE SHOWN BY THE ASSESSEE WAS LESS THAN THE BALANCE SHOWN BY THESE VENDORS IN THEIR CONFIRMATIONS. THIS FACT IS ALSO NOT 117 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. DISPUTED THROUGH ANY EVIDENCE OR MATERIAL ON RECORD. ON THE BASIS OF THESE FINDING OF FACT RECORDED BY THE LD. CIT(A), WE ARE OF THE VIEW THAT LD. CIT(A) CORRECTLY DELETED THE SUBSTANTIAL ADDITION. NO MATERIAL HAVE BEEN BROUGHT ON RECORD TO CONTRADICT THE FINDING OF FACT RECORDED BY THE LD. CIT(A). THEREFORE, DEPARTMENTAL APPEAL HAS NO MERIT AND GROUND NO.3 OF THE APPEAL OF THE DEPARTMENT IS DISMISSED. 59.1. AS REGARDS APPEAL OF ASSESSEE, LD. CIT(A) FOUND THAT ASSESSEE COULD NOT RECONCILE DIFFERENCE OF RS.4.12 CRORES AND FOR THE REST OF THE AMOUNT OF RS.4.54 CRORES, NO CONFIRMATION HAVE BEEN FILED. THE LD. D.R, THEREFORE, RIGHTLY CONTENDED THAT SINCE DIFFERENCE COULD NOT BE RECONCILED AND NO CONFIRMATION HAVE BEEN FILED, THEREFORE, NO INTERFERENCE IS REQUIRED IN THE MATTER. HOWEVER, LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON SEVERAL DECISIONS NOTED ABOVE IN WHICH IT WAS HELD THAT WHEN ASSESSEE DISCLOSED PURCHASES FROM THE VENDORS, PART OF WHICH HAVE NOT BEEN CONFIRMED BY THEM, NO ADDITION UNDER SECTION 68 OF THE I.T. ACT, COULD BE MADE. HOWEVER, NO SUCH PLEA WAS TAKEN BEFORE THE AUTHORITIES BELOW AND NO SUCH ISSUE HAVE BEEN DECIDED BY 118 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE AUTHORITIES BELOW, THEREFORE, THIS ISSUE REQUIRES RECONSIDERATION AT THE LEVEL OF THE A.O. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW TO THE EXTENT OF ADDITION SUSTAINED BY THE LD. CIT(A) OF RS.8,66,87,704/- AND RESTORE THIS ISSUE TO THE FILE OF A.O. WITH A DIRECTION TO RE- DECIDE THIS ISSUE IN THE LIGHT OF DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE AS PER LAW. A.O. SHALL GIVE REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, GROUND NO.15 OF THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 60. ON GROUND NO.16, ASSESSEE CHALLENGED THE ADDITION OF RS.34 LAKHS. THE A.O. MADE THIS ADDITION ON THE GROUND THAT INVESTMENT SHOWN BY THE ASSESSEE FROM ITS MEMBER L & T IS RS.13 CRORES, WHEREAS, INVESTMENT SHOWN BY THE L & T IN J.V. IS OF RS.12.66 CRORES AND ON THIS ACCOUNT THE SPECIAL AUDITOR HAS PROPOSED THE ADDITION OF RS.34 LAKHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS EXPLAINED THAT ASSESSEE HAS RECEIVED THE AMOUNT OF RS.13 CRORES AS CONTRIBUTION TOWARDS WORKING CAPITAL FROM L & T WHEREAS THE FIGURE OF RS.12.66 CRORES 119 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SHOWN IN THE RETURN OF L & T IS THE INVESTMENT BY L & T IN J.V. WHICH IS NOT ACCEPTED BY THE A.O. THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE THE LD. CIT(A) AND HAS TAKEN A NEW PLEA THAT THE DIFFERENCE OF RS.34 LAKHS IS SHOWN UNDER THE HEAD RECEIVABLES AND NO REASON TO THE SAME WAS GIVEN BY THE ASSESSEE. THE SPECIAL AUDITOR MENTIONED THAT THIS IS A FRESH EVIDENCE AND NO COMMENTS HAVE BEEN MADE IN THE AUDIT REPORT. THE A.O. ALSO IN THE REMAND REPORT DID NOT SUPPORT THE EXPLANATION OF ASSESSEE. IN THIS REGARD, THE CONFIRMATION GIVEN BY THE L & T WAS ALSO TAKEN INTO CONSIDERATION WHICH IS REPRODUCED IN THE APPELLATE ORDER (PB-2A-516) IN WHICH IT WAS EXPLAINED THAT AT HEAVY CIVIL WE ACCOUNT UJV PROFITS AND INVESTMENT UNDER NET ASSET METHOD. HENCE, WE HAVE CONSIDERED THE NET ASSET FROM UJV AS OUT INVESTMENT INSTEAD OF TOTAL AMOUNT FUNDED. THE DIFFERENCE BETWEEN THE AMOUNT FUNDED IN UJV AND NET ASSET IS GROUPED UNDER DUE TO FROM UJV UNDER CURRENT ACCOUNT . BIFURCATION OF SAME IS ALSO GIVEN. THE LD. CIT(A) DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND CONFIRMED THE ADDITION. 120 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 61. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO PB 138 TO 140 TO EXPLAIN THAT IF TWO AMOUNTS ARE TAKEN TOGETHER, IT WOULD GIVE A CORRECT FIGURE SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE OF THE EQUIVALENT AMOUNT AND THERE IS NO DIFFERENCE. THE L & T HAS FURNISHED CONFIRMATION ALONG WITH RECONCILIATION OF BOTH THE TWO BREAK- UP SHOULD BE VERIFIED BY THE A.O. 62. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT FRESH EVIDENCE SHOULD NOT BE ADMITTED AT THIS STAGE. 63. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE HAS FILED CONFIRMATION OF L & T BEFORE AUTHORITIES BELOW, COPY OF WHICH IS FILED IN THE PAPER BOOK AS WELL. IT IS REPRODUCED IN THE APPELLATE ORDER IN WHICH IN PARA 22.19.2 IN THE CONFIRMATION OF L & T, IT IS EXPLAINED THAT THE TOTAL AMOUNT OF RS.13 CRORES IS TWO BIFURCATIONS OF APPROX. RS.12.65 CRORES AND APPROX. RS.35 LAKHS. WHEN BOTH THE FIGURES ARE TAKEN TOGETHER THERE WOULD BE NO DIFFERENCE IN 121 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE INVESTMENT. THE LD. CIT(A) NOTED THAT IT WAS A NEW PLEA TAKEN BEFORE HIM, THEREFORE, ADDITION WAS CONFIRMED. THERE WERE NO BAR FOR THE ASSESSEE TO EXPLAIN THE ISSUE BY FILING CONFIRMATION OF THE DIFFERENCE. THEREFORE, THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE A.O. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF A.O. WITH A DIRECTION TO RE-DECIDE THIS ISSUE IN THE LIGHT OF CONFIRMATION FILED BY ASSESSEE FROM L & T TO EXPLAIN THE ABOVE ISSUE. A.O. SHALL VERIFY BREAK-UP OF THE AMOUNT IN QUESTION AS MENTIONED IN THE CONFIRMATION. A.O. SHALL GIVE REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, GROUND NO.16 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 64. ON GROUND NO.17, ASSESSEE CHALLENGED THE ADDITION OF RS.44,68,235/- ON ACCOUNT OF NOTIONAL INTEREST. THE A.O. MADE THIS ADDITION WHICH IS THE NOTIONAL INTEREST ON THE GROUND THAT ONE OF THE MEMBER OF JV I.E., L & T HAS PROVIDED INITIAL INVESTMENT OF RS.13 CRORES, WHEREAS THE CAPITAL CONTRIBUTION WHICH WERE REQUIRED TO BE MADE BY OTHER MEMBER SUCG OF RS.5,95,86,471/- HAS NOT BEEN 122 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. MADE. ON THIS, A.O. HAS CALCULATED 7.5% INTEREST WHICH COMES TO RS.44,68,235/- AS NOTIONAL INTEREST WHICH WERE DISALLOWED BY THE A.O. THE A.O. HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE FUND HAS TO BE GIVEN TO THE JV AS PER SUPERVISORY BOARD AS IT IS CLEARLY MENTIONED IN THE JV AGREEMENT THAT FUNDS SHALL BE MADE AVAILABLE IN PROPORTION BUT ONLY THE TIME AND MANNER WILL BE DECIDED BY THE SUPERVISORY BOARD. THE ASSESSEE CHALLENGED THIS ADDITION BEFORE THE LD. CIT(A) AND CLAIMED THAT ADDITION ON ACCOUNT OF NOTIONAL INTEREST IS NOT GOVERNED BY THE PROVISIONS OF THE ACT. THE LD. CIT(A) DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND CONFIRMED THE ADDITION AND DISMISSED THIS GROUND OF ASSESSEE. 65. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE FUNDS INFUSED FROM JV MEMBER WAS TO BE DECIDED BY THE SUPERVISORY BOARD AND IT WAS BETWEEN THE PARTIES WHEN SUCG WOULD BE BRINGING THEIR FUNDS. DISALLOWANCE OF INTEREST ON SUCH NOTIONAL HYPOTHESIS IS NOT 123 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. PERMISSIBLE AS PER PROVISIONS OF THE ACT. ON CLOSE EXAMINATION OF THE AUDITED P & L A/C WOULD REVEAL THAT ASSESSEE HAS IN FACT DECLARED A NEGATIVE EXPENDITURE OF RS.2.26 CRORES ON ACCOUNT OF INTEREST. THEREFORE, IN FACT, THE LOWER AUTHORITIES HAVE BROUGHT TO TAX OF NOTIONAL INCOME WHICH IS NOT PERMISSIBLE IN LAW AS IS HELD BY THE APEX COURT IN THE CASE OF CIT VS. GODHRA ELECTRICITY SUPPLY CO., 225 ITR 746 (SC). HE HAS REFERRED TO A1/26 IN SUPPORT OF THE ABOVE CONTENTION. 66. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT NET INTEREST COULD BE CONSIDERED IN THE MATTER. 67. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT SUSTAIN THE ORDERS OF THE AUTHORITIES BELOW. THE HONBLE GAUHATI HIGH COURT IN THE CASE B & A PLANTATION AND INDUSTRIES LTD., 242 ITR 22 (GAU.) HELD THAT THERE IS NO PROVISION IN INCOME TAX ACT EMPOWERING THE ITO TO INCLUDE IN THE INCOME OF THE ASSESSEE INTEREST WHICH WAS NOT DUE OR COLLECTED. THE HONBLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. 67 ITR 11 (SC) HELD THAT LAW DOES NOT OBLIGE 124 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. A TRADER TO MAKE MAXIMUM PROFIT. THE ASSESSEE EXPLAINED BEFORE THE AUTHORITIES BELOW THAT IT IS FOR THE SUPERVISORY BOARD AS PER JV AGREEMENT TO SEE THAT FUNDS ARE MADE AVAILABLE BY BOTH THE MEMBERS OF THE JV. THE ENTIRE PROCEEDINGS ARE SUPERVISED BY THE SUPERVISORY BOARD, THEREFORE, MERELY BECAUSE ONE MEMBER OF THE JV HAS NOT CONTRIBUTED THEIR CAPITAL IN THE JV IS NO GROUND OF CHARGING NOTIONAL INTEREST ON THE CAPITAL WHICH IS NOT CONTRIBUTED BY THE MEMBER OF THE JV. THERE IS NO PROVISION UNDER THE INCOME TAX ACT TO CHARGE NOTIONAL INTEREST IN SUCH CIRCUMSTANCES. LEARNED COUNSEL FOR THE ASSESSEE ALSO DEMONSTRATED THAT IN FACT ASSESSEE HAS DECLARED NEGATIVE EXPENDITURE OF RS.2,26,95,787/- ON ACCOUNT OF INTEREST (PB A1/26). THEREFORE, THERE IS NO JUSTIFICATION OF CHARGING NOTIONAL INTEREST WHICH WERE NOT DUE OR COLLECTED BY THE ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO.17 OF THE APPEAL OF ASSESSEE IS ALLOWED. 68. ON GROUND NO.18, ASSESSEE CHALLENGED THE DISALLOWANCE OF RS.12,01,000/- ON ACCOUNT OF CUSTOMARY 125 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. GIFT. THE A.O. DISALLOWED THIS AMOUNT ON ACCOUNT OF CUSTOMARY GIFT GIVEN TO THE CLIENTS AND BUSINESS ASSOCIATES AT THE TIME OF DIWALI. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, IT WAS NOTED THAT THE ABOVE GIFTS INCLUDES THE GOLD PURCHASE FOR GIFTING AND NO DOCUMENTARY EVIDENCES FOR THE PURCHASE OF SUCH GIFT COULD BE GIVEN BY THE ASSESSEE. THE LD. CIT(A) ALSO CONFIRMED THE ADDITION, DESPITE ASSESSEE PRODUCED COPIES OF THE VOUCHERS TO SHOW THAT IT HAS PURCHASED GOLD COINS FOR GIVING AS GIFT. 69. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE INCURRED THE ABOVE EXPENDITURE ON ACCOUNT OF GIFT ITEM I.E., GOLD COINS, SILVER UTENSILS ETC., PURCHASED THROUGH BANKING CHANNEL FOR BUSINESS PURPOSES. HE HAS SUBMITTED THAT GENUINENESS OF THE BILLS HAVE NOT BEEN DOUBTED BY THE AUTHORITIES BELOW. COPIES OF THE VOUCHERS FOR PURCHASE OF THE DIWALI GIFTS ARE FILED AT PB-A2 538 TO 555. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE ARE ROUTINE EXPENDITURE CONNECTED WITH BUSINESS PURPOSES. THEREFORE, ADDITION MAY BE DELETED. 126 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 70. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 71. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A.O. DISALLOWED THE ABOVE AMOUNT BECAUSE NO DOCUMENTARY EVIDENCES HAVE BEEN FILED FOR DIWALI GIFTS SO PURCHASED. HOWEVER, SOME BILLS AND VOUCHERS WERE PRODUCED BEFORE THE AUTHORITIES BELOW COPIES OF WHICH ARE ALSO FILED IN THE PAPER BOOK. THE DIWALI GIFTS HAVE BEEN PURCHASED THROUGH BANKING CHANNEL. THE DIWALI GIFTS GIVEN TO THE CLIENTS AND OTHER ASSOCIATES FOR BUSINESS PURPOSES ARE ALLOWABLE EXPENDITURE. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO.18 OF THE APPEAL OF ASSESSEE IS ALLOWED. 72. ON GROUND NO.19 ASSESSEE CHALLENGED THE ADDITION ON ACCOUNT OF DETERMINATION OF ALP IN RESPECT OF TRANSACTION WITH AE OF RS.25,90,46,464 AND THE REVENUE ON GROUND NO.5 HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.32,38,08,080/-. 127 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 73. THE A.O. HAS MADE THE ADDITION OF RS.58,28,54,544/- ON THE GROUND THAT THE SPECIAL AUDITOR HAS OBSERVED THAT THE TRANSACTIONS WITH THE RELATED CONCERNED I.E., L & T GEO STRUCTURES IS MADE WHERE CONTRACT WAS AWARDED ON AVAILABLE TERMS AND ACTUAL COMPARISON HAS NEVER TAKEN PLACE AS THE CONTRACT IS AWARDED TO THE ASSOCIATED CONCERN ON 10.12.2012 WHEREAS THE QUOTATION OF ONE OF THE VENDOR WAS OBTAINED ON 14.12.2012. BESIDES THIS ASSESSEE HAS DECLARED CUP METHOD ARMS LENGTH PRICE (ALP) WHICH IS BASED ON QUOTATION RECEIVED FROM THE VENDORS, WHEREAS, THE CUP METHOD EVALUATE THE ALP BY COMPARING THE PRICE AND ADDITION OF THE SIMILAR TRANSACTION BETWEEN THE TAXABLE AND UNRELATED PARTY OR BETWEEN TWO UNRELATED PARTIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS MENTIONED THAT THIS CONTRACT WAS GIVEN TO THE ASSOCIATED CONCERN AS THE QUOTATIONS OF OTHER CONTRACTORS I.E., IPEX INFRASTRUCTURE PVT. LTD., AND VALECHA ENGINEERING LTD., WERE FOUND TO BE HIGHER THAN THE ASSOCIATED CONCERN. HOWEVER, THE ALLEGATION OF THE AUDITOR WAS NOT CONTROVERTED. THE A.O. REJECTED T.P. STUDY AND 128 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ADDED BACK THE ENTIRE AMOUNT OF RS.58,28,54,544/- MADE TO THE ASSOCIATED CONCERN TO THE TOTAL INCOME OF THE ASSESSEE. 73.1. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FILED WRITTEN SUBMISSIONS CLAIMED THEREIN THAT QUOTATION OF BUILDING DIAPHRAGM WAS CALLED FROM THESE PARTIES I.E., IPEX INFRASTRUCTURE PVT. LTD., AND VALECHA ENGINEERING LTD., AND RELATED PARTY L &T GEO STRUCTURE LLP AND DETAILED T.P. STUDY WAS ALSO UNDERTAKEN AND SUBMITTED TO THE A.O. THE T.P. STUDY CONTAINS QUOTATIONS, COMPARATIVE STATEMENT AND BASIS FOR AWARDING THE CONTRACT TO RELATED PARTY. BUT THE A.O. HAS NOT TAKEN INTO ACCOUNT AND DISALLOWED THE ENTIRE TRANSACTION VALUE AND MADE THE ADDITION OF THE ENTIRE AMOUNT. THE ASSESSEE ALSO POINTED OUT THAT EVEN THE SPECIAL AUDITOR DID NOT RECOMMEND FOR MAKING ANY DISALLOWANCE ON THIS ISSUE. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE THE T.P. STUDY PAPERS WHICH WAS FILED BY THE ASSESSEE WHICH CONTAIN FORWARDING LETTER OF QUOTATION, WITHOUT QUOTATIONS OF BOTH THE PARTIES. FURTHER THE COMPARISON IS GIVEN IN A CHART AND TP STUDY WHICH IS NOT LEGIBLE. THE ASSESSEE FILED SAME 129 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THROUGH EMAIL BUT WITHOUT QUOTATION. SAME WAS ASKED TO BE GIVEN BY SPECIAL AUDITOR. HOWEVER, THE SPECIAL AUDITOR HAS GIVEN A LETTER OF INTENT OF THE WORK ORDER GIVEN TO ALL THE THREE PARTIES. THIS REVEAL THAT THERE IS A MARKED DIFFERENCE IN THE COMPARISON GIVEN BY THE ASSESSEE IN THE T.P. STUDY AND ACTUAL WORK ORDER WHICH IS GIVEN TO IPEX INFRASTRUCTURE PVT. LTD., AND VALECHA ENGINEERING LTD., WHICH IS THE ONLY FOR LABOUR I.E., FOR INSTALLATION CHARGES WHEREAS THE CONTRACT AWARDED TO THE ASSOCIATED CONCERN L & T GEO STRUCTURE IS IN RELATION TO CHARGES FOR SUPPLY OF MATERIAL AS WELL AS LABOUR CHARGES. FURTHER, THE RATES QUOTED IN T.P. STUDY IS ENTIRELY DIFFERENT FROM THE LETTER OF INTENT OF ACTUAL WORK ORDER. THE DETAILS AS PER LETTER OF INTENT GIVEN BY THE ASSESSEE TO THESE COMPANIES ARE REPRODUCED AT PAGES 153 TO 156 OF THE IMPUGNED ORDER. THE LD. CIT(A) CONSIDERING THE CHART AS PER LETTER OF INTENT AND CHART GIVEN IN THE T.P. STUDY NOTED THE FOLLOWING FACTS IN THE CHART BELOW : 130 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. VALECHA IPEX L & T GEO PARTICULARS RATE AS PER TP STUDY RATE AS PER LETTER OF INTENT RATE AS PER TP STUDY RATE AS PER LETTER OF INTENT RATE AS PER TP STUDY RATE AS PER LETTER OF INTENT PERCENTAGE OF EXCESS PAYMENT TO L & T AS PER LETTER OF INTENT OF L- 1 INSTALLING CAST IN SITU IN SOIL 800MM THICK (ITEM 1.1A) 5,677 5166 5569 5100 5407 9536 87% INSTALLING CAST IN SITU IN SOIL 1000MM THICK (ITEM 1.1A) 6,477 - 6354 - 6169 11263 NO COMPARISON IS POSSIBLE. INSTALLING CAST IN SITU IN SOIL 800MM THICK (ITEM 1.1B) - 19000 - 12380 - - NO COMPARISON IS POSSIBLE. INSTALLING CAST IN SITU IN SOIL 1000MM THICK (ITEM 1.1B) - - - - - - NO COMPARISON POSSIBLE CHARGES FOR CONCRETING (ITEM 1.2) 6,213 700 6,095 660 65,917 - NO COMPARISON POSSIBLE. CHARGES FOR PLACING IN POSITION TMT (ITEM 1.3) 60,962 5,751 59,801 5,975 58,059 58,059 NO COMPARISON IS POSSIBLE AS THE RATE GIVEN IN THE LETTER OFINTENT INCLUDES CHARTS FOR SUPPLY AND LABOUR TO L&T WHEREAS IN THE OTHER TWO CASES IT IS ONLY CHARGES FOR LABOUR. 131 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 73.2. THE LD. CIT(A) FROM THE ABOVE CHART NOTED THAT T.P. STUDY IS BASED ON WRONG FACTS AND COMPARISON IS CLAIMED TO HAVE BEEN MADE ON THE BASIS OF THE QUOTATIONS AND THESE QUOTATIONS ARE NOT PART OF THE T.P. STUDY AND THE LETTER OF INTENT SHOWS THAT ACTUAL WORK ORDER GIVEN TO THE ASSOCIATED CONCERN IS ON ENTIRELY DIFFERENT RATE WHICH IS SHOWN IN T.P. STUDY AND THE ACTUAL WORK GIVEN TO THE ASSOCIATED CONCERN RELATES TO LABOUR AS WELL AS SUPPLY OF THE MATERIAL BUT, WHAT WAS GIVEN TO OTHER CONCERNS ONLY FOR LABOUR AND IT CANNOT BE ASCERTAINED WHETHER COMPARISON CHART IS EVEN MADE ON THE BASIS OF QUOTATION. THE LD. CIT(A) ALSO NOTED THAT DMRC FOR MAKING METRO STATION HAS GIVEN CONTRACT TO VARIOUS PARTIES ON IDENTICAL WORK, THEREFORE, T.P. STUDY COULD HAVE BEEN MADE ON REAL TRANSACTION BY MARKET SURVEY. HOWEVER, SUCH STUDY WAS NOT DONE. THE LD. CIT(A), THEREFORE, HELD THAT CUP METHOD CANNOT BE APPLIED IN SUCH CASE. THE LD. CIT(A) ALSO REFERRED TO RULE10B OF I.T. RULES AND NOTED THAT THIS RULE PROVIDES THAT THE COMPARISON CAN BE DONE ONLY WITH ACTUAL TRANSACTION AND NOT WITH THE QUOTATIONS. THE LD. CIT(A) RELIED UPON DECISIONS OF THE ITAT 132 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. IN THE CASE OF SINO STEEL INDIA PVT. LTD., 159 TTJ 581 (DEL.) AND NOBLE RESOURCES AND TRADING INDIA PVT. LTD., 64 SOT 4 (DELHI.). THE LD. CIT(A), HOWEVER, FOUND THAT THE FINDINGS OF THE A.O. ARE NOT CORRECT BECAUSE ENTIRE AMOUNT HAVE BEEN ADDED. THE LD. CIT(A) CONSIDERING THE ABOVE DISCUSSION FOUND EXCESS PAYMENT TO THE ASSOCIATED CONCERN IN A SUM OF RS.25,90,46,464/- AND DELETED THE REMAINING ADDITION. HIS FINDINGS IN PARA 22.23.8 AND 22.23.9 IS REPRODUCED AS UNDER [AT PAGES 159 AND 160 OF THE ORDER]. 22.23.8. HOWEVER, AT THE SAME TIME, I AM CONVINCED THAT THE ASSESSING OFFICER IS NOT CORRECT IN MAKING THE ADDITION OF THE ENTIRE TRANSACTION OF RS.58,28,54,544/- AS THE ASSESSING OFFICER HAS NOT DOUBTED THE WORK DONE BY THE ASSOCIATED CONCERN, HENCE, THERE IS NO BASIS OF MAKING THE ADDITION OF THE ENTIRE AMOUNT WHICH IS PAID BY THE APPELLANT TO THE ASSOCIATED CONCERN. HOWEVER, AS THE APPELLANT HAS FAILED TO GIVE THE CORRECT ARMS LENGTH PRICE, A FAIR AND REASONABLE ESTIMATE IS THE ONLY METHOD WHICH CAN BE USED TO ARRIVE THE EXCESS PAYMENT MADE TO THE ASSOCIATED CONCERN BY THE APPELLANT. 133 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 22.23.9. FROM THE LETTER OF INTENT GIVEN BY THE APPELLANT TO THESE CONCERNS IT IS APPARENT THAT THERE IS THE ACTUAL TRANSACTIONS OF THE LABOUR COST ONLY WHICH IS COMPARABLE AMONGST ALL THESE THREE PARTIES INCLUDING THE ASSOCIATED CONCERN AS PER THE CHART MENTIONED IN PARA 22.23.4 WHICH IS 87% MORE AS COMPARED TO OTHER TWO PARTIES. HENCE, THE FAIR ESTIMATE CAN BE MADE THAT THE COST OF THE WORK WHICH IS GIVEN TO THE ASSOCIATED CONCERN IS APPROXIMATELY HIGH BY AT LEAST 80%. HENCE, THE ARMS LENGTH PRICE FOR THE ASSOCIATED CONCERN IS RS.32,38,08,080/- (58,28,54,544X100/180). IN THIS LIGHT, I AM CONSTRAINED TO OBSERVE THAT THE APPELLANT HAS MADE EXCESS PAYMENT TO THE ASSOCIATED CONCERN OF RS.25,90,46,464/- (58,28,54,544 - 32,38,08,080). IN THIS LIGHT, THE ADDITION MADE BY THE AO OF RS.58,28,54,544/- IS RESTRICTED TO RS.25,90,46,464/- AND THE APPELLANT WILL GET RELIEF ACCORDINGLY. 73.3. BOTH THE PARTIES ARE IN CROSS APPEALS. 134 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 74. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS SUBMITTED THAT THE AUTHORITIES BELOW CONSIDERED THIS ISSUE WITH REGARD TO DETERMINATION OF ALP FOR A.E WHICH IS WHOLLY INCORRECT. THE ASSESSEE WAS AWARDED WORK OF CONSTRUCTION OF THICKNESS OF WALL OF THE TUNNEL. THE ASSESSEE AVAILED WORK OF THE THREE ENTITIES OUT OF WHICH L & T GEO STRUCTURE IS RELATED PARTY. THE WORK WHICH WAS GIVEN TO IPEX INFRASTRUCTURE PVT. LTD., AND VALECHA ENGINEERING LTD., IS ONLY FOR LABOUR I.E., FOR CIVIL WORK, BUT, THE WORK ORDER WHICH IS GIVEN TO L & T GEO IS IN RELATION TO CHARGES FOR SUPPLY OF MATERIAL AS WELL AS FOR LABOUR CHARGES INCURRED ON CIVIL WORK. THE ADDITION IS MADE ON THE BASIS OF THE COMPARISON GIVEN IN THE TABLE REPRODUCED IN THIS ORDER SHOWING THE RATES AS PER T.P. STUDY AND AS PER LETTER OF INTENT. THE ADDITION IS MADE ON THE BASIS OF COMPARISON GIVEN IN THIS TABLE. IN SL.NO.1 INSTALLING COST (-) IN (-) SITU IN SOIL 800 MM THICK. 87% INCREASE IN THE LETTER OF INTENT AS COMPARED TO THE RATE AS PER T.P. STUDY IS DUE TO INCLUSION OF MATERIAL IN THE PRICE QUOTED AS PER LETTER OF INTENT. ON THIS BASIS, ADDITION IS MADE TO ENTIRE AMOUNT OF 135 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE WORK AWARDED TO L & T GEO AT 80% WITHOUT TAKING INTO CONSIDERATION THE MATERIAL INVOLVED IN THE PRICE QUOTED AND NO COMPARISON IS POSSIBLE IN OTHER VARIABLES OF THE WORK CONTRACT. THE FINAL BILLS OF ALL THE ABOVE THREE ENTITIES IS FILED ON RECORD FOR COMPARISON. THE WORK OF INSTALLING CAST IN SITU APPEARING IN COLUMN NO.10 OF THE FINAL BILL OF L & T GEO, THE RATE AT WHICH THE WORK WAS CONTRACTED WAS RS.8824.81% WHICH INCLUDES SHUTTERING, REINFORCEMENT, FIXING AND CONCRETE PLACING AND THIS RATE WAS INCLUSIVE OF MATERIAL. SIMILARLY WORK APPEARING IN COLUMN NO.9 OF THE FINAL BILL OF IPEX INFRASTRUCTURE PVT. LTD., THE RATE WAS RS.5100/- WHICH WAS EXCLUDING THE REINFORCEMENT, CONCRETE WORK AND MATERIAL. SIMILARLY, THE SAME WORK IN COLUMN NO.9 OF FINAL BILL OF VALECHA ENGINEERING LTD., THE RATE AS RS.5166/- WHICH WAS EXCLUDING THE REINFORCEMENT CONCRETE WORK AND MATERIAL. THESE FACTS CLEARLY SHOWS THAT THE PRICE QUOTED BY L & T GEO WAS NOT COMPARABLE WITH THE PRICE QUOTED BY THE OTHER COMPANIES. SINCE COST WAS HIGHER, THEREFORE, WORK WAS AWARDED TO A.E.. THE LD. CIT(A) NOTED THIS FACT AT PAGE-157 OF THE ORDER. THE LD. CIT(A) CONSIDERING THIS FACT, REDUCED 136 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. THE SUBSTANTIAL ADDITION. THE ASSESSEE FOLLOWED CUP METHOD CONSISTENTLY, BUT, THE LD. CIT(A) DID NOT APPLY ANY METHOD AND MADE THE ADDITION MERELY ON ESTIMATE. PB-215 TO 217 ARE THE DETAILS FILED BEFORE THE A.O. AT REMAND PROCEEDINGS. IT IS DIFFICULT THAT OUT OF TOTAL WORK OF RS.58.28 CRORES, ASSESSEE WOULD EARN THE PROFIT OF RS.25.90 CRORES AS ESTIMATED BY THE LD. CIT(A). THE SPECIAL AUDITOR DID NOT RECOMMEND FOR ANY ADDITION. THERE WERE NO BASIS FOR MAKING THIS ADDITION. NO EVIDENCE OF ANY EXCESS PAYMENT TO A.E HAVE BEEN FOUND AGAINST THE ASSESSEE, THEREFORE, ENTIRE ADDITION IS WHOLLY UNJUSTIFIED. 75. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT QUOTATION AND T.P. STUDY WAS NOT FILED. THE A.O. IN THE REMAND REPORT FILED BEFORE THE TRIBUNAL ALSO REITERATED THE SAME FACTS IN THE REMAND REPORT AND ALSO SUBMITTED THAT IN SUPPORT OF THE ABOVE CONTENTION THE ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCES. 137 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. 76. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO SUSTAIN ANY ADDITION. THE FACTS AS NOTED ABOVE ARE UNDISPUTED THAT ASSESSEE WAS AWARDED CONTRACT BY DMRC AND THIS ISSUE RELATES TO CONSTRUCTION OF WALL OF THE TUNNEL MEANT FOR DMRC. THE ASSESSEE AWARDED THE WORK TO THREE PARTIES. ONE OF THEM IS RELATED PARTY NAMELY L & T GEO STRUCTURE. IN THIS CASE THE WORK WAS AWARDED TO THIS PARTY FOR LABOUR AS WELL AS FOR SUPPLY OF THE MATERIAL. HOWEVER, IN THE CASES OF OTHER PARTIES IPEX INFRASTRUCTURE PVT. LTD., AND VALECHA ENGINEERING LTD., THEY HAVE BEEN ASSIGNED LABOUR WORK, THEREFORE, THERE CANNOT BE ANY COMPARISON OF THE RATES IN ALL THESE CASES. THE ASSESSEE HAS PRODUCED FINAL BILLS OF ALL THESE PARTIES ON RECORD WHICH SUPPORTS THE EXPLANATION OF ASSESSEE IN THIS REGARD. THE LD. CIT(A) AT PAGE 152 OF THE APPELLATE ORDER HAS ALSO RECORDED THE SAME SUBMISSIONS OF THE ASSESSEE WHICH ARE ALSO MENTIONED IN THE T.P. STUDY WHICH WAS FILED BEFORE THE LD. CIT(A). SINCE ASSESSEE CLAIMED THAT THERE WAS A MARKED DIFFERENCE IN THE COMPARISON OF THE RATES OF BOTH THE PARTIES WITH REFERENCE TO THE WORK AWARDED TO THEM, THEREFORE, THERE 138 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CANNOT BE ANY COMPARISON. AT PAGE 157 OF THE APPELLATE ORDER, THE LD. CIT(A) SIMILARLY NOTED THAT ACTUAL WORK ORDER GIVEN TO THE ASSOCIATED CONCERN IS ON ENTIRELY DIFFERENT RATE WHICH IS SHOWN IN T.P. STUDY AND THE ACTUAL WORK GIVEN TO THE ASSOCIATED CONCERN RELATED TO LABOUR AS WELL AS FOR SUPPLY OF MATERIAL. THE SPECIAL AUDITOR DID NOT RECOMMEND FOR ANY ADDITION ON THIS ISSUE. THE A.O. MERELY ON ESTIMATE BASIS WITHOUT BRINGING ANY EVIDENCE ON RECORD AGAINST THE ASSESSEE OF ANY EXCESS PAYMENT MADE TO RELATED PARTY, MADE THE ADDITION WITHOUT ANY JUST REASONS. THE ASSESSEE COULD NOT EARN THE PROFIT OF RS.25.90 CRORES OUT OF TOTAL PAYMENT OF RS.58.28 CRORES AS PER NATURE OF THE CONTRACT AWARDED TO IT BY DMRC. IT MAY ALSO BE NOTED HERE THAT ASSESSEE HAS FOLLOWED CUP METHOD. BUT, THE AUTHORITIES BELOW WITHOUT APPLYING ANY OTHER METHOD HAS MADE THE ADDITION MERELY ON ESTIMATE. THE LD. CIT(A) IN PRINCIPLE HAS ACCEPTED THAT THE AMOUNT GIVEN TO THE RELATED PARTY IS REASONABLE AND JUSTIFIED. HOWEVER, FOR THE REST OF THE AMOUNT SUSTAINED, NO BASIS HAVE BEEN SHOWN AS TO WHY THIS ADDITION HAS BEEN MADE AGAINST THE ASSESSEE. IT MAY ALSO BE NOTED HERE THAT ADMITTEDLY 139 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. ASSESSEE FOLLOWED POCM METHOD FOR THE PURPOSE OF RECOGNIZING THE REVENUE AND PAID THE TAXES ON THE SAME WHICH METHOD IS ALSO APPLIED CONSISTENTLY IN SUBSEQUENT YEARS. THE DETAILS OF SAME ARE NOTED ABOVE WHICH CLEARLY SUPPORTS EXPLANATION OF ASSESSEE THAT SINCE THIS ISSUE RELATES TO THE MAIN CONTRACT WORK AWARDED TO THE ASSESSEE, THEREFORE, ADDITION OF THIS NATURE SHOULD NOT HAVE BEEN SUSTAINED BY THE AUTHORITIES BELOW BECAUSE ASSESSEE HAS BEEN FOLLOWING THE POCM METHOD CONSISTENTLY. ULTIMATELY, EVERYTHING IS SETTLED IN SUBSEQUENT YEAR WHEN THE ENTIRE CONTRACT WORK HAVE BEEN COMPLETED BY THE ASSESSEE. WE MAY FURTHER NOTE THAT CONSIDERING THE TOTAL AMOUNT OF THE CONTRACT ALONG WITH REVISED CONTRACT VALUE, IT IS DIFFICULT TO ACCEPT THE DEPARTMENTS CONTENTION THAT ASSESSEE WOULD EARN HUGE PROFIT OUT OF THE SAME. IT APPEARS THAT SPECIAL AUDITOR WITHOUT LOOKING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE MADE THE ADDITION IN HASTE WITHOUT GOING THROUGH THE COMPOSITE WORK OF THE ASSESSEE IN THE LIGHT OF POCM METHOD ADOPTED BY THE ASSESSEE. WE, ACCORDINGLY, DO NOT FIND ANY JUSTIFICATION TO SUSTAIN EVEN THE 140 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. PART ADDITION ON THIS ISSUE BECAUSE AUTHORITIES BELOW HAVE FAILED TO MAKE OUT A CASE AS TO HOW DETERMINATION OF ALP WAS JUSTIFIED IN THIS CASE. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. IN THE RESULT, GROUND NO.19 OF THE APPEAL OF ASSESSEE IS ALLOWED AND GROUND NO.5 OF THE APPEAL OF THE DEPARTMENT IS DISMISSED. APPEAL OF ASSESSEE PARTLY ALLOWED. ITA.NO.4457/DEL./2018 - REVENUE APPEAL 77. SOME OF THE GROUNDS IN DEPARTMENTAL APPEAL HAVE ALREADY BEEN ADJUDICATED UPON WHILE DECIDING THE APPEAL OF THE ASSESSEE. THE REMAINING GROUNDS IN DEPARTMENTAL APPEAL ARE DECIDED AS UNDER. 78. ON GROUND NO.1 OF DEPARTMENTAL APPEAL, REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.16.67 CRORES. THE A.O. MADE THIS ADDITION ON THE GROUND THAT SPECIAL AUDITOR HAS MENTIONED IN SAR THAT NO PHYSICAL VERIFICATION ACTUALLY TOOK PLACE REGARDING STOCK IN THE CASE OF THE ASSESSEE AND ON THIS BASIS MADE THE ABOVE ADDITION AS UNEXPLAINED STOCK ON ESTIMATE BASIS. THE ASSESSEE 141 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. SUBMITTED BEFORE THE LD. CIT(A) THAT REGULAR PHYSICAL VERIFICATION OF THE STOCK WAS MADE AND ASSESSEE HAS ALREADY CREDITED RS.16,66,70,541/- AS CLOSING ENTRY IN THE P & L A/C SO AGAIN ADDITION OF RS.16.17 CRORES AMOUNT TO DOBLE TAXATION OF THE CLOSING ENTRY. 79. THE SUBMISSION OF THE ASSESSEE WAS GIVEN TO THE SPECIAL AUDITOR AND A.O. FOR COMMENTS WHICH WERE RECEIVED IN WHICH IT WAS REITERATED BY THE SPECIAL AUDITOR THAT NO STOCK STATEMENT WAS SUBMITTED AT THE TIME OF SPECIAL AUDIT EXCEPT VERIFICATION OF THE STOCK OF THE VALUE OF RS.15 LAKHS AND NO MONTHLY VERIFICATION OR TECHNICAL ANALYSIS WAS PROVIDED NOR ANY RECONCILIATION STATEMENT BETWEEN PHYSICAL AND BOOK INVENTORY WAS GIVEN AND IN THESE CIRCUMSTANCES, THE A.O. ESTIMATED THE ACTUAL INVENTORY AND MADE AN ADHOC ADDITION. THE LD. CIT(A) CONSIDERING THE MATERIAL ON RECORD AND IN THE LIGHT OF FINDINGS OF THE A.O. AND SPECIAL AUDITOR NOTED THAT IT IS APPARENT THAT ADDITION OF RS.16.17 CRORES AS SUGGESTED BY THE SPECIAL AUDITOR AND A.O. HAS NO SOLID BASIS AND IT WAS ONLY ON THE BASIS OF PRESUMPTION THAT SUCH CLOSING STOCK MIGHT BE THERE MADE THE ADDITION. THE LD. 142 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. CIT(A) FOUND THAT THERE IS NO LAPSE ON THE PART OF THE ASSESSEE OF PHYSICAL VERIFICATION. THEREFORE, THE LD. CIT(A) DELETED THE ADDITION. 80. THE LD. D.R. MERELY RELIED UPON THE ORDER OF THE A.O. WITHOUT POINTING-OUT ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). 81. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 82. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT LD. CIT(A) CORRECTLY DELETED THE ADDITION. THE ASSESSEE EXPLAINED BEFORE THE LD. CIT(A) THAT REGULAR PHYSICAL VERIFICATION OF STOCK WAS MADE AND ASSESSEE HAS ALREADY CREDITED RS.16.66 CRORES AS CLOSING ENTRY IN P & L A/C, THEREFORE, IT WOULD BE DOUBLE ADDITION. THE LD. CIT(A) FOUND THAT THERE WERE NO BASIS FOR THE A.O. OR SPECIAL AUDITOR TO MAKE THE ADDITION. IT WAS AN ADHOC ADDITION MERELY ON PRESUMPTION. THE LD. D.R. COULD NOT PRODUCE ANY EVIDENCE OR MATERIAL TO CONTRADICT THE FINDING OF FACT RECORDED 143 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. BY THE LD. CIT(A). GROUND NO.1 OF THE DEPARTMENTAL APPEAL IS DISMISSED. 83. ON GROUND NO.4, REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.66 LAKHS. THE A.O. MADE THE ADDITION ON THE GROUND THAT SPECIAL AUDITOR HAS OBSERVED THAT ASSESSEE HAS SUB-CONTRACTED FEW ACTIVITIES LIKE CATERING, TRAVELLING, ETC. TO SMALL INDIVIDUAL CONTRACTORS AND BILLS OF THESE SUB- CONTRACTORS WAS NOT PRODUCED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS MENTIONED THAT THESE ARE PAID BY ACCOUNT PAYEE CHEQUES AND COPIES OF THE INVOICES ARE PRODUCED WHICH HAVE NOT BEEN ACCEPTED BY THE A.O. ON THE GROUND THAT ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THESE PARTIES WHICH COULD NOT BE PRODUCED. COPY OF THE ITR OF PARTIES/SUB-CONTRACTORS REGARDING SERVICES RENDERED BY THEM TO THE COMPANY WERE NOT PRODUCED. 83.1. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND IT WAS CLAIMED IN THE WRITTEN SUBMISSIONS THAT ALL THE DETAILS LIKE PAN, ADDRESS, VAT AND SERVICE TAX, 144 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. REGISTRATION ETC., WERE FILED BEFORE A.O. AND THESE ARE THE SMALL SUB-CONTRACTORS AND THE A.O. HAD DISALLOWED THE EXPENSES WITHOUT ANY BASIS. IT WAS ALSO SUBMITTED THAT ASSESSEE MADE THE PAYMENTS BY ACCOUNT PAYEE CHEQUES. THE LD. CIT(A) FOUND THAT A.O. HAS NOT VERIFIED THE GENUINENESS OF THESE PAYMENTS AND ONLY DOUBTED THE PAYMENTS ON SURMISES AND PRESUMPTION WHICH IS NOT ACCEPTABLE. THE LD. CIT(A) ACCORDINGLY DELETED THE ADDITION. 84. THE LD. D.R. RELIED UPON THE ORDER OF THE A.O. 85. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL DETAILS WERE FURNISHED BEFORE THE AUTHORITIES BELOW. IT IS AN ADHOC ADDITION. 86. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION. THE ASSESSEE PRODUCED COMPLETE DETAILS BEFORE THE AUTHORITIES BELOW ON WHICH NO ENQUIRY HAVE BEEN MADE BY THE A.O. THE LD. CIT(A) AFTER GOING THROUGH THE DETAILS ON RECORD FOUND THAT ASSESSEE MADE THE PAYMENT THROUGH ACCOUNT PAYEE CHEQUES AND 145 ITA.NO.4351 & 4457/DEL./2018 L & T SUCG JV CC 27, NEW DELHI. IDENTITY OF ALL THE PARTIES HAVE BEEN ESTABLISHED. THIS ADHOC ADDITION WAS MADE MERELY ON SURMISES AND PRESUMPTIONS. THE LD. D.R. DID NOT PRODUCE ANY EVIDENCE OR MATERIAL TO CONTRADICT THE FINDING OF FACT RECORDED BY THE LD. CIT(A). THE LD. CIT(A), THEREFORE, CORRECTLY DELETED THE ADDITION. GROUND NO.4 OF THE APPEAL OF THE DEPARTMENT IS DISMISSED. 87. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED. 88. TO SUM-UP, APPEAL OF THE ASSESSEE PARTLY ALLOWED AND APPEAL OF THE DEPARTMENT DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (O.P. KANT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 10 TH JULY, 2019 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT D BENCH 6. GUARD FILE //BY ORDER// ASST. REGISTRAR : ITAT : DELHI BENCHES : DELHI.