ITD ITD CEM JOINT VENTURE,MUMBAI V. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 5(1), MUMBAI, MUMBAI

ITA 4618/MUM/2024

AI Insights

The case involves ITD Cem Joint Venture, which is a joint venture engaged in infrastructure development, particularly water supply projects. A survey under Section 133A of the Income Tax Act revealed that the assessee used a unique accounting method to record unaccounted cash expenses for securing work contracts. The Assessing Officer (AO) presumed these expenses were bogus and generated cash for non-business purposes, leading to additions to the assessee's income. The CIT(A) partially upheld these additions, but the Tribunal, referencing a similar case and the absence of any defects in the books of accounts, directed the deletion of the additions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 469889 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-10-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 09-09-2024
• Other Referred Cases: ITD CEMINDIA JV in I.T.A. No. 4556/Mum/2024, I.T.A. No. 4566/Mum/2024, I.T.A. No. 4563/Mum/2024, I.T.A. No. 4558/Mum/2024
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR; DR
• Assessee Lawyers: VIJAY MEHTA; AR
• Keywords: Search and seizure; Bogus
• Section: 147; 133(6); 133A; 37(1)

Judgement Text

"| आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI RAJ KUMAR CHAUHAN, HON’BLE JUDICIAL MEMBER I.T.A. No. 4618/Mum/2024 Assessment Year: 2016-17 ITD ITD Cem Joint Venture 9th Floor, Prima Bay Tower-B, Gate No. 5 Saki Vihar Road Powai Mumbai - 400072 [PAN: AAAJI0262Q] Vs The Deputy Commissioner of Income-tax, Central Circle 5(1), Mumbai अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Vijay Mehta, A/R Revenue by : Shri Krishna Kumar, Sr. D/R सुनवाई की तारीख/Date of Hearing : 17/10/2024 घोषणा की तारीख /Date of Pronouncement: 25/10/2024 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order of the ld. CIT(A)-53, Mumbai dated 26/07/2024, pertaining to AY 2016-17. 2. The grievance of the assessee reads as under:- “1. The Ld. CIT(A) has erred in confirming the initiation of assessment proceedings and the validity of the order passed by the Assessing Officer under Section 147 of the Act which is bad in law, illegal and void. 1.1 The Ld. CIT(A) has erred in confirming the validity of the proceedings initiated by the Assessing Officer under Section 147 of the Act without considering the fact that the DIN was not mentioned on the approval granted under Section 151 of the Act as per CBDT Circular No. 19/2019 dated 14 August 2019. 1.2 The Ld. CIT(A) has erred in confirming the validity of the assessment order passed under Section 147 of the Act without considering the fact that the assessment order has been passed without obtaining the approval from the specified authority as required under Section 148B of the Act. 2. The Ld. CIT(A) has erred in confirming addition to the extent of 2.5% of the expenses classified as contingency expenses in the seized MIS statements amounting to Rs. 4,97,500. I.T.A. No. 4618/Mum/2024 2 The Appellant craves leave to add, amend, alter and/or delete any of the grounds of appeal before or during the course of appeal. The Appellant craves leave to submit such facts / documents / evidence in the course of hearing as may be necessary.” 3. Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidence brought to our notice duly considered in light of Rule 18(6) of the ITAT Rules, 1963. 4. Briefly stated the facts of the case are that the assessee is an AOP (Association of Persons) being a joint venture between ITD Cementation India Ltd., and Indian company and Italian Thai Development Public Company Limited, a foreign enterprise, and is engaged in the business of infrastructure development to undertake projects of construction of roads, bridges, metro railway contracts, water supply project on contract basis from Government/non-government entities. The joint venture has entered into contracts of water supply projects for Kolkata Municipal Corporation and earned contract revenue from these projects. 5. A survey action u/s 133A of the Act was carried out in ITD Cem group and related entities on 26/10/2021. During the course of survey operation it is found that the assessee is following a unique method of accounting and the same is followed by the assessee group entities to record unaccounted cash expenses which is deployed to secure work contracts from the contractee organizations. It was noticed that the assessee prepares Cost to Completion (CTC) reports which provide pen picture of the actual cost incurred for the project under each expense I.T.A. No. 4618/Mum/2024 3 head – both Estimated costs and also the actual costs. The AO was of the opinion that the evidence found in a survey discovered the term “Contingency” used to denote those expenses which are not recorded in the books of account and are spent in cash for non-business purposes. On this presumption, the AO alleged that the assessee has incurred certain unaccounted expense in cash that is bogus expenditure and such cash have been generated by debiting fictitious expenditure in the ledger account/books of accounts. The AO further presumed that the contingency expenses shown in the CTC reports are adjusted in various costing heads of the books of accounts by passing “adjustment entries” which are 1) booking of artificial expenditure from shell entities and 2) booking of over-invoiced expenditure from regular vendors. The AO further alleged that the assessee has booked various bogus expenses in order to generate cash for meeting ‘contingency’ expenses. 5.1. The AO rubbished the contention of the assessee that the entire contingency expenditure is accounted in the books of accounts, though the AO categorically admitted that the total cost figure in the CTC report matches the total cost figure in the books of accounts, the cost booked under each head is different in the CTC report and the books of accounts. 6. The basis for not accepting the contention of the assessee by the AO is at page 23 of the assessment order, which is extracted for ready reference:- “7.3. The submission filed by the assessee has been considered, but not found acceptable on the following grounds: i. The assessee has not followed the SOP for issuing PO/WO in various entities, which was followed in issuing PO/WO in other expenses. The assessee has submitted that SOP has not been followed in some instances before issuing PO/WO due to exigencies of work. The reason given by I.T.A. No. 4618/Mum/2024 4 assessee is not acceptable because SOP has been followed in other cases other than these bogus transactions. Also, assessee failed to provide any reason for such exigencies to divert the regular procedure followed to issue the PO/WO. Further, it is noticed that the amount involved is very high and in standard practice expenditure and exigencies get proper approval from concerned authorities. The assessee failed to submit any documentary evidence to support the claim of assessee that SOP has been diverted in issuing PO/WO for the above referred expenses due to exigencies like nature of exigencies, prior or post approval for such exigencies, any standard practice followed for expenses due to exigencies. ii. The assessee shown its inability to produce vendor wise list for contingency expenses. iii. The assessee shown its inability to provide books of account wherein contingency expenses has been maintained. iv. The assessee shown its inability to provide break up of liaisoning expenses and contingency expenses. v. The assessee has failed to submit the delivery challan/stock register/e-way bill/labour register of parties to whom notices u/s 133(6) were issued. 10. In view of the above, it is found that the assessee has followed SOP for issuing WO/PO and the same is considered as sacred for the organization, which was not followed before issuing WO/PO in some of the cases. Also, the assessee has failed to submit vendorwise list of contingency expenses, books of account where contingency expenses were maintained and breakup of contingency expenses and liaising expenses. As the assessee has failed to prove the genuineness of its claim towards contingency expenses amounting to Rs. 1,99,00,000/-, the same is hereby disallowed and added to the total income of the assessee.” 7. The additions were challenged before the ld. CIT(A) and the ld. CIT(A) after considering the facts and submissions, held as under:- “Ground No. 4 relates to addition of Rs. 1,99,00,000/- on account of disallowance of contingency expenses. As regards Ground No. 4, this is similar to Ground No. 5 of AY 2015-16. For reasons discussed in the appellate proceedings of AY 2015-16, the disallowance of contingency expenses is restricted to 2.5%. During the year, the AO has disallowed a sum of Rs. 1,99,00,000/- on account of contingency expenses. The same is restricted to Rs. 4,97,500/-. The appellant gets a relief of Rs.1,94,02,500/-. The disallowance is made u/s 37(1) of the Act. Accordingly, this grounds stands PARTLY ALLOWED. 8. On identical set of facts, the Co-ordinate Bench has considered the appeal of ITD CEMINDIA JV in I.T.A. No. 4556/Mum/2024; Assessment I.T.A. No. 4618/Mum/2024 5 Year: 2016-17, I.T.A. No. 4566/Mum/2024; Assessment Year: 2017-18, I.T.A. No. 4563/Mum/2024; Assessment Year: 2018-19 & I.T.A. No. 4558/Mum/2024; Assessment Year: 2022-23, wherein, the Co-ordinate Bench interalia held as under:- “10. The entire addition revolves around the contingency expenditure recorded in the CTC report. As mentioned above, the contingency expenditure is mentioned at the time of preparation of the budget but when the actual figures are known, the same are recorded in the books of accounts. Therefore, it cannot be said that that the contingency figure are not recorded in the books of accounts. In fact, the AO himself admitted this fact at para 4 of his order where he has categorically accepted that the total cost figure in the CTC report matches the total cost figure of the books of accounts. 11. Since the figure of contingency has been recorded against the figure of total expenditure incurred, it is illogical to assume that the assessee has booked bogus expenditure and generated cash outflow from it. Moreover, the impounded material shows the expenditure on mercantile basis and no cash expenditure, therefore, the presumption of the AO that the assessee has generated cash out of bogus expenditure, is without any basis. 12. It is pertinent to refer to the provisions of Section 132(4A) of the Act relevant for search and seizure cases, which reads as under:- [(4-A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i)that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii)that the contents of such books of account and other documents are true; and (iii)that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.]” 13. Thus, the presumption is only in search cases where it is presumed that the contents of such books of account and other documents are true whereas, the appeals under consideration are cases of survey operations where there is no such scope of presumption. This means that in the cases of survey operations, the onus is on the revenue to bring the cogent material evidence on record to show that the assessee has incurred expenditure which are not recorded in the books of accounts. As mentioned elsewhere, in the appeals under consideration, all the expenditure has been found to be recorded in the books of accounts and no error or infirmity has been pointed out by the AO nor by the ld. CIT(A). Even the books of accounts have been accepted and no defect has been pointed out. I.T.A. No. 4618/Mum/2024 6 14. The allegation that the assessee has not followed the Standard Operating Procedure (SOP) is not relevant as long as the impugned expenditure are found recorded in the regular books of account maintained by the assessee. 15. Though the ld. First Appellate Authority has admitted that the entire expenses cannot be disallowed yet, he himself went on to estimate the disallowance which is again not a proper procedure. Once the expenses have been found to be fully recorded in the books of accounts, the same cannot be disallowed only on the whims and surmises of the revenue authorities. 16. Considering in totality the facts of the case in hand in light of the documentary evidence referred during the course of proceedings, we do not find any merit in the impugned additions. We direct the AO to delete the additions from the captioned appeals.” 9. Consistent with the view taken by the Co-ordinate Bench, we direct the AO to delete the impugned additions. Other issues in the captioned appeal have not been pressed, therefore, the same are dismissed as not pressed. 10. In the result, appeal of the assessee is partly allowed. Order pronounced in the Court on 25th October, 2024 at Mumbai. Sd/- Sd/- (RAJ KUMAR CHAUHAN) (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 25/10/2024 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001c / The Appellant 2. \u0015\u001dथ\u001c / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "