Income Tax Appellate Tribunal - HyderabadAcit, Circle-3(2), Hyd, Hyderabad vs Il & Fs Engineering & Construction ... on 9 June, 2020IN THE INCOME TAX A PPELLATE TRIBUNAL\n                HYDERABAD BENCH 'B', HYDERABAD\n\n          SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND\n       SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER\n\n\n                          ITA No. 1034/Hyd/2016\n                        Assessment Year: 2007-08\n      Asst. Commissioner of        vs. IL & FS Engineers &\n      Income-tax,                      Construction Co. Ltd.,\n      Central Circle - 3(2),           Hyderabad.\n      Hyderabad.\n                                       PAN - AABCM 3722 F\n\n               Appellant                         Respondent\n\n            C.O. No. 42/Hyd/2016 (In ITA No. 1034/Hyd/2016)\n                        Assessment Year: 2007-08\n      IL & FS Engineers &        vs. Asst. Commissioner of\n      Construction Co. Ltd.,           Income-tax,\n      Hyderabad.                       Central Circle - 3(2),\n                                       Hyderabad.\n      PAN - AABCM 3722 F\n      Appellant / Cross Objector               Respondent\n\n                  Revenue by: Shri R.S. Arvindakshan, DR\n                 Assessee by: Shri K.C. Devdas\n\n              Date of hearing: 27/01/2020\n      Date of pronouncement: 09/06/2020\n\n                                O RDE R\n\nPER SHRI A. MOHAN ALANKAMONY, A.M.:These appeals are filed by the assessee as well as the Revenue\n\nagainst the order of CIT(A) - 1, Hyderabad in appeal No. 0279/CC-\n\n3(2)/CIT(A)-11/13-14/14-15 passed U/s. 143(3) r.w.s 147 & 250(6) of the\n\nAct dated 22/03/2016 for the AY 2007-08.2.    The Revenue has raised three substantial grounds in its appeal;\n\nhowever, the crux of the issue is that the Ld. CIT (A) has erred in deletingITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.the addition made by the AO of Rs. 1,78,43,041/-, on account of the\n\nexpenditure incurred on temporary structures by the assessee for non-\n\nproduction of bills.3.    The assessee has raised several grounds in its cross appeal however,\n\nthe cruxes of the issues are that: -(i)    the Ld. CIT (A) has erred in upholding the reopening of the\n\n             assessment U/s. 147 and 148 of the Act by the Ld.A.O.(ii)   the Ld. CIT (A) has erred in confirming the addition of Rs.1,83,08,601/- made by the Ld. AO being provision for sub -\n\n             contract expenditure claimed as deduction in the P & L Account\n\n             by the assessee.4.    Brief facts of the case are that the assessee is a Limited company\n\nengaged in the business of construction, e-filed its return of income for the\n\nAY 2007-08 on 27/10/2007 declaring total income of Rs. 62,38,09,016/ -.\n\nThe Return of Income was initially processed U/s 143(1) of theIT Acton\n\n17/02/2009 determining refund of Rs. 5,28,63,254/-. Subsequently, the case\n\nwas selected for scrutiny and notices U/s. 143(2) and 142(1) were issued\n\nand served on the assessee calling for information/accounts/documents\n\nrelevant for assessment. Special Audit U/s. 142(2A) of the Actwas also\n\nconducted in the case of the assessee because the tainted Chairman of\n\nM/s. Satyam Computers Services Ltd., was deeply involved with the\n\nassessee Company and various frauds were unearthed. In response to the\n\nabove notices, the ld. AR of the assessee furnis hed information as called\n\nfor. Thereafter the Ld.A.O completed the reassessment U/s 143(3) of the IT2ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.Act   on   28/07/2010     determining   an   income    of    Rs.     68,47,97,450.\n\nSubsequently information was received by the Revenue from the office of\n\nthe Ld.CIT, Cuttack that one of the sub-contractor of the assessee had not\n\nreceived payment from the assessee for Rs.1,83,08,601/ - against which the\n\nassessee had claimed deduction. Hence once again the case was reopened\n\nU/s.147 of the Act and reassessment was completed on 28/03/2013 by\n\nmaking additions on two counts amongst which one of the issue is\n\ndisallowance of 25% of the expenditure incurred towards constructions of\n\ntemporary structure due to certain defects in bills with respect to labour,\n\nhire charges of vehicles and machinery and the other addition being the\n\namount of Rs. 1,83,08,601/- claimed as expenditure in the P & L Account\n\nby the assessee when it is only provision for expenditure towar ds payment\n\ndue to sub-contractors.Revenue's Appeal5.    During the course of re-assessment proceedings, the Ld. AO directed\n\nthe assessee to produce vouches in support of the claim of 100%\n\ndepreciation on temporary construction expenses of Rs. 7,13,72,165/-. On\n\nperusal of vouchers/copies of vouchers produced by the assessee, the Ld.\n\nAO noticed that many of the invoices, particularly those of labour bills, hire\n\ncharges of vehicles and machinery were self -made. A few of the defective\n\ninvoices/bills were listed in para 6 of his order. When queried about the self-\n\nmade and defective vouchers, it was replied that in the field of construction\n\nbusiness it was not possible to keep /maintain printed invoices for labour\n\nbills and hire charges of vehicle and machinery. It was also stated by the\n\nassessee that the original invoices/bills for the FY 2005-06 sic 2006-3ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.07pertaining to the relevant assessment were not traceable. Since the\n\nassessee had failed to maintain proper authenti c documents to support the\n\nexpenditure incurred by it the Ld.AO made addition by disallowing 25% of\n\nthe   expenditure   incurred     towards   temporary     construction        of    Rs.\n\n7,13,72,165/- which worked out to Rs. 1,78,43,041/-. Aggrieved by the order\n\nof Ld. AO, the assessee preferred an appeal before the CIT(A). On appeal,\n\nthe Ld. CIT(A) deleted the same on the ground that the addition made by\n\nthe Ld.AO does not have an independent and sustainable basis , it is not the\n\ncase of the Ld.AO that the expenditure could not pertain to the respective\n\nsite or that the cash was siphoned out of the Company and further the\n\nsample size adopted by the Ld. AO is woefully inadequate to permit any\n\nreasonable conclusion against the assessee.        Aggrieved by the order of\n\nCIT(A), the revenue is on appeal before us against the deletion of the\n\naddition of Rs. 1,78,43,041/-.6.    At the outset, the Ld. DR submitted before us that the assessee is\n\nunable prove its claim of expenditure towards construction by way of proper\n\nvouchers/bills and some of the bills submitted by the assessee are self-\n\nmade and not verifiable. It was therefore pleaded that the Ld. AO had rightly\n\nmade the additions by disallowing 25% of the expenditure incurred towards\n\nconstruction because the evidence adduced for incurring the expenditure\n\nwas inadequate and there was scope for the assessee to inflate the\n\nexpenditure.7.    The Ld. AR, on the other hand, submitted that in the field of\n\nassessee's business, it is not possible to obtain printed invoices from the4ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.labourers and other petty service providers who provide vehicles and\n\nmachinery on hire.   The Ld. AR further submitted that the Ld. AO was\n\nconvinced that expenditure towards temporary construction was incurred by\n\nthe assessee but his only grievance was that adequate and authentic\n\nvouchers were not fully furnished and therefore he made the add itions\n\nbased on presumption. The Ld. AR further submitted that the ld. CIT (A)\n\nafter analysing the issue had rightly concluded that the assessee had\n\ngenuinely incurred the expenditure and accordingly deleted the addition. It\n\nwas therefore pleaded that the order of the Ld. CIT (A) may be confirmed\n\non the issue.8.    We have heard the rival submissions and carefully perused the\n\nmaterials on record. From the facts of the case and from the submissions\n\nof the assessee it is obvious that they have categorically admitted, in the\n\nfield assessee's business of construction it is not possible to accurately\n\nmaintain all the bills and vouchers. However only based on such admission\n\nof the assessee we are of the view that it cannot be simply presumed that\n\nthe assessee has inflated the expenditure. However, on perusing the P & L\n\nAccount of the assessee (Page No.91 of paper book), we find that the net\n\nprofit earned by the assessee is only 12.3%. Further, from page No.79 to\n\n83 of the paper-book it is apparent that the assessee is in the business of\n\nHi-tech construction wherein the profit margin is usually quite high.\n\nConsidering these facts and circumstances of the case, we are of the\n\nconsidered view that estimation of the disallowance of expenditure by the\n\nLd. AO for want of proper bills and vouchers is justifiable, however, 25% of5ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.the disallowance of the relevant expenditure appear to be on the higher\n\nside. Therefore, the finding of the Ld. CIT (A) cannot be accepted in toto\n\non this issue. Keeping in view of these facts, in the interest of Justice for\n\nboth the parties we find it appropriate to sustain the disallowance at 15% of\n\nthe expenditure incurred of Rs. 7,13,72,165/ - which works out to Rs.\n\n1,07,05,825/-. Accordingly, addition of Rs. 1,07,05,825 /- is sustained.Assessee's Cross Objection9.          Ground No.1: Reopening of assessment U/s. 147 & 148 of the Act:The assessee has challenged the reopening of the assessment U/s.\n\n147 & 148 of the Act for the first time before the Ld. CIT (A) by raising the\n\nfollowing objections: -(i)      Reasons recorded are not germane to the assessment eventually\n\n              made and no specific charges have been framed against the\n\n              company.(ii)     The original assessment having been made after scrutiny U/s.143(3), reassessment must be based on information in the AO's\n\n              possession that bears a live link with the reasons recording his\n\n              satisfaction to the effect that taxable income of the year has\n\n              escaped assessment;(iii)    There can be no finding of escapement of income on any of the\n\n              counts recorded by the AO.(iv)     Initiation of re-assessment after four years from the end of the\n\n              assessment year is sustainable only when the deficiencies noticed6ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.can be attributed to any omission on the part of the company to\n\n            make a true and full disclosure of material facts.(v)      In the present case, the primary facts were all before the AO at the\n\n            time of the original assessment.(vi)     Reliance placed on judicial precedents such as ITO vs. Lakmani\n\n            Mewaldas 103 ITR 437 (SC) [materiality of information in the\n\n            possession of theAO], CIT vs. Kelvinator of India Ltd 320 ITR 561\n\n            (SC) [distinction between power to reassess based on tangible and\n\n            the power of the review, and the prohibition against change of\n\n            opinion], Indian oil corporation vs. ITO 159 ITR 956 (SC) [reason\n\n            to believe is different from reaso n to suspect].9(i).     On examining the issue, the Ld. CIT (A) arrived at the following\n\nfindings while framing his Order: -(i)      The reasons were duly recorded by the Ld. AO and the same is not\n\n            in dispute.(ii)     The assessee company was closely connected with Satyam Group\n\n            of companies wherein various frauds were unfolded.(iii)    Para 6 of the reasons recorded stated that the claim of\n\n            depreciation @ 100% on the temporary construction of Rs.7,13,72,165/- is without basis.(iv)     As per the information received from CCIT, Cu ttack it was revealed\n\n            that M/s. S.K. Pradhan RF, Pradeep, one of the sub -contractors of\n\n            the assessee had not received the payment of Rs. 1,83,08,601/-\n\n            from the assessee though the assessee had debited the same as7ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.sub-contract expenses and claimed it as ded uction in the P & L\n\n           Account.(v)     The above-mentioned reasons for reopening of assessment were\n\n           obtained based on the specific information received by the\n\n           Revenue.(vi)    The notice for reassessment was issued within the threshold\n\n           period of 4 years from the end of the relevant assessment year.\n\n\n\n9(ii). Based on the above observation, the Ld. CIT (A) opined that the\n\nreopening of the assessment by the Ld. AO is appropriate and the decision\n\nrelied by the Ld. AR are not relevant.9(iii). Before us, the Ld. AR argued vehemently stating that the reopening\n\nof the assessment made by the ld. AO is bad in law. He further submitted\n\nthat the assessee's case was already reopened once and assessment was\n\ncompleted after thorough examination. Hence it was argued that re-\n\nexamining the same issues once again was not warranted and any contrary\n\nview would amount to change of opinion and that is not permissible as per\n\nlaw. He further relied on the following case laws:-(i)     Delhi High Court in the case ofCIT vs. Jet Airways (P) Ltd, 331\n\n           ITR 236;(ii)    Mumbai High Court in the case ofCIT vs. ICICI Bank Ltd., 47 (1)\n\n           ITCL page 558;(iii)   Gujarat High Court in the case ofPKM Advisory Services (P) Ltd.,\n\n           vs. ITOreported in 339 ITR 595;8ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.(iv)   Gujarat High Court in the case ofCIT vs. Mohmed Juned Dadanireported in 355 ITR 171\n\n\n\n9(iv). After hearing both sides, we do not find any merit in the submission\n\nof the Ld. AR. It is an admitted fact that the reasons for reopening were\n\nrecorded by the Learned Revenue Authorities based on the information\n\ngathered by the Department. Therefore fresh materials against the\n\nassessee has surfaced wherein it was necessary to reopen the assessment\n\nin order to protect the Revenue from escapement of tax. The reasons for\n\nreopening were also furnished to the assessee. Though it may not be\n\nrelevant, it is pertinent to mention that neither the assessee nor its AR\n\ndisputed the merits of reopening the case before the Ld. AO.               Further,\n\napparently, the discrepancy noticed by the Ld. Revenue Authorities appears\n\nto be genuine and is required to be revisited in order to curtail escapement\n\nof income from being taxed. It is also pertinent to mention that the Revenue\n\nhad stepped upon incriminating evidence against the assessee from its\n\ncounterparts. Further, the Hon'ble Kerala High Court in the case of\n\nInnovative Foods Limited cited herein below it was held that where there is\n\nno discussion nor any finding regarding an issue in the earlier assessment ,\n\nit cannot be presumed that the Assessing Officer had formed an opinion on\n\nthe earlier occasion and hence any view on that issue by the Ld.A.O during\n\nthe course of fresh assessment would not amount to change of opinion.\n\nSimilar view was also held by the Mumbai Bench of the Tribunal in the case\n\nof Instant Holdings Limited cited hereinbelow after placing reliance in\n\nvarious decisions of the higher judiciaries. Further, the Hon'ble Karnataka9ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.High Court in the case of Govindarajan reported in 377 ITR 243 it was held\n\nthat the Ld. AO has powers to pass fresh assessment order with regard to\n\nthe entire income which has escaped assessment in the re -assessment\n\nproceedings. Keeping in view of these facts and circumstance of the case ,\n\nwe hereby uphold the order of the Ld. CIT (A) on the issue of re-opening of\n\nassessment U/s. 147 & 148 of the Act.          The citation of all the case laws\n\nrelied by us are stated hereinbelow for reference: -(i)Choksi Vachharaj Makanji & Co vs. ACIT [2016] 243 Taxman 465\n\n(Gujarat);(ii) Instant Holdings Ltd vs. DCIT[2014] 151 TTJ 137 (Mumbai);(iii)   Innovate foodsLtd vs. Union of India and others[2018] 409 ITR\n\n              415 (Ker.)(iv)    Hon'ble Karnataka High Court in the case of Govindarajan\n\n              reported in 377 ITR 243.10.       Ground No.2: Disallowance of the provision made towards sub -\n\ncontract expense for Rs. 1,83,08,601/ -.With respect to the issue regarding the confirmation of addition of Rs.\n\n1,83,08,601/- by the Ld. CIT(A), the Ld. AR submitted before us that the\n\nassessee had entrusted sub-contract work to M/s SK Pradhan RF, Paradeep\n\nand provision was made for the payment for the contract. It was further\n\nsubmitted that the sub-contractor had partly executed the contract .\n\nTherefore, payment towards the sub-contract work was not made, however,\n\nprovision for the expenditure incurred was created in the books of accounts\n\nand TDS was duly deducted as per the provisions of the Act. The Ld. AR10ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.further argued by stating that the assessee is following mercantile system\n\nof accounting    and since the assessee had incurred the expenditure the\n\nsame has to be debited to the P & L Account and accordingly claimed the\n\nsame as deduction even though payment was not made during the relevant\n\nassessment year. However, on perusing the Order of the Ld.CIT(A) we find\n\nthat in para no. 9.02 he has observed as follows: -"9.02. it is clear from the assessee's submissions that there was a\n      debit to the P & L Account attributable to the sub -contractor, M/s.\n      SK Pradhan, Pradeep, which upon reconciliation, the assessee\n      found necessary to reverse. To this extent, the taxable income of\n      the company for the year is admittedly understated. Being so,\n      there is nothing incorrect in the addition made by the AO. However,\n      in so far as reversal of this debit can be established with reference\n      to the accounts for the next assessment y ear consequential\n      changes for assessment years would be in order. The Assessing\n      Officer is directed accordingly."10(i). From the above it appears that the assessee has admitted that no\n\nsuch expenditure towards sub-contract was incurred and accordingly in the\n\nsubsequent year the entries were reversed. Therefore, the Ld. CIT (A)\n\nconfirmed the addition made by the Ld. AO on this count and directed the\n\nLd. AO to give consequential effect for the reversal of the entries in the\n\nsubsequent year. Since complete facts are not clearly emerging from the\n\norders of Ld. Revenue Authorities and contrary to the submissions the\n\nLd.AR and further since the assessee has also not furnished sufficient\n\nparticulars to establish their claim, in the interest of justice, we remit the\n\nmatter back to the file of the Ld. AO for fresh consideration .11.   Before parting, it is worthwhile to mention that this order is\n\npronounced after 90 days of hearing the appeal which is though against\n\nthe usual norms, we find it appropriate taking into consideration of the11ITA No. 1034/Hyd/2016 & CO 42/H/2016IL & FS Engg. & Construction Co. Ltd.extra-ordinary situation in the light of the lock-down due to Covid-19\n\npandemic. While doing so, we have relied in the decision of Mumbai\n\nBench of the Tribunal in the case of DCIT vs. JSW Ltd. In ITA\n\nNo.6264/M/2018 and 6103/M/2018 for AY 2013-14 order dated 14th\n\nMay 2020.18.   In the result, appeal of the Revenue is partly allowed and the Cross\n\nObjections of the assessee is partly allowed for statistical purposes.Pronounced in the open court on the 09 th June, 2020\n\n\n\n\n        Sd/-                                             Sd/-(P. MADHAVI DEVI)                             (A. MOHAN ALANKAMONY)\n JUDICIAL MEMBER                                ACCOUNTANT MEMBER\n\nHyderabad, dated 09 th June, 2020.\n\nkv / okk\n\nCopy forwarded to:1.    ACIT, Central Circle - 3(2), 7 th Floor, Room No. 4,\n      Aayakar Bhavan, Basheerbagh, Hyderabad.2.    M/s IL & FS Engineering & Construction Co. Ltd., (formerly\n      Maytas Infra Limited), D. No. 8-2-120/113/3,4 th Floor,\n      Sanali Info Park, Road No. 2, Banjara Hills, Hyderabad.3.    CIT(A) - 11, Hyderabad.4.    Pr. CIT (Central), Hyderabad.5.    The DR, ITAT, Hyderabad6.    Guard File12