Appeal details
Counselvise Citation
[2022] 105 COUNSELVISE.COM (IT) 5848 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-03-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2010-2011
Appeal Filed On
09-05-2021
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “A”, MUMBAI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.749/M/2021 Assessment Year: 2010-11 M/s. Afcons Infrastructure Ltd., 16, Afcons House, Shah Industrial Estate, Veera Desai West, Mumbai – 400 053 PAN: AAACA9067G Vs. Pr. Commissioner of Income Tax-(1), Room No.330, Aayakar Bhavan, 3 rd Floor, M.K. Road, Mumbai - 400020 (Appellant) (Respondent) Present for: Assessee by : Shri Sujit Ghosh, A.R. Revenue by : Ms. Shailja Rai, D.R. Date of Hearing : 17 . 01 . 2022 Date of Pronouncement : 29 .03 . 2022 O R D E R Per : Kuldip Singh, Judicial Member: The appellant, M/s. Afcons Infrastructure Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 24.03.2021 passed by Ld. Principal Commissioner of Income Tax, Mumbai (hereinafter referred to as the PCIT) invoking revisionary jurisdiction by virtue of the provisions contained under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on the grounds inter alia that :- ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 2 “A: Addition on account of bogus sub-contract expenses. 1. That the Ld. PCIT has passed the impugned order in contravention of the express pre-conditions necessary for exercise of power under Section 263 of the Income Tax Act and has therefore committed a jurisdictional error. 2. That the Ld. AO, after due application of mind, had passed a detailed order restricting the additions to 12.5% (and not 100%) after considering the extensive submissions and judgments placed by the appellant. Therefore the Ld. PCIT has committed an error of fact and law in holding that there was no application of mind by the AO. 3. That the impugned order is contrary to established principles of law laid down by this Tribunal and other High Courts. B: Addition in respect of interest on arbitration awards 1. That findings in the impugned order on this issue is bad in law for want of any specific conclusion on the subject and failure to make a reference to the original order under revision. 2. That in any case, any findings under Section 263 on this issue were barred by limitation, having been passed beyond two years from the date of the order under revision and also contrary to the law on merits and the Ld. Assessing Officer had rightly allowed the concerned deduction under Paragraph 4 of its order dated 05.03.2014 with a detailed reasoning.” 2. Briefly stated facts necessary for adjudication of the controversy at hand are : the assessee company filed a return of income on 25.09.2010 declaring the total income of Rs.54,61,68,230/- under normal provisions and book profit of Rs.76,40,58,837/- under section 115JB of the Act. Thereafter, the ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 3 assessee filed revised return of income on 16.05.2011 revising its total income at Rs.55,33,94,596/- and again filed revised return of income on 29.03.2012 at the total income of Rs.23,92,94,596/-. Assessment was framed under section 143(3) of the Act at Rs.2,96,66,390/- under the normal provisions and book profit of Rs.76,40,58,837/- under section 115JB of the Act. 3. Subsequently, on the basis of information received from DDIT(Inv.) assessment was reopened by way of initiating the proceedings under section 147/148 of the Act qua the alleged bogus sub-contract expenses claimed by the assessee of Rs.3,83,95,000/- and Rs.4,09,73,000/- (total Rs.7,93,68,000) from M/s. Kumar Enterprises and M/s. Shivam Enterprises respectively. Consequently, the Assessing Officer (for short the AO) framed the assessment at the total income of Rs.26,07,45,648/- under normal provisions of the Act and book profit at Rs.76,40,58,837/- under section 115JB of the Act. 4. However, the Ld. PCIT by invoking the revisionary jurisdiction issued a notice under section 263 of the Act by flagging the issue that during the year under consideration assessee company has made payment of Rs.4,05,25,000/- to M/s. Shivam Enterprises and Rs.3,29,00,000/- to M/s. Kumar Enterprises, and both the ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 4 above entities have been found to be shell entities and they have not filed return despite having received substantial sum of money from the assessee company M/s. Afcons Infrastructure Ltd. It was also noticed by the Ld. PCIT that during the reassessment proceedings the AO established that the alleged transaction on account of sub- contract services availed by the assessee from the above two entities are non genuine and are in the nature of alleged bogus sub- contract expenses, but AO instead of disallowing the entire alleged sub-contract expenses made addition of Rs.99,21,000/- being 12.5% of the alleged bogus sub-contract expenses of Rs.7,93,68,000/- under section 69 of the Act. The Ld. PCIT also noticed that the assessee has credited an amount of Rs.6,57,89,000/- on account of arbitration award to P&L account, however reduced the same from the total income in the computation of income. The AO was required to add back the entire amount of Rs.6,57,89,000/- to the total income instead of Rs.37,75,625/- as the assessee has been following mercantile system of accounting. 5. Declining the contentions raised by the assessee the Ld. PCIT proceeded to conclude that the assessment order passed by the AO under section 143(3) read with section 147 of the Act is erroneous and prejudicial to the interest of the revenue and directed ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 5 the AO to reframe the assessment afresh after giving due opportunity to the assessee. 6. Consequently, the Ld. PCIT found the assessment order passed by the AO erroneous and prejudicial to the interest of the revenue and invoked the jurisdiction under section 263 of the Act by way of issuance of notice and thereby passed the impugned order under section 263 of the Act. Feeling aggrieved from the impugned order passed by the Ld. PCIT under section 263 of the Act, the assessee has come up before the Tribunal by way of filing the present appeal. 7. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 8. The Ld. D.R. for the Revenue in addition to the argument addressed in the court, also filed written submissions which are made part of the judicial record. ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 6 9. Before proceeding further we would like to extract the notice issued by the Ld. PCIT under section 263 of the Act and reply filed thereto by the assessee, which are as under: “Notice issued by the Ld. PCIT: (i) On perusal of the records, the assessment was reopened u/s.147 as it was found that the alleged payments totaling to Rs. 7,93,68,0007-; to two entities viz. M/s. Kumar Enterprises - Rs. 83,95,0007- and to M/s. Shubham Enterprises -Rs. 4,09,73,0007-, respectively , for non- existent persons as pointed out by the DDIT. The matter was referred to the AO, after due process the AO initiated the reassessment proceedings and during the course of those proceedings, letters and notices issued to the above two parties were returned unserved by the postal authorities and you were a/so not able to produce those parties for verification despite making such huge payments. Therefore, the AO held the same to be non genuine and accommodation entries and an amount equal to 12.5% of the sales was added back to the income of the assessee. (ii) This decision of the AO to only add back 12.5% of the sales is an error and is also prejudicial to the interests of the revenue. As when the transaction was held to be non genuine, parties are not found at the address given and no return of income have been filed, the entire transaction should have been added back to the income and not 12.5% of sales. (iii) Reliance is placed on the decision of the Hoh'ble Supreme Court in the case of N.K. Proteins Pvt. Ltd. vs. Dy. CIT(2016) 292 CTR 354.."Whereby it was held that addition on basis of undisclosed income could not be restricted to certain percentage when the entire transaction was found to be bogus." Similarly, on perusal of the computation of income furnished by you, during the course of reassessment proceedings, the sum of Rs.6,57,89,000/- on account of 'Arbitration Credits' taken to P&L A/c. was reduced from you profit for the year while computing income in the ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 7 second revised return. As you are following mercantile system of accounting and further in view of the various provisions of the I.T. Act the same should not have reduced in your computation and erroneously allowed by the AO without any discussion or verification. This clearly shows that the said order passed by the AO is erroneous and prejudicial to the interests of revenue.” “Reply filed by the assessee: "Issue No. 1: In respect of two vendors who had allegedly given 'accommodation invoices' additions @ 12.5% of invoice values, (considering gross profit) was made in assessment order passed u/s. 147. Citing the case of N.K. Proteins Pvt. Ltd. vs. DCIT, notice u/s.263 propose to make addition @100% of invoice values. Our submissions • Principles laid down in N.K. Proteins cannot be applied in our case. • In N.K. Proteins incrimination documents were found in the premises of assessee and the assessee confessed that invoices were fake. • In our case reopening was done based on information from DDIT(lnv.) New Delhi. • No independent enquiries were made by AO (other than writing a letter to bankers of vendors). • We had submitted the 'measurement books' of the vendors which are maintained by the project teams for certifying work done by vendors. • For work done by these vendors, we in turn raised bills on our clients. • Our above facts have hot been disputed by the AO in his order. AO unfortunately did not incorporate our above submission in order u/s.147. Nevertheless, he applied his mind and added GP @ 12.5%. In view of the above, the notice u/s. 263 on this issue may kindly be dropped. ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 8 Issue No. 2: It is proposed to add an amount of Rs.6.57 crores relating to Arbiration awards received during the year which was claimed as deduction by the assessee and allowed in assessment. On merits: • AO has applied his mind before allowing the deduction and based on submissions made by us. • After applying his mind and considering our submissions, the deduction allowed by the AO was ofRs.6.57 crores minus Rs.0.37 crores = Rs.6.20 crores. • AO explained the reasons for reducing the deduction claimed for arbitration awards in the return of income and restricted the deduction to Rs.6.20 crores (instead ofRs.6.57 crores claimed in the return) and recorded the reasons in para 4.1 of the assessment order on page no.4 of assessment order dated 05.03.2014. • The deduction allowed was being consistently allowed to the assessee since AY 2004-05 and is based on the decision on the Hon'ble Supreme Court in the case of Hindustan Land Development Corporation. AO therefore applied his mind and recorded the reasons for allowing the deduction. On Technical Grounds: • Although order u/s.147 was passed in December 2017 and notice u/s.263 has been issued within 2 years, the issue regarding allowing deduction of Rs.6.57 cr. relating to arbitration awards does not arise from the order u/s. 147. • The issue arises out of the original order passed u/s. 143(3). Since original order was dated 05.03.2014 notice u/s.263 on this issue is time barred. ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 9 In view of the above facts and circumstances of-our case, both on merits and technical grounds, the proceedings u/s.263 on this issue maybe dropped." 10. Undisputedly, Ld. PCIT has invoked the revisionary jurisdiction under section 263 of the Act on two issues dealt with by the AO in the assessment framed under section 143(3) read with section 147 of the Act which are as under: (i) Bogus contract expenses claimed by the assessee (ii) Interest on arbitration award not offered for taxation under normal provisions of the Act. 11. Reopening under section 143(3) read with section 147 of the Act was initiated on the basis of information received from the investigation wing of Income Tax, Delhi that M/s. Kumar Enterprises and M/s. Shivam Enterprises with whom the assessee had business transactions were shell entities and they have not filed their returns of income despite having allegedly received substantial sum of money from the assessee. 12. Provisions contained under section 263(1), Explanation 2 laid down the criteria for invoking revisionary jurisdiction under section 263 of the Act only when the order sought to be revised is prejudicial to the interest of the revenue and the AO has framed the assessment inter alia that without making enquiries or verification which should have been made; that the order is passed allowing any relief without enquiring into the claim; that order has not been ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 10 made in accordance with any order, directions or instructions issued by the Board under section 119 or; that the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Hon’ble Supreme Court in case of the assessee of any other person. 13. We would examine the order passed by the Ld. PCIT under section 263(1), Explanation 2 qua both the issues flagged by the Ld. PCIT. 14. So far as issue flagged by the Ld. PCIT as to the alleged bogus sub-contract expenses claimed by the assessee from M/s. Kumar Enterprises and M/s. Shivam Enterprises for an amount of Rs.7,93,68,000/- are concerned, we have perused the assessment order in question particularly para 6 of the assessment order wherein detailed discussion has been made. During the assessment proceedings the assessee was called upon to submit summary of payments, ledger accounts, specimen copies of bills, work order & accounting entries and copy of TDS certificate to prove the genuineness of the transactions in question, to which the assessee company has filed reply as under: “6.3 Further, vide its letter dated 14.9.2017, the assessee has stated that it is a part of Shapoorji Palonji group and is involved in the execution of large and complex civil engineering projects in India as well as abroad. Further, it ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 11 has contended that it sub-contracts a part of the main contract work to other sub-contractors, in order to ensure timely completion of the contract. It stated that the above two entities M/s. Kumar Enterprises and M/s. Shivam Enterprises are two such sub-contractors, whose services were availed by the assessee company by sub-contracting a part of its ongoing projects for the assessment year consideration. The assessee has submitted that all the payments to these parties were made through account payee cheques after deducting TDS. Accordingly, the assessee has submitted that the payments made to both these parties are not merely accommodation entries and are genuine payments for the services availed.” 15. The AO, to examine the aforesaid claim also issued notice under section 133(6) of the Act to both the parties on 29.09.2017 but the same remained unserved. The assessee was also asked to produce both the parties which the assessee company has failed to do. 16. Consequently, the AO after examining plethora of case laws rendered by Hon’ble High Courts and Tribunal, reached the conclusion that “bogus entry transactions in question are non genuine and allowed the same to be accommodation entries”. The AO by following the decisions rendered by Hon’ble Gujarat High Court in cases of Simit P. Sheth 356 ITR 451 (Guj.) and CIT vs. Bholanath Poly Fab P. Ltd. proceeded to make addition of Rs.99,21,000/- (612.5% of Rs.7,93,68,000/-) along with commission @ 1% amounting to Rs.7,93,680/- to the total income ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 12 of the assessee. Addition made by the AO has been accepted by the assessee company by not filing any further appeal. 17. The Ld. D.R. for the Revenue, on the other hand, contended that there is nothing on record, if services were actually procured by the assessee from the contractor. However, answer to this question has been given by the AO himself by treating the transactions as non genuine/accommodation entries. The Ld. D.R.’s contention that 100% amount of bogus transactions should have been added and relied upon the decision rendered by co-ordinate Bench of the Tribunal in case of ITO vs. Ashok V. Viradia in ITA No.646/M/2016 dated 25.09.2017 and decision rendered by Hon’ble Bombay High Court in case of Shoreline Hotel (P.) Ltd. vs. CIT (2018) 98 taxmann.com 234 (Bombay). 18. However, we are of the considered view that on this issue divergent judgments have been passed by the Hon’ble High Courts as in case of CIT vs. Bholanath Polyfab Pvt. Ltd. (2013) 355 ITR 290 and CIT vs. Simit P. Sheth (2013) 356 ITR 451 (Guj.). Hon’ble High Court permitted addition of partial amount of accommodation entries due to the fact that there were subsequent sale of goods which were undisputed. ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 13 19. When we examine aforesaid findings returned by the AO in the light of the mandate given by section 263(1), Explanation 2 there is nothing on record to make out if the assessment order was passed without making any enquiry or verification or given any relief without enquiring into the claim. In response to the explanation called by the AO assessee company brought on record the summary of payment; ledger account; specimen copies of bills, work orders, accounting entries; TDS certificate, bank statement showing payments made to the aforesaid two parties which are available at page 80 of the paper book. 20. Thereafter, the AO issued notice under section 133(6) to both the parties which remained unserved and assessee company has shown its helpless to produce the parties. Thereafter the AO, by relying upon the law laid down by the Hon’ble Rajasthan High Court reported in (2002) 178 CTR (Rajasthan) 420 and Tribunal’s orders in case of CIT vs. M/s. Golcha Properties Pvt. Ltd. (in liquidation) (1996) 136 CTR 222 (Raj.), M/s. Kachwala Gems vs. JCIT (ITA No.134/JP/2002 dated 10.12.2003, CIT vs. Saravana Constructions Pvt. Ltd. (2012) 72 DTR (Kar), CIT vs. La Medica (2001) 250 ITR 575 (Del.), Ganesh Rice Mills vs. CIT (1989) 180 ITR 288 (All), Khandelwal Trading Co. vs. ACIT 55 TTJ (Jp) 261 and Vijay Proteins Ltd. vs. ACIT (1996) 55 TTJ (Ahd) 76 : 58 ITD ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 14 428, reached the conclusion that the transactions entered into by the assessee company with aforesaid companies are “non genuine” and held to be “accommodation entries”. So the AO made the addition @ 12.5% of the total amount of Rs.7,93,68,000/- and 1% on account of commission on these accommodation entries. So in these circumstances, we are of the considered view that Ld. PCIT has invoked the jurisdiction under section 263 without satisfying the conditions laid down under section 263(1) Explanation 2 which is not sustainable in the eyes of law. Because when after discreet inquiry AO has taken plausible view, the same cannot be allowed to be revised under section 263 of the Act. Moreover, there is nothing on file to show that there is non application of mind on the part of the AO. 21. Moreover, in the instant case only different view taken by the AO as well as Ld. PCIT is as to whether total transaction amount of bogus entries should be added or 12.5% thereof should be added to the income of the assessee. In such circumstances, it is again settled principle of law that “where two views are possible, as the AO has taken one view and Ld. PCIT did not agree with him” on this ground only the order cannot be treated as erroneous in so far as prejudicial to the interest of the revenue as has been held by ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 15 Hon’ble Bombay High Court in case of Grasim Industries Ltd. vs. CIT (2010) 321 ITR 92 (Bom). 22. In these circumstances, we are of the considered view that when the assessment order which was subject matter of section 263 of the Act was passed after discreet enquiry and applying its mind the same cannot be revised under section 263 of the Act. Since order passed by the Ld. PCIT does not fulfill the condition laid down under section 263 of the Act the same is not sustainable in the eyes of law, so far as issue as to the bogus sub-contract expenses claimed by the assessee are concerned. 23. Now we take up the second issue on which revisionary jurisdiction under section 263 of the Act was invoked by Ld. CIT(A) i.e. AO without any discussion or verification allowed the claim of the assessee to reduce a sum of Rs.6,57,89,000/- on account of arbitration credit taken to P&L account was reduced from profit for the year under consideration while computing the income in the second revised return. The assessee has challenged the impugned order passed under section 263 of the Act qua income from arbitration award on two grounds: one that exercise of revisionary jurisdiction by Ld. PCIT under section 263 of the Act is hopelessly time barred; two that ingredients laid down to invoke the ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 16 revisionary jurisdiction under section 263 of the Act are not satisfied. 24. So far as question of invoking the revisionary jurisdiction by Ld. PCIT under section 263 of the Act being time barred are concerned, undisputedly impugned order passed under section 263 of the Act is dated 24.03.2021 seeking to review the order passed by the AO on 05.03.2014. It is also not in dispute that limitation period for reason of assessment order under section 263 of the Act is within two years from the end of the financial years in which the order sought to be revised was passed. By applying the aforesaid principle the limitation to review the order dated 05.03.2014 under section 263 of the Act expired on 31.03.2016 as per the provisions contained under section 263(2) of the Act. 25. The Ld. PCIT has dealt with this issue on the premise that when the jurisdiction is invoked under section 147 of the Act the whole assessment proceedings stand reopened. 26. We are unable to agree with this reasoning given by the Ld. PCIT as well as by Ld. D.R. for the Revenue because power to reopen the assessment under section 147 of the Act is vested with the AO and not with the Ld. PCIT. For that matters limitation cannot be stretched beyond two years as laid down under section ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 17 263(2) of the Act. So assuming jurisdiction qua income from arbitration award under section 263 of the Act is hopelessly time barred and as such the impugned order in this regard is not sustainable. 27. Furthermore, it is contended by the Ld. A.R. for the assessee that even the conditions laid down under section 263 of the Act as discussed in the preceding paras are not satisfied because the AO during assessment has made extensive enquiry by perusing entire details of arbitration awards and the appeals filed by the assessee’s opponent before various High Courts. After due application of mind the AO concluded that only the award amounting to Rs.37,75,265/- was final and rest is still under dispute. 28. Perusal of the findings returned by the AO qua income from arbitration award in the assessment order dated 05.03.2014 passed under section 143(3) read with section 144C(3) of the Act shows that due enquiry was carried out by the AO and decided the issue by applying his mind by returning following findings: “Arbitration Awards : 4.1 Vide its written submissions dated 15.01.2014, the assessee has stated that in its return of income for A.Yr. 2010-11, it had reduced the sum of Rs.6,57,89,281/- on account of 'arbitration credits taken to Profit & Loss Account' on the basis that the awards are being challenged by the clients before higher forums i.e. before the High ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 18 Court.. However, now it is learnt by the assessee that some of the arbitration awards and interest thereon was not challenged by the client viz. Chennai Port Trust. Such amount comes to Rs.37,75,265/-. Hence, Rs.37,75,265/- is added to the total income of the assessee. Penalty proceedings u/s.271(1){c) of the Act are hereby initiated for furnishing inaccurate particulars of income / concealment of particulars of income.” 29. Moreover, it is brought on record by the assessee that on identical issue order passed by the Ld. PCIT for A.Y. 2014-15 in assessee’s own case has been quashed by the Tribunal vide order dated 17.03.2020 in ITA No.3159/M/2019 for A.Y. 2014-15 by taking the view that once a possible view is taken in the matter by the AO provisions contained under section 263 of the Act cannot be invoked. 30. However, we are of the considered view that the said order was passed on the basis of settled principle of law but we are to decide this issue on the basis of particular facts of this case. In the instant case, we are of the considered view that when after due enquiry, the AO has taken plausible view on the issue in question by calling necessary information from the assessee, such assessment order cannot be held to be prejudicial to the interest of the revenue. So we are of the considered view that very initiation of proceedings by invoking the provisions contained under section ITA No.749/M/2021 M/s. Afcons Infrastructure Ltd. 19 263 of the Act by the Ld. PCIT lacks jurisdictional error and as such not sustainable in the eyes of law. 31. In view of what has been discussed above, we are of the considered view that very initiation of the proceedings under section 263 of the Act are not sustainable in the eyes of law for lack of jurisdiction as required under section 263(2) to Explanation 1 of the Act, hence ordered to be quashed. Since the assessee has got the relief on legal issue, we find no need to go into the merits of this case. Resultantly, appeal filed by the assessee is allowed. Order pronounced in the open court on 29.03.2022. Sd/- Sd/- ( M. BALAGANESH) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 29.03.2022. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai.
