Akshay Infrasys Industries Pvt. Ltd., Jaipur V. ITO, Ward-4(1), Jaipur, Jaipur

ITA 613/JPR/2024

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 5479 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-07-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 02-05-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Depreciation; TDS; Bogus
• Section: 147; 143(3); 194C; 143(2); 22

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBkSM +deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 613/JPR/2024 fu/kZkj.k o"kZ@Assessment Year : 2017-18 Akshay Infrasys Industries Pvt. Ltd. Unit No. 600, 9 th Floor, SDC Tower, Vinay-1, Moji Colony, JLN Marg, Malviya Nagar, Jaipur. cuke Vs. The ITO, Ward-4(1), Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AANCA9021D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri P.C. Parwal (C.A.) jktLo dh vksjls@Revenue by : Shri Anoop Singh (Addl.CIT) lquokbZ dh rkjh[k@Date of Hearing : 03/07/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 20/08/2024 vkns'k@ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by the assessee againstthe order of the Learned Commissioner of income Tax (Appeals)-4, Jaipur. dated 23.02.2024 [herein after referred to as"CIT(A)”] for the assessment year 2017-18, which in turn arise from the order dated 26.12.2019 passed under section 143(3) of the Income Tax Act,1961 (hereinafter “Act”) by the ITO, Ward-4(1), Jaipur. 2 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO 2.1 At the outset of hearing, the Bench observed that there is delay of 10 days in filing the appeal by the assessee for which the ld. AR submitted that though the order of the ld. CIT(A) is dated 23.02.2024 but infact that the order of the ld. CIT(A) was served on the assessee on 05.03.2024 and if that date considered for receipt of the order, the appeal of the assessee is not in delayed. 2.2 During the course of hearing, the ld. DR did not raised any objection to the contention so placed on record by the ld. AR of the assessee. 2.3 Considering the fact placed on record as such there is no delay and therefore the appeal of the assessee is admitted and placed for arguments so as to decide the merits of the case. 3. The assessee has raised the following grounds of appeal:- "1. The Ld. CIT(A) has erred on facts and in law in holding that there is no real transaction of sale of Rs. 36,54,57,109/- and purchase of Rs. 34,86,23,423/- between assessee and M/s Symphonia & Graphics Pvt. Ltd. and the entire matter was façade of an arrangement only on the paper but at the same time directing to take necessary action to disallow expenses of Rs. 36,54,57,109/- in the hands of M/s Symphonia & Graphics Pvt. Ltd. 2. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of direct expenses of Rs. 1,32,93,450/-, salary, wages & bonus expenses of Rs. 18,72,000/- and depreciation of Rs. 5,97,143/-. 3. The appellant craves to alter, amend and modify any ground of appeal. 4. Necessary cost be awarded to the assessee. 3 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO 4. Brief facts of the case are that the assessee derives income from trading and manufacturing of pre cast material for its sister concern M/s Symphonia and Graphicus Pvt. Ltd. Return of income was filed in ITR 6 declaring income at Rs. 6,94,970 on 30.11.2017. The case was selected under complete scrutiny through CASS. A notice u/s 143(2) of the I. T. Act, 1961 was issued on 09.08.2018, which was duly served upon the assessee. The statutory notices were issued from time to time, in compliance to which, the assessee furnished the written submission, which were examined on test check basis by the ld. AO. The Id. AO observed that the assessee has shown contract receipt of Rs.34,86,23,423 on 15.12.2016 from M/s Symphonia and Graphicus Pvt Ltd (Sister Concern) and supply of material of goods Rs. 1,62,61,612 on 25.12.2016 and Rs.34,91,95,496 on 05.01.2017 to M/s Symphonia and Graphicus Pvt. Ltd. (Sister Concern) and single purchase of Rs.34,86,23,423 on 15.12.2016 by stating that there was a single transaction of purchase of building material from M/s Symphonia and Graphicus Pvt Ltd (Sister Concern) and the same were transferred after converting into pre cast materials used by Symphonia and Graphicus Pvt. Ltd for Rs. 1,62,61,612 and Rs.34,91,95,496 on 25.12.2016 and 05.01.2017 respectively for which the assessee furnished copy of debit and credit note dated 15.12.2016, 4 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO 25.12.2016 and 05.01.2017. The assessee, therefore, was asked for detail of contract executed for M/s Symphonia and Graphicus Pvt. Ltd., purchase and sales transaction, supporting bills and vouchers for expenditure incurred, salary register, salary account, wages account, details of TDS deducted by M/s Symphonia and Graphicus Pvt. Ltd etc. Against the show cause notice dated 18.12.2019 the assessee submitted that the assessee has been issued material for production of precast products wherein the assessee has applied its resources like Labour and converted the material into pre cast. The work has been carried over during the period December 2016 to March 2017. The consolidated debit note, and consolidated credit note by Symphonia and Graphicus Private Limited has been prepared on the basis of total quantum of work assigned to the assessee. As such the date of issuing the debit note and credit note does not represent the date of transfer of building material and the finished goods. The debit note issued by M/s Symphonia and Graphicus Pvt. Ltd. has been considered in a accounts as purchase and the credit note issued by M/s Symphonia and Graphicus Pvt. Ltd. has been considered as sales in the books of accounts. Symphonia and Graphicus Pvt. Ltd. has not made any TDS on this transaction. The reply of the assessee was not considered acceptable as the assessee failed to produce books of accounts. Therefore, genuineness 5 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO of purchase/sales debit and credit note, expenses, salary and wages were not verifiable. As a result, the Id. AO alleged the major expenses (Direct exp., salary and wages, Deprecation) amounting to Rs. 36,54,57,109 are bogus and unreasonable due to abnormal order size, supply of finished goods within short span of period, non availability of required machinery, factory area, manpower, fuel, raw material, transportation and non furnishing details of transport bilties, freight voucher, factory electricity bills, power and fuel expenses, loading and unloading expenses and other supporting voucher for direct expenses and labour charges. Further, the Ld. AO alleged that M/s Symphonia and Graphicus Pvt. Ltd. was liable to deduct T.D.S u/s 194C on contract value of Rs 34,86,21,423/-. However, form no.26AS of the assessee does not show any T.D.S on this contract receipt which leads that entire matter was facade of an arrangement only on paper and there was not real sale purchase between assessee and M/s Symphonia and Graphicus Pvt. Ltd. As a result, the ld. AO disallowed the Direct Expenses of Rs. 1,32,93,450/-, salary and wages of Rs. 18,72,000/- and depreciation of Rs. 5,97,143/- thereby assessing the total income at Rs. 1,64,57,563/-. 6 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO 5. Aggrieved, from the said order of assessment the assessee has preferred an appeal before the ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee dismissed the appeal of the assessee by giving following findings on the issue:- “5.2 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:- (i) As per the facts, during the year appellant has shown gross receipt of Rs.36,54,57,109. This entire receipt is from Symphonia & Graphics Private Limited. The appellant has submitted that, material of Rs.34,86,23,423 is received from Symphonia & Graphics Private Limited and by performing work on the material received, the same were billed to Symphonia & Graphics Private Limited for Rs.36,54,57,109. The appellant has also shown direct expenses of Rs. 1,32,93,450, salary of Rs. 18,72,000 and depreciation of Rs.5,97,143. The learned AO has observed that the order received from sister concern is abnormal looking to the past history of the case. The appellant supplied the finished material within 15 days which is abnormal looking to the volume of the order. For performing such a huge work the assessee is required large machinery, factory area, Man power, fuel, raw material and transportation which were not available with the assessee. The assessee has failed to produce bills of material, transportation, electricity bills, power & fuel expenses, loading unloading expenses with bills and vouchers. The labour expenses of Rs. 1,20,07,950/-, details of which is tabulated at page 2 to 22 of the assessment order, reveals that for performing the above work special labour is required. However the labours employed are nor regular and also payment are abnormal looking to the market rate. The assessee has also failed to produce labour register, muster roll, bill and vouchers and mode of payment of labour charges. Accordingly the learned AO concluded that there has not been any real transaction of sale/purchase between the assessee and M/s Symphonia & Graphics Private Limited (Sister Concern). The assessee has not submitted any iota of evidence how goods come to its possession and how it has again resent to M/s Symphonia & Graphics Private Limited. The debit note issued has characterized transaction as "Contract A/c" but no TDS has been deducted. Accordingly, the AO held that the assessee has claimed bogus expenses under the head direct expenses, salary & wages & depreciation on alleged execution of supply of precast finished goods to its sister concern M/s Symphonia & Graphics Private Limited. Therefore he made 7 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO disallowance of claim of direct expenses of Rs.1,32,93,450, Salary & Wages of Rs. 18,72,000 and depreciation of Rs.5,97,143. (ii) The learned AR of the appellant has contended that M/s Symphonia & Graphics Private Limited engaged appellant Company to manufacture precast material at the contract site itself. For this purpose M/s Symphonia & Graphics Private Limited issued debit note of Rs.34,86,23,423 for the material to be consumed for the agreed quantity of precast and credit note of Rs.36,54,57,109 for precast material received back after performing the work on the material using labour resources and machinery. All these works are performed at the site of M/s Symphonia & Graphics Private Limited and therefore there was no requirement of transfer of the material. In fact the appellant has done only the value addition at site by utilizing the labour and other resources. In support of the same, appellant in assessment proceeding filed copy of the debit note, credit note, details of the labour employed and justification of the transaction. The depreciation is claimed on the plant & machinery of the company which is used in this work. In these facts, the allegation of the AO that these are not the real transaction of purchase or sales is only on assumption and presumption. (iii) The appellant has further contended that work is performed at the site of M/s Symphonia & Graphics Private Limited. The total work was carried out in four months from December 2016 to March 2017. Only the debit and credit note was raised in advance as the contract price was fixed. The work is performed at site of M/s Symphonia & Graphics Private Limited. Huge labourare employed used for the manufacturing of the pre-cast material and payment of labour charges of was made. Appellant was having crane which is used. There is no specialization in manufacturing of the precise material. In fact all the work is performed at the site of M/s Symphonia & Graphics Private Limited under the close supervision of their engineers. The Id. AO has not brought any evidence that the assessee has made excessive payment to the labour. (iv) On perusal of the overall facts I find that the entire transaction of the appellant with M/s Symphonia & Graphics Private Limited which has been given the shape of purchase or sales appears to be artificial and on paper only. The appellant has shown to have carried out only one work during the year which is with the related party M/s Symphonia & Graphics Private Limited. The transaction is done only through receipt of credit note and debt note. In fact from the debit and credit note, the appellant has infact received net amount of Rs. 1,68,33,686 (36,54,57,100 34,86,23,423). Against this the various expenses have been claimed which has been disallowed by the Id. AO, The appellant has failed to produce bills of material, transportation, electricity bills, power & fuel expenses, loading & unloading expenses with bills and vouchers. The appellant has not submitted any iota of evidence how goods come to its possession and how it has again resent to M/s Symphonia & Graphics Private Limited. The appellant has not placed on record any evidence to show that the material 8 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO claimed to have been used by the appellant was already lying at the construction site as claimed by the appellant. Further without accepting the same, even if the material was lying at the premises, considering the huge volume of the material and the different kinds of materials required including different kinds of cements, sands, chemicals and different sizes and quantities of iron bars etcetera in the normal scenario documentation regarding handing over and taking over would take place to ensure accountability, stock accounting, insurance compliance, legal compliance etcetera. However there is no such documentation. (٧) Further, the precast items cannot be prepared only by the labour as the same requires supervision by the supervisors, supervision of the product and the mix of the raw material etcetera by the engineers, testing etc. by the engineers. It is a highly specialized job and the technical specifications of the final buyer company/Govt. Dept. (who awarded contract to M/s Symphonia & Graphics Private Limited) in this regard are also required to be met. At the same time security personnel, site incharge etc. are also normally present. However in the case of the appellant no such manpower except the basic labour has been shown. As per the details submitted during the assessment, none of the person/labour has worked for regular 2-3 days during the period meaning thereby that after every 2-3 days, the labour was getting changed. The labour expenses of Rs.1,20,07,950/-, details of which is tabulated at page 2 to 22 of the assessment order, reveals that for performing the above work special labour is required. However the labours employed are nor regular and also payment are abnormal looking to the market rate. The appellant has also failed to produce labour register, muster roll, bill and vouchers and mode of payment of labour charges. For building the precast items, various kind of machines, material mixers, cranes - small and big, water storage and other equipment are required whereas in the case of the appellant, the appellant has shown only one crane. As noted in the assessment order the work was done in a period of 15 days and larger number of machines and equipment are required carry out the work in parallel. Time to time the fuel and electricity etc. are also required, which are missing (vi) Further, when the precast material is ready, the same is required to be handed over to the buyer and elaborate documentation is generally done regarding the quality and the weight etcetera. In some cases sometimes the precast material gets rejected also depending upon the quality of the construction. However there is no such documentation. (vii) There is no documentation to show that what precast items were allegedly prepared or built by the appellant and for which civil work such items were built. There is no documentation to show that what designs and specifications were provided by M/s Symphonia & Graphics Private Limited to the appellant to build the precast stems. Whenever the work is subcontracted by the main contractor for the crucial items like the precast material it is normally the precondition in the 9 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO contract that the contractor would inform the final buyer in this regard. However there is no correspondence placed on record of M/s Symphonia & Graphics Private Limited with the final buyer in this regard. Raw material reconciliation and the reconciliation of the precast items made by the appellant and built by M/s Symphonia & Graphics Private Limited or obtained by them from some of the supplier are not reconciled. In view of the discussion, the logical inference is that M/s Symphonia & Graphics Private Limited, used the appellant company which is related party to inflate the expenses in its own contract without any actual work. There are no invoices. Why the invoices could not be issued has not been explained. The debit note issued has characterized transaction as "Contract A/e" but no TDS has been deducted. The appellant has not produced any evidence despite of the findings in the assessment order. (viii) Accordingly there has not been any real transaction of sale/purchase between the assessee and M/s Symphonia & Graphics Private Limited [Sister Concern) and entire matter was facade of an arrangement only on paper. (ix) In view of the above discussion the action of the learned assessing officer in the assessment order in disallowing various expenses is hereby upheld. Further, learned assessing officer is directed to take necessary action to disallow the expenses of Rs. 36,54,57,109 in the hands of M/s Symphonia & Graphics Private Limited. Subject to such disallowance in the hands of M/s Symphonia & Graphics Private Limited, the effect of the amounts entered by the appellant in the books through the debit note and the credit note as discussed above, be removed from the total income, to give effect to the substance and the finding. Accordingly, these grounds of appeal are hereby dismissed.” 6. As the assessee did not receive any favour from the appeal filed before ld. CIT(A). The present appeal filed against the said order of ld.CIT(A) before this tribunal on the grounds as reiterated here in above. To support the grounds so raised the ld. AR of the assessee has placed reliance on the written submission which reads as under :- 10 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO “ Facts:- 1. The assessee drives income from manufacturing of precast material for its sister concern M/s Symphonia & Graphics Pvt. Ltd. It filed the return of income on 30.11.2017 declaring income of Rs.6,94,970/- 2. During the year assessee has shown gross receipt of Rs.36,54,57,109/- from Symphonia & Graphics Pvt. Ltd. For making this sale, material of Rs.34,86,23,423/- is received from Symphonia & Graphics Pvt. Ltd. and by performing work on the material received, the same were billed to Symphonia & Graphics Pvt. Ltd. for Rs.36,54,57,109/-, For making the above transaction, assessee has incurred the following expenses:- Particulars Amount Direct expenses-Labour Charges 1,32,93,450/- Salary, wages & bonus 18,72,000/- Finance Cost 1,13,541/- Depreciation 1,87,421/- Other Expenses 2,12,229/- 3. In assessment proceedings the assessee through various letters (PB 17-24) filed details of purchases, sales & expenses claimed and explained the modus operandi of the various activities carried out. The ledger account of sales, purchase, expenses and list of payment made to labours was filed. The AO, however, observed that genuineness of the purchase/sales, debit & credit note, receipt, direct expenses, salary & wages and other expemes claimed by the assessee are not verifiable. He further observed that:- (i) The order received from sister concern is abnormal looking to the past history of the case (ii) The assessee supplied the finished material within 15 days which is abnormal looking to the volume of the order. (iii) For performing such a huge work the assessee is required large machinery, factory area, man power, fuel, raw material and transportation which were not available with the assessee. (iv) The assessee has failed to produce bills of material, transportation, electricity bills, power & fuel expenses, loading & unloading expenses with bills and vouchers. (v)The assessee failed to furnish details of direct expenses of Rs.1.32.93,540/-. On perusal of the labour expenses of Rs.1,20,07,950/-, details of which is tabulated at page 2 to 22 of the assessment order, it is seen that for performing the above work special labour is required. However the labours employed are nor 11 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO regular and also payment are abnormal looking to the market rate. The assessee has also failed to produce labour register, muster roll, bill and vouchers and mode of payment of labour charges. Accordingly AO concluded that there has not been any real transaction of sale/purchase between the assessee and M/s Symphonia & Graphics Pvt. Ltd. (sister concern). The assessee himself has confirmed that the entire sale and purchase are through debit/credit note. The assessee has not submitted any iota of evidence how goods come to its possession and how it has again resent to M/s Symphonia & Graphics Pvt. Ltd. The debit note issued has characterized transaction as "Contract A/c but no TDS has been deducted. Accordingly, the AO held that the assessee has claimed bogus expenses under the head direct expenses, salary & wages & depreciation on execution of supply of precast finished goods to its sister concem M/s Symphonia & Graphics Pvt. Ltd. Therefore he made disallowance of claim of direct expenses of Rs. 1,32,93,450/-, salary & wages of Rs. 18,72,000/- and depreciation as per Income Tax Act of Rs.5.97.143/-, totaling to Rs. 1,57,62,593/- and assessed total income at Rs. 1,64,57,563/- 4. The Ld. CIT(A) at Pg 11 & 12 of its order at Para 5.2(vii) to (ix) held that M/s Symphonia & Graphics Pvt. Ltd. used the appellant company which is a related party to inflate the expenses in its own contract without any actual work. Thus there is no real transaction of sale/purchase between the assessee and M/s Symphonia & Graphics Pvt. Ltd. and the entire matter was façade of an arrangement only on paper. Accordingly AO is directed to take necessary action to disallow the expenses of Rs.36,54,57,109/- in the hands of Mis Symphonia & Graphics Pvt. Ltd. Subject to such disallowance in the hands of Mis Symphonia & Graphics Pvt. Ltd., the effect of the amounts entered by the appellant in the books through the debit note and the credit note be removed from the total income to give effect to the substance and the finding. Thus the ground of appeal of the assessee is dismissed. Submission:- 1. At the outset it is submitted that both the lower authorities have held that purchases of Rs.34,86,23,483/- and sales of Rs.36,54,57,109/- made from/ to M/s Symphonia & Graphics Pvt. Ltd. is only a paper arrangement and not a real transaction. The Ld. CIT(A) has directed the AO to remove both the transaction to determine total income. If both the purchase and sale are only paper transaction, then the difference between the two, i.c. Rs. 1,68,33,686/- (36,54,57,109-34,86,23,423) cannot be charged to tax. If such income is not chargeable to tax and expenses of Rs. 1,57,62,593/- is not allowed, the total income would work out to Nil and therefore it was not correct on part of CIT(A) to dismiss the appeal of assessee 12 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO 2. It may be noted that the AO in case of M/s Symphonia & Graphics Pvt. Ltd. in the order passed u/s 147 dt. 25.03.2022, at Para 6 has also observed that it has raised bill of Rs.34,86,23,423/- on account of supply of material to the assessee and also received bill of Rs 34,91,35,496/- on account of supply of material by the assessee whereas actually no such material is transacted between both the assessees. The transaction was entered only to qualify the eligibility criteria of tender of Jaipur Smart City Ltd. Accordingly addition of Rs.5,72,073/- was made by holding that bogus loss has been booked in the transaction. Against this order M/s Symphonia & Graphics Pvt. Ltd. have not filed any appeal. Copy of the order is enclosed. Thus when both the purchase & sale transaction of the assessee with M/s Symphonia & Graphics Pvt. Ltd. are only paper transaction, no income from such transaction can be assessed as per the finding of lower authorities and consequently even by making disallowance of the expenses no income can be assessed to tax. In view of above, AO be directed to assess the income as declared by the assessee.” 7. During the course of hearing the ld. AR of the assessee vehemently argued that both the lower authorities have held that the purchase/sale of transactions made to and from M/s Symphonia and Graphicus Pvt. Ltd. are only a paper arrangement and not a real transaction thus when purchase/sale transaction are poor paper transaction even the income offered by the assessee company is also not chargeable to tax when the fact of the transaction has been accepted by the lower authorities. When the purchase/ sale transaction are considered is more paper transaction why not the expenditure incurred and such the same transaction be considered as paper transaction. 8. Per contra, ld. DR submitted that the order of the ld. CIT(A) is very clear and speaking order. The ld. DR vehemently submitted that the 13 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO disallowance expenses made by the ld. AO should be sustained because the assessee submitted that the proof of explained/bills for retracted and other expenditure so when there is no such activity carrying out that the expenditure incurred by the assessee are required to be added as disallowance of expenditure based on this. The ld. DR relied upon the findings recorded in the orders of the lower authorities. 9. We have heard both the parties and perused the materials available on record. Ground no.1 raised by the assessee is that once the ld. CIT(A) taken a view that there is no real transaction of sale of Rs. 36,54,57,109 and purchase of Rs 34,86,23,423/- between the assessee and M/s. Symphonia & Graphic P. Ltd., and the entire matter was façade of an arrangement only on the paper but at the same time directing to take necessary action to disallow expenses of Rs. 36,54,57,109 in the hands of M/s. Symphonia & Graphic Private Limited. Whereas ground no. 2 is raised by the assessee confirmation of disallowance of Rs. 1,32,93,450/- of salary wages and bonus expense of Rs. 18,72,000/- and depreciation of Rs. 5,97,143/-. Since both the grounds are interrelated and has same set of facts the same are decided together. 14 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO 10. The bench noted that the ld. CIT(A) has given the categorical and clear finding that :- “(vii) There is no documentation to show that what precast items were allegedly prepared or built by the appellant and for which civil work such items were built. There is no documentation to show that what designs and specifications were provided by M/s Symphonia & Graphics Private Limited to the appellant to build the precast stems. Whenever the work is subcontracted by the main contractor for the crucial items like the precast material it is normally the precondition in the contract that the contractor would inform the final buyer in this regard. However there is no correspondence placed on record of M/s Symphonia & Graphics Private Limited with the final buyer in this regard. Raw material reconciliation and the reconciliation of the precast items made by the appellant and built by M/s Symphonia & Graphics Private Limited or obtained by them from some of the supplier are not reconciled. In view of the discussion, the logical inference is that M/s Symphonia & Graphics Private Limited, used the appellant company which is related party to inflate the expenses in its own contract without any actual work. There are no invoices. Why the invoices could not be issued has not been explained. The debit note issued has characterized transaction as "Contract A/e" but no TDS has been deducted. The appellant has not produced any evidence despite of the findings in the assessment order. (viii) Accordingly there has not been any real transaction of sale/purchase between the assessee and M/s Symphonia & Graphics Private Limited [Sister Concern) and entire matter was facade of an arrangement only on paper.” 11. As is clear from the finding of the ld. CIT(A) that the transaction of purchase and sales shown by the assessee are not real but are cooked one. Though the present appeal is filed by the assessee and not by the revenue to challenge that finding and thus that finding of the ld. CIT(A) becomes non disputed. Thus, whatever transaction recorded in the accounts of the assessee company are not real but are fabricated so as 15 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO toinflate the figure of turnover. Thus, when it is absolutely clear finding that there is no real purchase and sale transaction supported by bills or vouchers and therefore, once that is established beyond doubt by the ld. CIT(A) then making the addition based on that cooked transaction separately which are not real and merely the same is recorded cannot constitute even the deemed income or expenditure of the assessee company. Thus, considering it as unexplained is not correct when the transaction is undertaken between the known parties are clearly proved to be paper transaction and no real purchase or sale taken place between those parties as is clear from the finding of ld. CIT(A) clearly holds a view that the transaction entered by the assessee with that of M/s. Symphonia & Graphics Private Limited are not in fact real. When it was held so making addition on that fictional transaction which are accepted to be a not real. Even in the Income Tax Act wherever intention is to charge the deemed income as real is specified. Thus, the Real Income Theory in Income Tax Law, a court-made concept emphasizing taxation of actual income, not hypothetical earnings. Even the provision of section 4 & 5 of the Act does empower to tax such income which are paper incomeonly and no real transaction alleged to have taken place. The similar issue has been 16 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO decided by the apex court in the case of Commissioner of Income Tax Vs. Shoorji Vallabhdas& Co. [ 46 ITR 144 (SC) ] wherein the court held that ; The contentions before us (as also in the High Court) were that the income had already accrued to the assessee firm in the year of account, and was thus assessable, that the arrangement amounted to a voluntary gift by the assessee firm to the shipping companies, and that the books being kept on a mercantile basis showed the commission as each amount of freight was entered. It was also contended that the managed companies dealt with the accounts only in December, 1948, long after the previous year was over, and that what had happened in the subsequent year did not alter the position in the relevant previous year. The Bombay High Court relied upon an earlier decision of the same court reported as Commissioner of Income-tax v. Chamanlal Mangaldas& Co. [1956] 29 ITR 987and held that the events during the account year were themselves sufficient to show that the income neither accrued to the assessee firm nor was received by it so as to become assessable. The decision of the Bombay High Court was approved by this court in Commissioner of Income-tax v. Chamanlal Mangaldas& Co. [1960] 39 ITR 8 (SC). In Chamanlal Mangaldas& Co.'s case (supra), the assessee was also the managing agent of a company, and under the agreement was entitled to receive commission at a certain rate. By another agreement, the commission earned by the managing agent for the calendar year 1950 was reduced by Rs. 1 lakh. That agreement took place during the previous year, and the resolution of the board of directors of the managed company was also in the previous year. It was, however, made final on April 8, 1951, at a meeting of the board of directors, but that was beyond the previous year. The High Court of Bombay held that by reason of the resolution during the currency of the previous year, the right of the assessee to commission ceased to be under the original agreement and depended upon and arose only after the decision of the board of directors to reduce the commission. The assessee was, therefore, not held liable on the larger sum which, it was held, was only a hypothetical income, which it might have earned if the old agreement had continued to subsist. The facts of the present case are almost identical, and the principle applied by the Bombay High Court governs this case. The reason is plain. Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an 17 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO entry to that effect might, in certain circumstances, have been made in the books of account. This is exactly what has happened in this case, as it happened in the Bombay case Commissioner of Income-tax v. Chamanlal Mangaldas& Co. [1956] 29 ITR, which was approved by this court. Here too, the agreements within the previous year replaced the earlier agreements, and altered the rate in such a way as to make the income different from what had been entered in the books of account.' A mere book-keeping entry cannot be income, unless income has actually resulted, and in the present case, by the change of the terms the income which accrued and was received consisted of the lesser amounts and not the larger. This was not a gift by the assessee firm to the managed companies. The reduction was a part of the agreement entered into by the assessee firm to secure a long-term managing agency arrangement for the two companies which it had floated. In our opinion, the High Court was right in coming to the conclusion that on the facts of this case the larger income neither accrued nor was received by the assessee firm. In the result, the appeal fails, and is dismissed with costs. Respectfully following the finding that “Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialise”.This theory although is not found in the income tax law but has been evolved by apex court first and then being further enriched by various High courts from time to time and principal ethos of this theory is that under income tax law only the real or actual income not the hypothetical income is taxable in the hands of assessee by interpreting the section 2(24) on definition of income under the income tax law and the reason for evolving this vital theory by the 18 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO apex court was required to dispel the departmental stand that in mercantile system of accounting both the income accrued in the hands of assessee or on receipt is always taxable irrespective of the fact that no real income has been received by the assessee. Based on the discussion so recorded we consider ground no. 1 & 2 raised by the assessee. Before us even the ld. AR of the assessee submitted that considering the finding so recorded by the ld. CIT(A) even the income returned is required to be reduced to Nil. But since there is no such grounds raised by the assessee there is no force in the argument advanced by the ld. AR of the assessee. Based on these observations ground no. 1 & 2 raised by the assessee are allowed. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 20/08/2024. Sd/- Sd/- ¼Mk0 ,l- lhrky{eh½ ¼ jkBkSM+ deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@JudcialMember ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 20/08/2024 *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Akshay Infrasys Industries Pvt. Ltd. Jaipur. 2. izR;FkhZ@ The Respondent- ITO, Ward-4(1), Jaipur. 19 ITA No. 613/JPR/2024 Akshay Infrasys Industries Pvt. Ltd. vs. ITO 3. vk;dj vk;qDr@ The ld CIT 4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 5. xkMZ QkbZy@ Guard File ITA No. 613/JPR/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar