The Deputy Commissioner Of Income Tax, Central Circle-1, Aurangabad, Aurangabad V. Shreehari Associates Private Ltd, Aurangabad, Aurangabad

ITA 462/PUN/2022

AI Insights

The case involves the Revenue's appeal against the CIT(A)'s decision regarding the treatment of bogus sub-contract expenses claimed by Shreehari Associates Private Limited, a company engaged in construction and maintenance of dams and power projects. The Assessing Officer had initially treated the payments to certain sub-contractors as bogus, leading to a substantial addition to the assessee's income. The CIT(A) affirmed the AO's finding of bogus sub-contractors but only added the profit element estimated at 12% on these contracts, reducing the addition significantly from the total bogus expenses claimed. The Tribunal dismissed the Revenue's appeal, supporting the CIT(A)'s approach and emphasizing that only the profit element from these bogus expenses should be taxed.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137826 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-07-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 26-06-2022
• Other Referred Cases: Pr. CIT Vs. S.V. Jiwani (2022) 449 ITR 583 (Bom.)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘B’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपील सं. / ITA No.462/PUN/2022 नधा रण वष / Assessment Year : 2012-13 DCIT, Central Circle-1, Aurangabad Vs. Shreehari Associates Private Limited, No.36, Gut No.41, Golwadi, Paithan Waluj Link Road, Aurangabad 431 001 Maharashtra PAN : AAHCS7405B Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the Revenue is directed against the order dt. 31-03-2022 passed by the CIT(A)-12, Pune in relation to the assessment year 2012-13. 2. Briefly stated, the facts of the case are that the assessee is engaged in the business of Construction and Maintenance of Dams and Power projects. The return was filed declaring total income at Rs.7.27 crore. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee awarded sub- contract works to various parties including M/s. Starmark Infra Assessee by Shri C.H.Naniwadekar Revenue by Shri Ajay Kumar Kesari Date of hearing 20-07-2023 Date of pronouncement 20-07-2023 ITA No.462/PUN/2022 Shreehari Associates Private Limited 2 Developers Pvt. Ltd; Silicon Real Estate Pvt. Ltd.; and Dcom Systems Ltd. Payments to these three parties totalled upto Rs.63,30,54,708/-. He carried out investigation about the genuineness of these three parties and eventually it turned out that they were not genuine. He thus treated the total amount paid to them as bogus expenditure and made addition for the same. The ld. CIT(A) countenanced the action of the AO in treating these three parties as bogus. He, however, held that the addition could be made only in respect of profit element embedded in the contract receipts, against which such sub-letting of contracts was done to these three parties. This is how, he estimated profit at 12% and sustained addition to the extent of Rs.7,59,66,565/-, thereby allowing relief of Rs.55,70,88,143/-. Aggrieved thereby, the Revenue has come up in appeal before the Tribunal. 3. We have heard both the sides and gone through the relevant material on record. The ld. CIT(A) has affirmed the findings of the AO anent to the bogus sub-contract expenses. The assessee is not in appeal. To that extent, the impugned order is affirmed by holding that the assessee recorded accommodation bills totaling to Rs.63.30 crore. Now, the question is about the addition qua the bogus bills. In this regard, it is noted that total revenue of the assessee stood at Rs.143.18 crore and total expenses at Rs.136.87 crore. Sub-contract ITA No.462/PUN/2022 Shreehari Associates Private Limited 3 bogus expenses added by the AO amount to of Rs.63.30 crore, against the corresponding contract receipts of Rs.64.49 crore. If both these figures of bogus sub-contract expenses and the corresponding contract receipts are excluded from the total revenue and expenses, the normal business profit rate of the assessee comes at 6.51%. Considering that there must have been some further economy because of bogus contract bills, the ld. CIT(A) estimated the profit at 12%. It goes without saying that income-tax is charged on income component in the revenue receipts and not the revenue itself. The contract receipts, corresponding to bogus sub-contract expenses, stand at Rs.64.49 crore. The AO has not disputed the genuineness of the contract receipts to this extent. This shows that the assessee actually carried out the contract work of this magnitude but recorded bogus bills towards sub-contract expenses amounting to Rs.63.30 crore for reducing the amount of profit, instead of actual lower expenses. On disallowing the bogus expenses, the actual estimated expenses need to be reduced from the amount of revenue receipts for computing the income. In our considered opinion, the ld. CIT(A) was more than considerate in estimating the profit at 12% on such contract receipts as against the assessee’s normal profit rate from genuine business at 6.51%. The contention of the Department that the full amount, as added by the AO ought to ITA No.462/PUN/2022 Shreehari Associates Private Limited 4 have been upheld, is without merit because it is only the profit element in the contract receipts which can be subjected to tax. The Hon’ble Bombay High Court in Pr. CIT Vs. S.V. Jiwani (2022) 449 ITR 583 (Bom.) has also held to this extent. We, therefore, countenance the view canvassed by the ld. CIT(A). 4. In the result, the appeal is dismissed. Order pronounced in the Open Court on 20 th July, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 20 th July, 2023 सतीश आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The respondent 3. 4. The Pr.CIT(Central), Nagpur DR, ITAT, ‘B’ Bench, Pune 5. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA No.462/PUN/2022 Shreehari Associates Private Limited 5 Date 1. Draft dictated on 20-07-2023 Sr.PS 2. Draft placed before author 20-07-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *