SADBHAV ENGINEERING LTD.,AHMEDABAD V. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(1), AHMEDABAD

ITA 2209/AHD/2016

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Sadbhav Engineering Ltd. appealed against the order of the Commissioner of Income Tax (Appeals)-11, Ahmedabad, which confirmed the addition of gross profit estimated by the Assessing Officer (AO) on sub-contracts awarded to AIL and KNRCL. The AO had reopened the assessment for A.Y. 2011-12 under Section 147 of the Income Tax Act, 1961, following information about bogus expenses linked to these sub-contractors. The CIT(A) reduced the AO's estimated profit addition from 25% to 16%, which the assessee contested as still excessive. The Tribunal, referencing earlier cases, reduced the addition to 12.5%, aligning with the assessee's historical profit margins on similar transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474032 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Other Referred Cases: IT(SS)A Nos. 170 to 175/Ahd/2021 & ITA No. 235/Ahd/2021, IT(SS)A No.363/Ahd/2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RITESH PARMAR
• Assessee Lawyers: DHINAL SHAH; NHAI WAS EXECUTED; COMPLETION
• Keywords: Set aside; Rejection of books of accounts; Bogus purchase; Principle of natural justice; Accommodation entries; Bogus
• Section: 148; 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 2209/Ahd/2016 (Ǔनधा[रण वष[ / Assessment Year : 2011-12) Sadbhav Engineering Ltd. Sadbhav House, Opp. Law Garden Police Chowki, Ellisbridge, Ahmedabad– 380006, Gujarat बनाम/ Vs. The Dy. Commissioner of Income Tax Central Circle-1(1), Ahmedabad èथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AADCS0852Q (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Dhinal Shah, AR Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Ritesh Parmar, CIT.DR & Shri B. P. Srivastava, Sr. DR Date of Hearing 17/02/2025 Date of Pronouncement 20/02/2025 O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-11, Ahmedabad, (in short ‘the CIT(A)’), dated 28.06.2016 for the Assessment Year 2011-12. 2. The brief facts of the case are that the original assessment for the A.Y. 2011-12 in the case of the assessee was completed under Section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) on 28.03.2013 at total income of Rs.175,41,75,717/-. ITA No. 2209/Ahd/2016 [Sadbhav Engineering Ltd. vs. DCIT] A.Y. 2011-12 - 2 – Thereafter, the AO had received an information regarding booking of bogus expenses by KNRCL and Aravali Infra Power Ltd. through Safeco Project Pvt. Ltd. and Totem Infrastructure Ltd and as per information work was awarded by the assessee company to them on back to back basis. Therefore, the case of the assessee was reopened u/s.147 of the Act after recording proper reason. The re-assessment was completed u/s.143(3) r.w.s. 147 of the Act on 07.03.2016 on total income of Rs.1,68,35,29,520/-. In the course of re-assessment, the AO had found that the assessee had awarded sub-contract of Rs.22.65 Crore to Aravali Infra Power Ltd. (AIL) and sub-contract of Rs.10,20,56,400/- to KNRCL and the details and documentary evidences for execution of contract by these two sub-contractors were not brought on record. It revealed that the sub-contracts were given on back to back basis to further companies of M/s. Safeco and the directors of M/s. Safeco had admitted that they did not execute the work but only provided accommodation entries by charging commission @ 0.15%. However, as the work awarded to the assessee by NHAI was executed and completion of work was certified by NHAI, the AO held that the sub-contract transactions through AIL and KNRCL was done to save tax and reduce cost and to make more profit than the usual course of transaction. The AO had, therefore, estimated the gross profit in respect of sub-contract work of AIL and KNRCL @25% and accordingly made addition of Rs.3,78,99,863/-. 3. Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which was ITA No. 2209/Ahd/2016 [Sadbhav Engineering Ltd. vs. DCIT] A.Y. 2011-12 - 3 – decided by the Ld. CIT(A) who had reduced the profit of 25% as estimated by the AO to 16% of the sub-contract amounts. 4. The assessee is now in second appeal before us. The following grounds have been taken in this appeal: “1.1 The Learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the Assessing Officer's action in reopening the assessment u/s 147 and passing the order u/s 145A r.w.s. 143(3)r.w.s. 147 of the Act ignoring the legal position that an assessment order u/s 143(3) r.w.s. 153B(1)(b) was already passed and therefore the reopening of an assessment made u/s 153b is illegal. 2.1 The Learned Commissioner of Income Tax (Appeals) grossly erred in rejecting the Appellant's ground that the AO has not obtained the prior approval Add. CIT before passing the impugned order which is mandatorily required as per the provisions of the income tax act before passing an order u/s 153A/B/C 2.2 The Learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts ignoring that the AO reopened the case u/s 147 by issue of notice u/s 148 solely by relying on some alleged information received from the DCsIT. The AO's action by placing reliance on the said information without verifying the veracity of the allegations contained therein was bad in law and was liable to be rejected. 3.1 The Learned Commissioner of Income Tax (Appeals) grossly erred in confirming the AO's order regarding rejection of books of account by invoking the provision of section 145A of the I.T. Act, 1961 in utter disregard to the fact that the AO is not empowered to reject books of account u/s 145A of the Act which relates to the methodology of accounting in certain cases. 3.2 The Learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts in upholding the AO's action for rejection of books of accounts who neither pin-pointed any alleged defect in the books of accounts of the Assessee nor issued specific show cause notice for the same. The Id. Commissioner of Income Tax (Appeals) overlooked the fact that the books of account were maintained in strict adherence to the Compliance of the Companies Act and Income Tax Act. The same set of books of account was duly approved by the ITA No. 2209/Ahd/2016 [Sadbhav Engineering Ltd. vs. DCIT] A.Y. 2011-12 - 4 – AO while passing the original assessment order u/s 143(3) of the Act. 4.1 The Learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the GP addition to the extent of 16% as against 25% made by the AD, thereby confirming the addition to the tune of Rs.82,28,8ки/respect transaction with Arvali Infra Power Limited and KNR. 4.2 Given Below is the clear summary of the Addition Sustained: Party Name Payment made by the said party (A) GP Rate As prescribed by the CIT(A) (B) Quantum Sustained By CIT(A) (C=A*B) GP Rate already reflected by the assessee in books of account i.e. 11.15 & 15.49 (D) Addition confirmed by CIT(A) i.e. Difference (E=C-D) Arvali 22,65,10,000 16% 3,62,41,600 2,84,33,200 78,08,400 KNR 10,20,56,400 16% 1,63,29,024 1,58,08,536 5,20,488 Total 83,28,888 4.3 The Learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case by estimating the GP of the Appellant at 16% on such transactions without citing any base or GP in comparative cases. 4.4 The Learned Commissioner of Income Tax (Appeals) grossly erred in confirming the AO's action with regard to addition in the hands of the Appellant Company ignoring the fact that it had no transactions with Safeco Projects Pvt. Ltd., which is basically alleged for providing accommodation entries 4.5 The Learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the AO's action for arbitrarily holding that Safeco Projects Pvt. Ltd. had not executed the sub contract stated to have been given to them. In fact the AO blindly placed reliance on the statements of Shree Bablu Shah and Shree Aditya Chirmar who had allegedly admitted that no work was performed by their company. 4.6 The Learned Commissioner of Income Tax (Appeals) while confirming the AO's action grossly erred in law and on facts ignoring that the AO while making the impugned assessment utilized the material collected behind at the back of the assessee without providing a copy thereof or providing an opportunity to the appellant to cross examine such persons in total disregard of the principles of Natural justice. ITA No. 2209/Ahd/2016 [Sadbhav Engineering Ltd. vs. DCIT] A.Y. 2011-12 - 5 – 4.7 It is therefore prayed that the order of the Ld. Commissioner of Income Tax (Appeals) may kindly be set aside.” 5. At the outset, Shri Dhinal Shah, the Ld. AR of the assessee submitted that he is pressing only Ground No.4.3 on the merits of estimation of income as confirmed by the Ld. CIT(A). All other grounds taken by the assessee in this appeal were not pressed. Therefore, all the grounds, except Ground No.4.3, are dismissed. 6. On merits, the Ld. Counsel submitted that the estimation of income @16% as confirmed by the Ld. CIT(A) was still very high. He explained that the AO had estimated the profit @ 25% by considering the gross profit of the assessee, which was 15.49%. The Ld. CIT(A) had sustained the addition @16%, which was slightly higher than the gross profit rate of 15.49%. The Ld. AR explained that the net profit of the assessee was much less at 6 to 7% and, therefore, the addition @16% was much higher. The Ld. Counsel submitted that identical issue was involved in assessee’s own case in A.Y. 2009-10 and also in the years 2012- 13 to 2018-19, which was adjudicated by the Co-ordinate Bench of this Tribunal in IT(SS)A Nos. 170 to 175/Ahd/2021 & ITA No. 235/Ahd/2021 dated 10.01.2025. The Ld. Counsel submitted that the addition in respect of bogus sub-contract expense was restricted by the Tribunal @12.5% of the bogus purchase expenses. Accordingly, he requested that the addition in the current year also may kindly be reduced to that extent. 7. Per contra, Shri B. P. Srivastava, Ld. Sr. DR supported the order of the Ld. CIT(A). He submitted that the addition sustained ITA No. 2209/Ahd/2016 [Sadbhav Engineering Ltd. vs. DCIT] A.Y. 2011-12 - 6 – by him @16% was comparable with the GP of 15.49% as disclosed by the assessee. He further submitted that since all the expenses were already booked by the assessee in his account, the addition was rightly made on the basis of the GP as disclosed by the assessee. 8. We have considered the rival submissions. The fact regarding sub-contract of Rs.22.65 Crores awarded by the assessee to AIL and of Rs.10,20,56,400/- to KNRCL is not under dispute. These two sub-contracts were given on back to back basis to another companies of M/s. Safeco, who had admitted that it was only providing accommodation entries. At the same time, NHAI had certified the completion of work to which these sub- contracts pertained. Therefore, the AO had estimated the profit derived by the assessee from the two sub-contracts @25%. It is natural that the arrangement for back to back sub-contract was entered into to earn more than normal profit. The Ld. CIT(A) had restricted the addition as made by the AO to 16% of these transactions, which was more or less comparable with the gross profit of the assessee. We find that identical issue was involved in the assessee’s own case in A.Y. 2009-10, which was decided by the Co-ordinate Bench of this Tribunal in IT(SS)A No.363/Ahd/2018. In that year, on the basis of information received from Maharashtra Sales Tax Department that the assessee had claimed bogus purchase of materials, the AO had disallowed the entire purchases, which was reduced to 25% by the Ld. CIT(A). On further appeal, the Co-ordinate Bench of this Tribunal has restricted the disallowance to 12.5% of the bogus purchases. The same basis was followed to restrict the ITA No. 2209/Ahd/2016 [Sadbhav Engineering Ltd. vs. DCIT] A.Y. 2011-12 - 7 – disallowance in respect of bogus sub-contract expenses in A.Ys. 2012-13 to 2018-19 in IT(SS)A Nos. 170 to 175/Ahd/2021 & ITA No. 235/Ahd/2021 dated 10.01.2025. 9. Since, the issue of quantum disallowance in respect of bogus sub-contract expense already stands settled and adjudicated by the ITAT in assessee’s own case in A.Y. 2009-10 and in A.Ys. 2012-13 to 2018-19; following the same we restrict the disallowance in the current year to 12.5% of the sub- contract amount as awarded by the assessee to AIL & KNRCL. Accordingly, the assessee gets part relief in the matter. 10. In the result, the appeal filed by the assessee is partly allowed. This Order pronounced on 20/02/2025 Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 20/02/2025 S. K. SINHA True Copy आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंͬधत आयकर आयुÈत / Concerned CIT 4. आयकर आयुÈत(अपील) / The CIT(A)- 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad "