M/S. SHREE BALAJI ENGICONS PVT. LTD., BELPAHAR, JHARSUGUDA V. ACIT, CENTRAL CIRCLE, SAMBALPUR, SAMBALPUR

CO 1/CTK/2023

AI Insights

The case involves the Income Tax Department (revenue) appealing against the order of the CIT(A) which had deleted the addition of Rs.15,60,65,675/- made by the AO. The addition was initially made on the grounds that the expenses claimed by the assessee for sub-contract work were bogus. The assessee, M/s Shree Balaji Engicons Limited, had offered additional income during a search operation, which included the amount in question. The CIT(A) found that the work was indeed carried out by the sub-contractor, M/s Jharsuguda Construction Pvt. Ltd., and thus the expenses were genuine. The Tribunal agreed with the CIT(A), noting that the revenue had accepted the income declared by the sub-contractor in their assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 30022 (ITAT-CUTTACK)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-01-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAROJ KUMAR DUBEY
• Assessee Lawyers: SATYANARAYAN AGRAWAL
• Keywords: TDS; Search and seizure; Bogus
• Section: 143(3); 153A

Judgement Text

" आयकर आयकर आयकर आयकर अपीलीय अपीलीय अपीलीय अपीलीय अिधकरण अिधकरण अिधकरण अिधकरण, कटक कटक कटक कटक \u0001यायपीठ \u0001यायपीठ \u0001यायपीठ \u0001यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER IT(SS)A No.01/CTK/2023 (िनधा\u0005रण िनधा\u0005रण िनधा\u0005रण िनधा\u0005रण वष\u0005 वष\u0005 वष\u0005 वष\u0005 / Assessment Year : 2009-2010) DCIT-1(1), Sambalpur Vs M/s Shree Balaji Engicons Limited Belpahar, Jharsuguda-768217 PAN No. : AAGCS 4292 P AND Cross Objection No.01/CTK/2023 (Arising out of IT(SS)A No.01/CTK/2023) (िनधा\u0005रण िनधा\u0005रण िनधा\u0005रण िनधा\u0005रण वष\u0005 वष\u0005 वष\u0005 वष\u0005 / Assessment Year : 2009-2010) M/s Shree Balaji Engicons Limited Belpahar, Jharsuguda-768217 Vs DCIT-1(1), Sambalpur PAN No. : AAGCS 4292 P (अपीलाथ\u000f अपीलाथ\u000f अपीलाथ\u000f अपीलाथ\u000f /Appellant) .. (\u0010\u0011यथ\u000f \u0010\u0011यथ\u000f \u0010\u0011यथ\u000f \u0010\u0011यथ\u000f / Respondent) राज\u0014व राज\u0014व राज\u0014व राज\u0014व क\u0016 क\u0016 क\u0016 क\u0016 ओर ओर ओर ओर से से से से /Revenue by : Shri Saroj Kumar Dubey, CIT-DR िनधा\u0005\u0017रती िनधा\u0005\u0017रती िनधा\u0005\u0017रती िनधा\u0005\u0017रती क\u0016 क\u0016 क\u0016 क\u0016 ओर ओर ओर ओर से से से से /Assessee by : Shri Satyanarayan Agrawal, CA सुनवाई क\u0002 तारीख / Date of Hearing : 07/01/2025 घोषणा क\u0002 तारीख/Date of Pronouncement : 07/01/2025 आदेश आदेश आदेश आदेश / O R D E R Per Bench : The present appeal is filed by the revenue against the order of ld. CIT(A)-2, Bhubaneswar, passed in IT Appeal No.Sambalpur/10065/2015- 16, dated 31.10.2022 for the assessment year 2009-2010. The assessee has also filed cross objection. 2. The revenue in its appeal has raised the following grounds of appeal :- 1. The CIT(A) has erred in allowing the deduction of non-genuine expenses claim by the assesse. 2. The CIT(A) erred in allowing claim of deduction on basis of accounting entries only without proof of actual execution of work. 3. The CIT(A) was not correct in allowing claim of deduction and treating the transaction as based on mere filing of ITR by sub contractor. IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 2 4. The CIT(A) was not correct in allowing the claim of deduction to the assesse in light of overwhelming circumstantial evidence to the contrary when a part of the same transaction was accepted to be unaccounted for by the assessee. 5. The CIT(A) was not correct in allowing the claim of deduction on the basis of mere raising of bill without execution of any work by the sub-contractor. 6. Any other ground of appeal that may arise at the time of hearing. 3. The assessee in its CO has raised the following cross objections :- 1. That on the facts and in the circumstances of the case and in law, the Assessing officer was not justified in making addition to the total income of the assessee in absence of absence of any incriminating documents found and seized during the course of search and that in non-abate assessment proceedings. 2. That on the facts and in the circumstances of the case and in law, the Assessing officer was not justified in making addition to the of Rs.15,60,65,675/- to the total income of the respondent on account of sub-contract payment made to M/s Jharsuguda Construction Private Limited in case of non-abate assessment and that too in absence of any incriminating documents found and seized during the course of search which is neither legal nor proper. 3. That on the facts and in the circumstances of the case and in law, additional income of Rs. 5,75,00,000/- as offered by the assessee during the course of search in absence of any incriminating documents found and seized and that too in the case of non abate assessment was neither legal nor proper. The said additional income is therefore requires to be treated as withdrawn. 4. During the course of hearing, the assessee has withdrawn the Cross Objection No.3 and the remaining Cross Objection Nos.1&2 are in support of the order of the ld. CIT(A), therefore, the same is canvassed together with the appeal of the revenue. 5. All the grounds of appeal of the revenue are in relation to the deletion of the addition of Rs.15,60,65,675/- made by the AO. IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 3 6. Brief facts of the case are that the assessee is a private limited company. A search and seizure operation was carried out in the case of assessee on 24.05.2012 and thereafter the proceedings u/s.153A of the Act were initiated. During the course of search in the statements recorded u/s.132(4) of the Act of Shri Anil Kumar Agrawal, the director of the assessee company has admitted an additional undisclosed income of Rs.25 crores for various assessment years earned through inflation of the expenditure of the company in various expenses heads. The said disclosure was honoured by the assessee company and income of Rs.25 crores was offered in various assessment years including the year under appeal where Rs.5.75crores was offered for tax as additional income. The additional income so declared in various years is tabulated as under :- A.Y. Additional income disclosed 2007-08 Rs.1,25,00,000/- 2008-09 Rs.1,50,00,000/- 2009-10 Rs.5,75,00,000/- 2010-11 Rs.5,50,00,000/- 2011-12 Rs.5,00,00,000/- 2012-13 Rs.6,00,00,000/- Total additional income surrendered Rs.25,00,00,000/- 7. The AO observed that the assessee has debited a sum of Rs.19,10,65,675/- as payment to sub-contractor M/s Jharsuguda Construction Pvt. Ltd. for execution of the work at the site of Vedanta Aluminum Ltd. . As per the AO this expense is a bogus expenditure booked to reduce the tax liability as at the end of the year the outstanding balance was squared off by issue of cheques which were kept in hand by the recipient and there was no sufficient balance in the bank to honour such cheques. In subsequent year these cheques were returned by the IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 4 sub-contractor and again an entry of outstanding amount as passed in the books. The AO further observed that in subsequent years when the payments were made, substantial cash was immediately withdrawn from the bank which further create doubts that the expenses were bogus. Accordingly, the AO was of the opinion that the expenses of Rs.19,10,65,675/- was sub-contract expenses and after reducing the amount of Rs.3,50,00,000/- being offered for tax towards the cash payment made in subsequent years out of such expenses claimed in the year, had made the addition the balance amount of Rs.15,10,65,675/-. In the first appeal, the ld. CIT(A) after considering the claim of the assessee and verification of the details filed before him concluded that the work was carried out by the sub-contractor and, therefore, the expenses cannot be held as bogus and he deleted the addition so made. Against such deletion of the addition, the revenue is in appeal before us and the assessee in cross objection supports the order of the ld. CIT(A). 8. During the course of hearing ld. CIT-DR submitted that the assessee has failed to submit the details like bills and vouchers and the precise details of work executed during the course of search and also before the AO during the course of hearing. It is also a matter of fact that none of the bills were found available either in the business premises of the assessee or at the business premises of the sub-contractor in whose case also the search was carried out and the entire bills and other particulars so filed before the ld. CIT(A) was an attempt to justify the claim. He further submitted that except the bills submitted, there was no IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 5 evidence brought on record to establish that the work was actually carried out by the sub-contractor in the present case. According to the ld. CIT-DR out of the payment made of Rs.5,39,00,316/- during the year under appeal after deduction of TDS, a sum of Rs.4,00,00,000/- was immediately withdrawn on three days i.e. Rs. 1 crores on 28.03.2009, Rs.1,50,00,000/- on 30.03.2009 and Rs.1,50,00,000/- on 31.03.2009 by the sub-contractor and when the Director as well as employee who withdrew the cash were asked about the destination of the cash, they were unable to answer about the destination of the cash in the manner in which such cash was utilized. Likewise in subsequent years also when the payments were made to the sub-contractors, cash was immediately withdrawn and the assessee was not able to explain as to how this cash was utilised for execution of the work claimed by the assesee/sub- contractor during the year as sub-contractor expenses. Ld. CIT-DR further submitted that there was no written contract executed between the assessee and the sub-contractor M/s Jharsuguda Construction Private Limited and there was only a verbal agreement between the parties based on which the payment of such high magnitude was made to the sub- contractor. He drew our attention to paper book page 167 which contained the ledger account of the sub-contractor M/s Jharsuguda Construction Private Limited in the books of the assesee and copies of certain bills of work contract awarded to the assessee from Vedanta Aluminum Ltd. and submitted that there was many inconsistency between the dates mentioned in the bills and the recording in the books of IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 6 accounts. He further drew our attention to the fact that the bills were running bills, however, they were examined and checked by the staff of the assessee company only at the fag end of the year which also creates the doubts about the genuineness of these bills, therefore, he submitted that the expenses claimed by the assessee as sub-contract expenses is bogus expenses and accordingly he prayed for restoration of the addition made by the AO. 9. On the other hand, ld. AR of the assessee vehemently supported the order of the ld. CIT(A) and submitted that the director of the assessee company has already offered Rs.25 crores as additional income towards bogus expenses claimed in the books of accounts of the assessee company and had paid taxes on such expenses on different years which includes Rs.5.75 crores for the year under appeal. Such offer was additional income has not been doubted by the department. So far as the genuineness of the sub-contract expenses, he submitted that during the course of search the bills and vouchers were lying with the staff and later they were recovered and produced before the authorities below. Copies of certain bills are also placed in the paper book along with copies of the work order related to the principal company from Vedanta Aluminium Co. Ltd. He submit that all the payments were made prior to search and through banking channel, except Rs.3.5 crores paid in cash, which had already been admitted as additional income and due taxes were paid thereon. Ld. AR further submitted that in the case of sub-contractor M/s Jharsuguda Construction Ltd. the assessment was completed by the IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 7 same incumbent and the assessment order for the year under appeal i.e. A.Y.2009-2010 was passed on the same date wherein the fact that these expenses have been considered as bogus in the hands of the assessee company has been discussed by the AO and even after making such observation no addition was made on this account and the income was accepted. Copy of the order so passed is placed in the paper book. He, thus, submitted that when the same AO in the case of sub-contractor has accepted the income and allowed the expenses claimed by the sub- contractor, there remained no doubt about rendering of services and execution of the work. Therefore, he prayed for the confirmation of the order of the ld. CIT(A). 10. We have considered the rival submissions and perused the material available on record. From the facts it appears that the assessee company is claiming inflated expenses to reduce its liability and had admitted such fact by the director in his statement recorded u/s.132(4) of the Act. It is also a matter of fact that a sum of Rs.25 crores was offered as additional income and such additional income has been accepted by the department. It is also a matter of fact that in the case of the assessee the AO had certain doubts about the genuineness about the expenses claimed under the head sub-contract paid to M/s Jharsuguda Construction Pvt. Ltd., however, on the other hand, when the same incumbent has passed the order in the case of the sub-contractor i.e. M/s Jharsuguda Construction Pvt. Ltd. has accepted and claimed expenses towards execution of work. Ld. CIT(A) after considering these facts has deleted IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 8 the addition so made by observing in para 4.3 to 4.44, which read as under :- 4.3 As described above, it is noticed that the appellant made sub- contractual payment of Rs. 19,10,65,675/- to JCPL for execution of work at the Vedanta site. The appellant executed work for M/s Vedanta Aluminium Ltd. (hereinafter referred to as 'VAL') and VAL passed the bills of the appellant and made payment only after due verification and measurement of the work after which the appellant passed the bills of the sub-contractor, JCPL and made payments thereon. The appellant offered an amount of Rs. 3,50,00,000/- paid in cash to JCPL. as its income in the A.Y. 2012-13 and also paid the requisite amount of tax due thereon. Accordingly, the amount in question is Rs. 15,60,65,675/- (Rs. 19,10,65,675/- (-) Rs. 3,50,00,000/-) which was added by the Assessing Officer to the total income of the appellant. In the assessment order, the AO has noted that JCIT, Range-1, Sambalpur has directed the AO of JCPL to treat the alleged subcontract work as bogus. However, as per Minutes of the meeting of Addl. DIT(Inv.), Unit-1, Bhubaneswar and JCIT, Range 1. Sambalpur held on 16/03/2015 with regard to the issue related to expenses claimed by 'Balaji Engicon Pvt. Ltd, the sub-contract payment of Rs 19.10 Cr. less an amount of Rs. 3.5 Cr., resulting into an amount of Rs 15.60 Cr., is bogus and is to be added to its total income. On this basis, the AO added this income as bogus and no addition has been made in the case of M/s, JCPL. 4.4.1 The Assessing Officer observed that books of accounts relating to the sub-contract work could not be produced either by the appellant or by sub-contractor, JCPL and even the search team could not locate the books of accounts with their best of effort. Accordingly, the Assessing Officer observed that the books of accounts of M/s. JCPL submitted during the course of post search proceedings on 05.10.2012 were to be treated as fabricated one and he concluded that the sub-contract work was never executed by the sub-contractor, JCPL. The factual details on this issue are given below: (i) Search was conducted in this case on 24.05.2012 whereas books of accounts for the F.Y. 2008-09 were finalized in the year 2009 itself and return of income prepared on the basis of such books of accounts was also filed on 29.09.2009 i.e. much prior to the date of search. (ii) This case was selected for scrutiny and the Assessing Officer passed assessment order u/s 143(3) of the 1.T. Act, 1961 on 29.12.2011 duly accepting the amount of payment made to the sub-contractor. IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 9 (iii) The books of accounts of the subcontractors M/s, JCPL were submitted to the authorized officer during the course of post search proceedings and the same were also impounded on 05.10.2012 under section 131(3) of the 1.T. Act, 1961. 4.2 The Assessing Officer noted that as against total bill of Rs. 19,10,65,675/-, TDS was deducted and an amount of Rs. 5,39,00,316/- was actually paid and for balance amount of Rs. 13,40,00,585/- cheques were issued which were not en-cashed till 31.03.2009 thereby giving rise to suspicion of bogus payment: Following points are observed on this issue. (i) The appellant follows mercantile system of accounting wherein bills received upon completion of work were duly accounted for in its books. It is irrelevant whether payments have been made against such bills during the year on not. Hence, the non payment of balance amount of Rs. 13,40,00,585/- before 31.03.2009 cannot be a factor to draw any adverse inference regarding the nature of claim of these expenses. Of course, there was a delay in payment of this amount as the contractee M/s. VAL had dispute with regard to the quality of work delivered by the subcontractor M/s. JCPL. After the issue was resolved, this payment has been cleared after deduction of Rs. 1.43 Cr. on account of rebate/ settlement (details mentioned in table below). Consequently, the amount of sub-contract payment outstanding as on 31.03.2009 has been duly paid in the subsequent years as given below. (ii) It is noticed that against the sub-contract payments made to JCPL, corresponding income has been offered by the appellant on account of bills raised to VAL 4.4.3 The Assessing Officer noted that there has been cash withdrawal of Rs 4 Cr. from the bank account of the sub-contractor JCPL maintained with State Bank of India giving rise to suspicion on the nature of expenses made by the appellant. On this issue, it is noted that most of the payments have been made by it to the sub-contractor, JCPL through banking channels after deduction of TDS. (Rs 3.5 Cr. payment to JCPL in cash has already been disclosed by the appellant in A.Y. 2012-13). In the case of any cash withdrawal by the subcontractor, it is incumbent on it to explain the reason for such cash withdrawal and in the absence of satisfactory explanation, adverse view needs to be taken in the case of the sub- contractor and definitely not in the case of the appellant. It is relevant to note that the assessment in the case of the sub- contractor, JCPL has been completed by the same Assessing Officer w/s. 153A of the Act (this transaction was also accepted by the AO during the assessment u/s. 143(3) of the Act dated 30.12.2011) and no adverse inference has been drawn in respect of cash withdrawal from the bank account. 4.4.4 Considering the overall factual matrix of this case as narrated above, I am of the considered opinion that addition of Rs. 15,60,65,675/- on account of payment made to JCPL towards sub- contractual work as bogus is not justified and hence, deleted. IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 10 5. In the result, the appeal is partly allowed. 11. As discussed above, the assessee has submitted the bills and amounts were paid prior to the search. This fact cannot be denied that most payments were made through cheque and the department has not only accepted the income declared by the sub-contractor earned out of such receipts but also allowed claim of TDS was allowed. We also live to the issue that a sum of Rs.3.50 crores claimed paid in cash and accepted as bogus expenditure was already offered to tax and due credit was given by the AO while making addition. Therefore, in these circumstances, we are of the view that once the income has been accepted in the hands of the sub-contractor, corresponding expenses claimed by the awardee- assessee, cannot be treated as bogus. In view of the above, we find no infirmity in the order of the ld. CIT(A) deleting the addition of Rs.15,60,65,675/- which is hereby upheld. Thus, appeal of the revenue is dismissed. 12. Since we have dismissed the appeal of the revenue, therefore, the cross objections filed by the assessee are dismissed being supportive to the order of the ld. CIT(A). 13. In the result, appeal of the revenue and cross objection of the assessee are dismissed. Order dictated and pronounced in the open court on 07/01/2025. Sd/- (GEORGE MATHAN) Sd/- (MANISH AGARWAL) \u0001याियक \u0001याियक \u0001याियक \u0001याियक सद\bय सद\bय सद\bय सद\bय / JUDICIAL MEMBER लेखा सद\bय/ ACCOUNTANT MEMBER कटक कटक कटक कटक Cuttack; \u0003दनांक Dated 07/01/2025 Prakash Kumar Mishra, Sr.P.S. IT(SS)A No.1/CTK/2023 CO No.01/CTK/2023 11 आदेश आदेश आदेश आदेश क\u0002 क\u0002 क\u0002 क\u0002 \u0003ितिलिप \u0003ितिलिप \u0003ितिलिप \u0003ितिलिप अ ेिषत अ ेिषत अ ेिषत अ ेिषत/Copy of the Order forwarded to : आदेशानुसार आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, (Assistant Registrar) आयकर अपीलीय अिधकरण, कटक/ITAT, Cuttack 1. अपीलाथ\u0007 / The Appellant- 2. \b यथ\u0007 / The Respondent- 3. आयकर आयु\u0006(अपील) / The CIT(A), 4. आयकर आयु / CIT 5. िवभागीय \u0010ितिनिध, आयकर अपीलीय अिधकरण, कटक कटक कटक कटक / DR, ITAT, Cuttack 6. गाड\u0010 फाईल / Guard file. स यािपत \bित //True Copy// "