Referred Sections:
Section 132 of the Income-tax Act, 1961
Section 32 of the Act
Section 43(6) of the Act
Section 131 of the Act.
Referred Cases / Judgments:
Excess of invoices vs capitalization by EISML
CIT Vs Discovery Holding Private Limited in ITA No. 1089 & 1090/2011
Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288,
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `B', NEW DELHI
BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
ITA No.6894/Del/2015
Assessment Year: 2012-13
ACIT, Vs. Educomp Infrastructure &
Central Circle-2, School Management Ltd.,
New Delhi 514, Udyog Vihar, Phase-III,
Gurgaon
PAN :AABCE6852E
(Appellant) (Respondent)
And
ITA No.545/Del/2016
Assessment Year: 2013-14
And
ITA No.193/Del/2017
Assessment Year: 2014-15
ACIT, Vs. Educomp Infrastructure &
Central Circle-2, School Management Ltd.,
New Delhi 1211, Padma Tower-1,
5, Rajendra Place,
New Delhi
PAN :AABCE6852E
(Appellant) (Respondent)
Department by Shri G. Johnson, Sr.DR;
Assessee by Shri V.K. Aggarwal, AR
Ms. Shweta Bansal, CA
Date of hearing 03.09.2019
Date of pronouncement 29.11.2019
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
ORDER
PER O.P. KANT, AM:
These three appeals by the Revenue are directed against
three separate orders dated 07/10/2015; 03/11/2015 and
10/11/2016 passed by the learned Commissioner of Income-tax
(Appeals)-23 , New Delhi, for assessment years 2012-13 ; 2013-14
and 2014-15 respectively. As common issue in dispute
permeating from same set of facts is involved in all the three
appeals, same were heard together and disposed off by way of this
common order for the sake of convenience and to avoid repetition
of facts.
ITA No.6894/Del/2015
Assessment year 2012-13
2. First we take up the appeal having ITA No. 6894/Del/2015
for assessment year 2012-13. The grounds raised by the Revenue
are reproduced as under:
1. The order of Ld. CIT(A) is not correct in law and on facts.
2. Whether on the facts and circumstances of the case the Ld. CIT(A)
has erred in law in deleting the addition made on account of
disallowance of excessive depreciation of ^ 2,10,53,292/- claimed
by the assessee company, by ignoring the admitted fact that the
contractors who had constructed the building for the assessee
company inflated the cost of construction and thereby increased the
value of capital assets which had resulted in excessive claim of
depreciation.
3. The appellant craves leave to add, amend any/all the ground of
appeal before or during the course of hearing of the appeal.
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
3. Briefly stated facts of the case are that the assessee
company is one of the group company of M/s Educomp Group
and was incorporated on 02/09/2006. It was engaged in business
of providing infrastructural facilities to educational institution of
the Educomp group. A search and seizure action under section
132 of the Income-tax Act, 1961 (in short `the Act') was carried
out on 18/08/2011 in the case of `Educomp Group' including the
assessee and its contractors. For the year under consideration,
the assessee filed return of income on 29/09/2012 declaring total
income of 4,58,60,417/-. The statutory notices for commencing
scrutiny proceedings were issued and complied by the assessee.
The Assessing Officer confronted the contents of seized material
found during the course of such proceeding at the premises of
M/s Educomp Group, including the assessee and its contractors.
The Assessing Officer found that the assessee in its books of
account has shown capital work-in-progress in respect of building
construction, but its contractors, namely, M/s Jubilant
Developers and Management Services Pvt. Ltd and M/s OSN
Infrastructure and Project Ltd. has admitted claiming of bogus
expenditure on building construction for the assessee without
incurring actual expenses on construction. The Assessing officer
has noted that aggregate amount of 75 Crores had been
disclosed by those two contractors as their undisclosed income.
The Assessing Officer has summarized the factual observation
based on the seized material as under:
"4. During the course of search action at the business premises of
the assessee company situated at 308, Udyog Vihar, Phase-ll,
Gurgaon, various documents were found and seized which
insinuated that the assessee company has colluded with the various
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
contractors to inflate the carrying cost of its capital assets through
booking of inflated bills in their books of account. It was found that
the employees of the assessee company were managing/supervising
the affairs of the companies or business entities of its contractors to
whom funds were given in the forms of advances for
construction/development work.
5. During the search & seizure operation at 308, UdyogVihar, Phase-
li, Gurgaon in the case of the assessee company on 18.08.2011
certain papers were found & seized which reflected that the
business activities of the contractors of the assessee company
namely M/s. OSN Infrastructure & Projects Pvt. Ltd were in fact
prima facie managed by the personnel of the assessee company. It,
is pertinent to mention that entire business of the said contractor
was allotted by the assessee company. It was also revealed that the
relatives/advisors of the said contractor also performed various
services for the assessee company. Certain papers were found &
seized from the business premises of the assessee company
pertaining to its contractor group which were signed by Sh. Shalabh
Raizada, Sr. Executive and Brig (Retd.) Vikram Singh, Vice President
of the assessee company in the capacity of the authorized signatory
of such contractor. Annexures A-3, A-4, A-5 and A-8 seized from the
said premises contain details of the nature of work contracts given to
the said contractor and sub contractors allotted by such contractor to
its own parties at meager rate. Thus, substantial evidence was
found and seized which reflected that various contractors are acting
in collusion with the assessee company to enable it to raise its cost
of capital asset in order to claim enhanced depreciation and evade
tax."
3.1 Thus, according to the Assessing Officer, the assessee has
claimed excess expenditure on construction of the building
through these two contactors, and thus claimed excess
capitalization of asset of building and consequently claimed
excess depreciation on building, which the assessee was not
entitled for.
3.2 The Assessing Officer issued a detailed show cause notice to
the assessee, the reply of which has been reproduced by the
Assessing Officer in the assessment order. The assessee explained
that various advances are given to contractors on account of
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
construction contract on a progressive basis and those
contractors furnished the various running bills against which the
payment was released by the assessee. Regarding booking of
bogus bills by contactors and inflated cost of construction of the
projects of the assessee, it was submitted that the assessee was
neither aware nor colluded in their misdemeanors. It was
explained by the assessee that none of the proceeds of their
misdemeanors were either received or utilized by the assessee or
the assessee is benefited in any manner from the acts or misdeed
of their contactors. The assessee submitted that it had acted in
the most bonafide manner and given the impugned advances
under trust and cost of improvement/construction of its capital
assets can neither be reduced not disturbed. Accordingly, the
assessee claimed that no depreciation can be disallowed to the
extent of such abortive expenditure in the case of the assessee
company. The Assessing Officer rejected the contention of the
assessee and asked the assessee to file details of bills raised by
the above referred two contactors and the corresponding
expenditure capitalised in books of accounts. On the basis of the
details submitted, the Assessing Officer worked out excess
depreciation of 2,10,53,292/- claimed by the assessee. The
finding of the Assessing Officer reproduced in para 12 of the
assessment order is extracted as under:
"12. In view of the above, the capital cost of assets as mentioned in the
financial results of the assessee company is in excess to the extent of Rs.
21,05,32,916/-. Therefore, a sum of Rs. 21,05,32,916/- is hereby
reduced from the Written Down Value of the block of assets being
'Building' which is eligible for depreciation at the rate of 10% as per the
Income Tax Act, 1961. Consequently, depreciation amounting to Rs.
2,10,53,292/- is hereby disallowed and added back to the income of the
assessee for the F.Y. 2011-12 relevant to the A.Y. 2012-13. Since the
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
assessee has furnished inaccurate particulars of its income, penalty
proceedings u/s. 271(l)(c) of the Act is being separately initiated.
(Addition: Rs. 2,10,53,292/-)"
3.3 On further appeal, the Ld. CIT(A) deleted the disallowance
observing as under:
"4.2.3 During the appellate proceedings it has been submitted that
the directors of the contractors are different persons who are not
related to the directors of the appellant company, and that the
allegations of the AO that the activities of sub-contractors were being
managed by the personnel of appellant is against the material on
record, and that neither any document nor any evidence was found
to establish the fact that the appellant had authorized its personnel
to manage or supervise the affairs of subcontractors, nor any benefit
in the form of salary or otherwise was derived by the personnel of
the appellant from the contractors which may suggest in any manner
that the operations of the sub-contractor companies were being used
to inflate capital cost of assets. It has also been submitted that the
total receipts offered by the sub-contractors is same as the cost of
assets accounted for by the appellant and the appellant accounted
for as the cost of assets the amount which was paid to the sub-
contractors and it is not the case of the AO that the cost of assets is
more than the expenditure incurred by the appellant, nor has the AO
brought on record any material to establish that the cost of assets
accounted for in the books of accounts is more than the expenditure
incurred, and that the sub-contractors offered the inflated
expenditure in their accounts as their income in their cases and they
have been assessed accordingly, and therefore the question of
alleged inflation of cost of assets by the appellant doesn't arise.
They have also submitted copies of their audited accounts for F.Ys.
2009-10, 2010-11 and 2011-12. It has been also submitted that the
amount of Rs.147,51,91,619/- taken by the AO as the cumulative
capitalization of assets by the appellant is incorrect in as much as it
includes Rs.21,35,32,916/- related to work contracts given to
companies/persons other than the above two contractors, and after
reducing this' amount of Rs.213532916/- from the figure adopted by
the AO, the balance amount is Rs,126,16,58,703/-. The date wise
invoice amounts of which have been submitted, and is summarized
hereunder:
S.No. Name of person
Amount (Rs.)
1 3 S & Company 524741
2 Chettinadu Constructions 5648879
3 Datta Steel Mart 4649946
4 H20 Technologies 1800000
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
5 Macro Developers Pvt. Ltd. 47333261
8 Nice Projects Pvt. Ltd. 19196420
7 R.S. Builders 6936636
Rama Sanjay Builders & 3680790
8
Contractors Pvt. Ltd.
9 Ramcons Engineers & 12756906
Builders
Ramtech Engineers and 18612482
10
Contractors P. Ltd.
11 Reliable Powertech Pvt. Ltd. 2576312
12 S.R. Brothers 7363496
13 S.S. Enterprises 2882516
14 Shri Ji Projects 11491533
15 Shristhi Constructions 21589334
16 Tanu Constructions 4728399
17 Thomas & Company Pvt, Ltd. 10386437
18 Ram Singh 6706500
19 Kamdhenu Ispat Ltd 1456798
20 Le Qualitas 1134448
21 Design Plus 110300
22 The Climate Makers 559338
23 Gold Star Realtors Ltd 14546982
24 Blues Developers Pvt. Ltd. 254998
25 Asra Real Estate Advisory 1705000
Services
26 Trimurti Concast Pvt. Ltd. 1893683
27 Fortune Metals Ltd. 1698612
28. Aircare Engineers 1307869
Total 213532916
4.2.4 On consideration of the above facts, following the method
adopted by the AO and utilized for arriving at the impugned
disallowance of depreciation at page-5 para-8 of the assessment
order, by adopting the figures as per the balance sheets of the above
mentioned three financial years, the computation for excess
capitalization of assets by the appellant is as under:
S.No. Name of contractor Amount paid (In Rs.)
FY 2009-10 FY 2010-11 FY 2011-12
(A) Jubilant Developers &
Management Services Pvt. Ltd.
i. Total Advance Given 158,59,85,370 180,71,91,299 (5,96,49,496)
ii. Cumulative capitalization by (101,77,25,278) (126,16,58,703)
EISML
iii. Less: Cumulative inflated 15,00,00,000
10,00,00,000
expenses offered
iv. Net capital work-in-progress (91,77,25,278) (111,16,58,703)
V. Invoices raised by JDMS 101,77,25,278 24,39,33,425
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
vi. Cumulative invoices raised by 32,73,66,279 126,16,58,703 126,16,58,703
JDMS
vii. Excess of invoices vs capitalization (34,39,33,425) (15,00,00,000)
by EISML
(iv - vi)
viii. Depreciation on excess
capitalization
(B) OSN Infrastructure & Projects
Pvt. Ltd.
i. Total Advance Given 138,84,99,263 7,05,29,978
ii. Cumulative capitalization by 23,22,34,166^
EISML
iii. Less: Cumulative inflated 14,70,00,000
expenses offered
iv. Net capital work-in-progress (8,12,34,166b
V. Invoices raised by JDMS 23,22,34,166 4,02,07,799
vi. Cumulative invoices raised by 27,24,41,965
JDMS
vii. Excess of invoices vs capitalization (19,12,07,799)
by EISML
viii. Depreciation on excess
capitalization
From the above data it would be seen that there is no excess
capitalization of asset relatable to the cost of construction. Hence, no
disallowance on account of any excess depreciation claimed by the
appellant is called for.
4.2.5 It is also worth mentioning that the AO has adopted two
different principles to make the disallowance on account of
depreciation on the alleged excess capitalized assets - for JDMS the
AO reduced the cumulative invoices raised by JDMS from the , net
capital work-in-progress after reducing the alleged inflated expenses
of JDMS from the capitalized of the appellant (though the figure of
the latter adopted by AO was incorrect as mentioned above) since
the resultant figure was positive; and for 01 PPL the AO simply
adopted the figure of the inflated expenses of OIPPL since had he
followed same method as for JDMS the resultant figure would have
been negative. The AO cannot adopt different methods for computing
similar accounts as would suit his intention. Disallowances, and
additions, cannot be made on such defective computation but the
accounts have to be appreciated in perspective with a holistic
approach."
4. In support of grounds raised, the Ld DR submitted that the
learned CIT(A) has ignored the incriminating material referred by
the Assessing Officer substantiating collusion of the employees of
the assessee with the contractors and subcontractors. He
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
submitted that it was found from the papers seized from the
premises of the assessee that two of its employee `Sh. Shalabh
Raizada' , Senior Executive and `Brig. (retired) Vikram Singh', Vice
president of the assessee company, acted in the capacity of
authorised signatory of those contractor companies. He submitted
that the contractors has further subcontracted the work and
computed the actual rate of the construction work, which is very
small as compared to the payments made to those subcontractors
and the contractors have accepted in their assessment, the
receipt of the money by way of cash from those subcontractors.
According to the Ld. DR, the documents seized in Annexures A-3,
A-4, A-5 and A-8 seized from the premises of the assessee,
wherein the actual low rate of the work is mentioned, clearly
indicated that the assessee was aware of the actual rate of work
and money which flowed back to the contractors. According to the
learned DR, it is apparent that the money has actually routed
back to the assessee as flow of cash back from the subcontractor
to the contractor was within the knowledge of the assessee. In
view of the learned Departmental Representative, it is against
human probability that assessee would allow such bogus
payment to the contractor knowingly that actual rate of the work
is very low and money is routed back from the subcontractor to
the contactor. Regarding the computation of the depreciation by
the Ld. CIT(A), the learned DR submitted that in case of Jubilant
Developers and Management Services Private Limited, the
amount of excess capitalisation has been computed at 15
croress, whereas it should have been the amount of 25 crores,
i.e., the amount which has been offered by the contactor as
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
undisclosed income. The Ld. DR also filed copy of the assessment
order in the case of two contractor companies.
5. The Ld. counsel of the assessee, on the other hand, filed two
paper-books containing page 1 to 74 and 1 to 104 respectively.
He relied on the finding of the learned CIT(A) and submitted that
the assessee has made payments to the contractors according to
the invoices raised by them for the work done and there are no
evidence that the assessee has received cash-back from the
contractors. The Ld. counsel submitted that no disallowance can
be made in respect of the depreciation in the case of the assessee
based on the undisclosed income accepted by the two
contractors. According to him, this will amount to double taxation
of the income, firstly, as undisclosed income in hands of the
contractor and secondly disallowance of depreciation in the case
of the assessee on the same amount included in the capital asset
of the assessee. In support of his contention that same income
cannot be taxed twice, he relied on the decision of the Tribunal in
the case of M/s. SSIPL Luxury Fashion Private Limited reported
in ITA No.5368/Del/2012 for assessment years 2009-10. He also
referred to the judgment dated 18/02/2013 of the Hon'ble Delhi
High Court in the case of CIT Vs Discovery Holding Private
Limited in ITA No. 1089 & 1090/2011 to highlight that no
addition can be made merely on suspicion and surmises or by
taking note of "notorious practice" prevailing in trade circles of
real estate.
6. We have heard rival submissions of the parties and perused
the relevant material on record including the paper-book filed by
the assessee. In the instant case, the assessee has filed balance
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
sheet along with the details of fixed assets for the year ending on
31/03/2012, which are available on page 59 and 71 of the paper
book containing 104 pages. According to the detail of fixed assets
as per the books maintained by the assessee, building was having
grass block value as on 31.03.2012 of 314,90,38,122/- and
after claiming depreciation of 20,71,79,834/-, the net block of
the building stood at 294,18,58,288/-. The assessee claimed
depreciation on the capital cost of asset being building in the
return of income filed as per the Income-tax provisions and rates
prescribed in Income-tax Rules, 1962. Out of the depreciation
claimed on building in the Income-tax Return, the Assessing
Officer has disallowed depreciation to the extent of
2,10,53,292/-being depreciation on account of no assets created
in respect of the contracts given to M/s OSN Infrastructure and
Project Private Limited (in short `OSN') and M/s Jubilant
Developers and Management Services Private Limited ( in short
`JDMS') to the extent of amount accepted by them in the return of
income as expenditure not incurred actually. Thus, the Assessing
Officer has excluded out of cost of building, the amount which
has been admitted by the two contractors as not actually
incurred. In facts of the case, the issue in dispute is what should
be the depreciation which the assessee should have been allowed.
In terms of section 32 of the Act and Rule 5(1) of Income-tax
Rules 1962, the deduction of depreciation is allowed on building
owned, wholly or partly by the assessee , and used for the
purposes of the business or profession at the rate of 10 % of the
written down value of the capital asset of building. The term
"written down value" has been defined in section 43(6) of the Act
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
means in the case of assets acquired in the previous year, the
actual cost to the assessee. The term "actual cost" has further
been defined in section 43(1) as actual cost to the assessee
deduced by the portion of the cost which has been met directly or
indirectly by any other person or the authority. In the facts of the
case, we have thus, to examine what is the actual cost in respect
of the building, on which, the assessee has claimed depreciation.
6.1 Regarding the claim of Assessing Officer as no capital asset
came into existence corresponding to the expenditure not
incurred actually by those two contractors, the Assessing Officer
in the case of OSN Infrastructure & Projects Pvt. Ltd. has brought
on record the facts in details. For ready reference, the relevant
part of the assessment order in the case of OSN Infrastructure &
Projects Pvt. Ltd. for assessment years 2012-13 is reproduced as
under:
"5.1 Initially, survey action was conducted at the business
premises of assessee company situated at 301/18, Udyog Vihar,
Gurgaon. Various evidences were found and impounded which
raised sufficient doubt about the genuineness of various
expenditures claimed by the assessee company. It was also found
during the course of search action at Educomp Group that one room
at the premises situated at H 35/1, DLF Phase 1, being the office
premises of Mr. Ashish Mittal, the advisor of the assessee company
was also utilized by the assessee company for its business. Various
incriminating documents were also found and seized from the said
premises, the details of which are being narrated at length in the
succeeding paragraphs of this order
5.2 In response to summons u/s. 131 of the Income Tax Act,
statement of Sh. Sanjay Saini, D rector, M/s. OSN Infrastructure &
Projects Pvt. Ltd. (OIPPLj was also recorded on oath on 25 08.2011
at the office of M/s. Educomp Solutions Limited situated at 514,
Udyog Vihar, Phase-lll, Gurgaon. After detailed questioning and
confrontation of various papers and events which occurred during
the course of search/survey operations, he offered an undisclosed
income of Rs.75 crores to tax, out of which Rs. 59.25 crores was
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
offered to tax in the hands of the assessee company. Relevant
extracts of his statement are as follows:
Q.No.3 During the course of survey at your office premises on
18.8.2011, on verification, it was found and asserted by you that no
genuine activities have been conducted by your group. It was a iso
found that corroborative evidences of various expenses claimed in
your companies were also missing. You had also stated that Sh.
Ashish Mittal is at helm of the affairs. Various records and other
documents pertaining to your activities were also not produced and
no satisfactory explanation to the quarries raised were rendered by
you and other office bearers of your group. Do you agree on the said
state of affairs? Explain the same?
Ans. I agree that certain corporative evidences to establish the
genuineness were missing at the time of survey. To cover the stated
discrepancies, we in consultation with Sh. Ashish Mittal, the person
supervising the accounting/compliance/other business activities,
agree to offer Rs. 75 crore as income of the OSN group, its principals
who have allotted contracts/ jobs other vendors/contractors who
have performed work for as or our principals or our sub-contractors
for the relevant period i.e. FY 2010-11 and 2011-12 with the
understanding that neither any penalty nor any punitive action of
any nature., whatsoever shall eitner be initiateo/imposed against ail
the entities/concerns, individuals who have been covered in the
action conducted by the department/'s. 132 and 133 A of the Act.
The bifurcation of the above said offered income for the relevant
period in the hands of different entities/individuals will be provided
after verification of the contents of the seized/impounded material
within next three working days. Necessary tax due thereon will be
informed to be deposited in the different entities after such
verification..."
5.3 During .the course of search at the
premises located at H-35/1, DLF Phase-1, Gurgaon being the office
premise of Mr. Ashish Mittal, the advisor of the assessee company
on 18.08.2011, it was learnt that one of the rooms was being used
by the assessee company for its own business. Restraints were
temporarily placed on 18.08.2011 at the office premises of Sh.
Ashish Mittal and on the room adjacent to the office of the Sh.
Ashish Mittal, which wasbelng used by the assessee company.
5.4 On lifting of restraint from the said premises on 13.09.2011,
various mating documents were found and seized which established
beyond doubt that the assessee company was booking
inflated/bogus expenditure in its profits and loss account on one
hand and was receiving cash back on sale of certain lands from the
vendors of said lands. The lands were acquired under the
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
agreement to sell for and on behalf of Educomp Group and were
transferred to them for a consideration in the form of commission. In
the process of acquiring such land on behalf of its principal, i.e.
Educomp Group, the assessee company received certain funds in
cash from the vendors of such land outside the books of account in a
clandesti le manner to the exclusion of the Educomp Group.
5.5 During the course of vacating of restraints on 13.09.2011
from the above premises, various incriminating documents were
found and seized vide Annexure AA-1 to AA 3 of the Parichnama
date 13.09.11.
5.6 Annexure AA-1 pages 1 to 129 and Annexure AA-2 pages 1
to 36 are the copies of the ledger accounts of various sub-contractors
in the books of account of M/s. OSN Infrastructure & Projects Pvt.
Limited, copies of_ their running bills, cheques issued to them,
general correspondence, etc for the Financial Year 2010-11, relevant
to Assessment Year 2011-12.
5.7 These papers are an indubitable and concrete record of the
transactions undertaxen by M/s. OSN Infrastructure & Projects Pvt.
Limited. Page No 128 & 129 of Annexure AA-1 and page no. 36 of
Ann.AA-2 are summary sheets highlighting the following details:
a) Value of total contracts obtained by OSN Infra from EISML,
b) Billing for work to be done during the financial year 2010-11
and 2011-12
c) Amount of cost of work and bills issued by various sub
contractors along with their names for FY 2010-11 & 2011-12.
d) Actual cost incurred for the work and
e) The difference received in cash by M/s. OSN Infrastructure &
Projects Pvt. Limited from such sub contractors.
f) Details of brokerage received from the sellers of land not
booked in the books of accounts of M/s. OSN Infrastructure &
Projects Pvt. Limited.
g) Details of cash received back from sellers of land at Distt.
Alwar, Rajasthan and Hyderabad not booked in the books of
accounts of M/s. OSN Infrastructure & Projects Pvt. Limited.
5.8 Scanned copies of pageds 128 and 129 of Annexure AA-1
and Page 36 of Annexure AA-2 respectively are reproduced herein
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
5.9 The contents of the above sheet were compared with the
books of account of the assessee company. On the reconciliation of
the transactions as recorded in Annexure AA-1, page no. 129 and
Page no. 35 of Annexure AA-2, it is seen that M/s. OSN
infrastructure & Projects Pvt. Limited allotted contract of Rs 25 crore
for the restoration of hill for Mussoorie International School,
Mussoorie to M/s. Dharamraj Contract India Pvt. Limited, DDA
Commercial Complex, New Delhi subject to the escalation cost. The
said sub-contractor has billed M/s. OSN Infrastructure & Projects
Pvt. Limited for Rs 20.79 crores and Rs. 3.72 Crores in FY 2010-11
and 2011- 12 respectively. However, on the perusal of page number
25 to 48 of Ann. AA-1 it is seen that out of billed amount of Rs. 20.79
crores, the actual cost of the work was only for Rs. 6.09 crores and
the balance amount of Rs. 14.70 crores was received back in cash
outside the books by the assessee company.
5.10 Other relevant documents like the copy of account of M/s.
Dharamraj Contracts India Pvt Limited, a copy of details of costing of
the work and agreement with M/s. Dharamraj Contracts India Pvt.
Limited with the assessee were also found and seized as page 25 to
48 of Annexure AA-1 and pages 12 to 25 of Annexure AA-2.
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
5.11 In these pages the various components of the bill amounting
to Rs. 17.40 crores for whxh bills have been obtained and no work
has been done sre highlighted with the marker. On the perusal of the
books of accounts of the assessee, it is found that that it has debited
the Profit & Loss Account by Rs 20.79 Crores for F.Y. 2010-11 on
account of work done by M/s. Dharamraj Contracts india Pvt.
Limited. However, the actual expenditure was Rs 6.09 crores for
F.Y.2010-11. Therefore it has over booked the revenue expenditure
in its books of account by obtaining excess/infiating of bills and thus
suppressed its profit on this account by Rs. 14.70 crores for FY
2010-11.
5.12 Similarly, incriminating material was found with respect to
contract given for excavation, leveling of agricultural land at Distt.
Hanumangarh, Rajasthan to M/s. ARSS Infrastructure Projects
Limited, Mancheshwar Industrial Estate, Bhuvaneshwar. A part of
this work was given to M/s. OM Builders also The details of these
two sub-contracts are available on page 5 to 13 of Annexure AA-1
The details of bogus billing pertaining to this contractor are available
on pages 128 &129 of Annexure AA-1 and it was seen that out of
total bills of Rs.
8.01 crores on account of Hanumangarh work, the actual cost
was for Rs. 0.91 crores and the balance amount of Rs 7 10 crores
represented undisclosed income of the assessee for the relevant
period under consideration.
5.13 incriminating documents were also found and seized
pertaining to the contract allotted for clearing, leveling, filling,
removal of boulders, rock excavation, blasting, stacking,
consolidation of soil, kuchha road etc. of agriculture land at Village
Pata, Tehsil Ramgarh, Distt. Alwar, Rajasthan to subcontractor M/s.
Patel Engineering Limited. A part of this work was also performed by
M/s. Orris Infrastructure Pvt. Limited. The details of these two sub-
contracts are available on page 14 to 24 of Annexure AA-1. On page
number 128 & 129 of Annexure AA-1 it is shown that out of total
bills of Rs. 9 crores on account of Alwar work, the actual cost was
for Rs. 1 25 crores and therefore, amount of Rs. 7.75 crores
represented excess/bogus billing.
5.14 In addition to the above there were other small works which
were handled by the assessee company and allotted to other sub-
contracts details of which are available at page no. 49 to 127 of
Annexure AA-1 seized from premises no. H-35/1, DLF, Phase-1,
Gurgaon. On a composite perusal of such papers alongwith seized
papers marked as pages 127 tol29, it is crystal clear that bogus
billing from all other petty sub-contractors was to the extent of Rs.
26 lakh for the F.Y 2010-11, relevant to A.Y. 2011-12.
18
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
5.15 The seized papers marked as pages 129 of Annexure AA-1
and 36 of Annexure AA-2 also 'evealed that the assessee company
has received brokerage from various land deals outside the books of
account from the land transactions in Alwar and Hyderabad The
assessee company gave certain land advances to various other
persons for the purchase of land at Alwar and Hyderabad. The land
at Hyderabad was registered in favour of the Educomp Group
whereas agreement was entered with the land owners at Alwar,
Rajasthan for and on behalf of the Educomp Group as discussed
above. The details of such brokerage being received outside the
books of account aggregating to Rs. 4.53 crores is available at Page
129 of Annexure AA-1 out of which a sum of Rs 3.03 was received
during the F.Y. 2010-11, relevant to A.Y. 2011-12.
5.16 It was also noticed on perusal of page 36 of Annexure AA-2
that the assessee company also received back certain cash outside
its books of account from land deals in Alwar amounting to Rs. 20.8
crores during the in F.Y. 2011-12, relevant to A.Y. 2012 13 The
details of these cash received back outside the books are further
recorded on from page number 26 to 35 of Annexure AA-2.
5.17 Thus, a perusal of the contents of the seized materia! clearly
revealed that the assessee company was invariably earning income
outside the books of account from Its activity of construction as welf
as trading in land.
6. The statement of Mr. Sanjay Saini was recorded on
oath at the time of lifting of restraint at the premises
located at H35/1, DLF Phase-1 Gurgaon which is being reproduced
as under:
Q. No. 23 I am showing you pages 1 to 129 of Annexure AA-1 of the
material found and seized/impounded during the course of lifting of
restraints placed at the premises of yourconsuitant, Mr. Ashish
Mittal who has stated to belong to you. Please identify the papers
andexplain the contents thereof.
Ans. The said papers pertain to the various bills raised by the sub
contractors of OSN Infrastructure and Projects Pvt Ltd, their ledger
accounts and a summary sheet of 1) Contract Value 2) Amount of
total bills raised 3) Cost of bills 9) the actual cost incurred and 5) the
difference received by us in cash from the said sub contractors on
account of inflated/excessive expenditure charged by us in our
books of account. As apparent from the papers, the said
excessive/inflated expenditure aggregates to Rs. 30 crores (Approx)
for the financial years 2010-11 which is appearing in a summarized
manner on page 129 of the above stated Annexure AA1.
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ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
The same may kina'iv be treated as part of the total income offered
by us to the extent of Rs. 75cr in the course of my statement
recorded on oath dated
25/08/11.
Q. 2A I am showing you pages 1 to 36 of Annexure AA -2 of the
material found and seized/impounded during the course of lifting of
restraints placed at the premises of your consultant, Mr. Ashish
Mittal who has stated to belong to you. Kindly identify the papers
and explain the contents thereof.
Ans. The said papers/documents pertain to the bills raised by one of
the sub contractors on OSN Infrastructure and Projects Pvt Ltd, its
ledger accounts and a summary sheet of 1) Contract Value 2)
Amount of total bills raised 3) Cost of bills 4) the actual cost incurred
and 5) the difference received by us in cash from the said sub
contractor on account of inflated/excessive expenditure charged by
us in our books of account. As apparent from the papers, the said
excessive/inflated expenditure aggregates to Rs. 2.70 crores
(Approx) for the financial years2011- 12 which is appearing in a
summarized manner on page 36 of the above stated Annexure AA 2.
A/so, Page 36 of Annexure AA 2 of the material has mention of cash
received back aggregating to Rs. 20.80 crores from the vendors of
lands at A/war. Copies of their ledger accounts and summary of
cash received against various cheques are also available at pages
25to 36 of AA 2. The said cash was received by us with a tacit
understanding with the said vendors which was over and above the
brokerage payable by them to us. The said cash was withdrawn by
the said consolidators either out of their own accounts or from
transfer of funds to the account of other collection agents/land
consolidators as per my instructions to them. The said cash received
from the vendors may be treated as our income for the financial year
2011-12. Therefore, the cash received from the sub contractors
amounting to Rs. 2.70 crores along with cash back from the land
deals to the extent of Rs. 20.80 crores may also be treated as part of
the total income offered by us to the extent of Rs. 75 crores in the
course of my statement recorded on oath dated 25/08/2011.
Q. 25 1 am showing you pages 36 and 129 of Annexure AA2 and
AA1 respectively of the material seized during the course of lifting of
restraints at the premises located at H-35/I, DLF, Phase I, Gurgaon.
On the said pages, mention of certain brokerage to the extent of 2.5%
of land values is appearing. Explain whether the same is refected in
your books of a/c's or not?
Ans. It is clarified that Page No. 129 and 36 of Annexure AA 1 and
AA 2 respectively have calculations of cash received by us on
account of brokerage from sale of Alwar lands from the sellers which
20
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
has not been accounted for in our books of account The said
brokerage was received by us from the vendors of the said land
outside the books of account amounting to Rs.3.00 crores and Rs.
1.50 crores during the financial years 2010-11 and 2011-12
respectively. The said vendors agreed to pay the brokerage to be
computed at the rate of 2.5 % of the value of sales consideration, to
be paid 2/3rd during the financial year 2010-11 and the balance
1/3*during the financial year 2011-12. The same was accordingly
received to the extent of Rs. 3crores and Rs. 1.5 crores during the
financial year 2010-11 and 2011-12 respectively. The samemay
kindly be treated as part of the total income offered by us to the
extent of Rs. 75 crores inthe course of my statement recorded on
oath dated 25/08/2011
Q. 26 You have stared that certain bogus/inflated expense has been
charged by you to the profit and loss account of OSN Group
companies through the aid of various sub contractors. Please state
whether any other expenses over and above the payment to sub
contractors of similar nature also exist or not?
Ans. We are not able to verify the same at this moment However, to
cover up the same, we hereby offer amounts of Rs. 18 Lakhs and
Rs. 50 Lakhs for the financial years 2010-11 and 2011- 12 to cover
any other disallowances on account of other excessive or
unreasonable expenditure or other unaccounted income etc. The
same may also be treated as part of the total income offered by us to
the extent of Rs. 75 crores in the course of my statement recorded on
oath dated25/08/2011..."
7. In view of the above, the assessee group declared an
aggregate amount of Rs. 75 cores including a sum of Rs, 15 crores
for and on behalf of its associate M/s, Jubilant Developers &
Management Services Pvt. Ltd In fact the OSN Group declared an
amount of Rs 33.60 crores and Rs 25.65 crores for the F.Y. 2010-11
and 2011-12 respectively aggregating to Rs. 59.25 crores out of the
total disclosure of Rs. 75 crores. The amount offered was also
confirmed to have been earned by the aforementioned company
outside the books of account and was offered to tax by its director,
Mr. Arun Kumar, the detailed discussion in respect whereof has
been made in the assessment orders passed in the case of the said
company being assessed in this charge.
8. In fact, the assessee offered undisclosed income of Rs. 33.60
crores and Rs. 25.65 crores for the F.Y 2010-11 and 2011-12
respectively to tax. Out of the total disclosure of Rs. 75 crores.
aggregate amount of Rs. 59.25 crores was offered in the hands of
the assessee company and the balance in case of M/s. Jubilant
Developers & Management Services Pvt. Ltd."
21
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
6.2 Similar finding has been recorded by the Assessing Officer in
the case of JDMS in the office note appended to the assessment
order for the assessment year 2012-13. The relevant part of the
office note is reproduced as under:
"1. During the course of search operation at the premises located
at FI-35/1, DLF Phase-1, Gurgaon certain incriminating papers
marked as Annexure AA 3 having pages 1 to 79 were found and
seized pertaining to the assessee company. It was categorically
admitted by Mr. Sanjay Saini, director of M/s OIPPL that the said
papers pertained to the business operations of the assessee
company. It was also revealed by him that he was introduced to the
Educomp Group by the director of the assessee company, Mr. Arun
Kumar who was engaged in executing of various constructions
contracts for and on behalf of the said group in past. Since, the said
group required additional resources to execute their construction
activity, Mr. Arun Kumar introduced him to the Educomp Group. Mr.
Sanjay Saini also confirmed that the said papers were inadvertently
left by Mr. Arun Kumar during one of his visits to his office at the
above stated premises. Mr. Sanjay Saini also confirmed that the
impugned papers contained details of bogus expenditure booked by
the assessee company and accordingly after consultation with the
director of the assessee company, he offered amounts of Rs. 10
crores and Rs. 5 crores for the F.Y. 2010-11 and 2011-12
respectively as undisclosed income of the assessee company.
1.1 The statement of Sh. Arun Kumar, director of M/s. Jubilant
Developers & Management Services Pvt. Limited (JDMS) was
recorded on oath on 13.09.2011. In his statement recorded on oath
on 13.09.2011 he admitted that the papers seized vide Ann. AA-3
were containing details of transaction taken by his company with
various subcontractors for FY 2010-11 & 2011-12. In his statement
he admitted of having received back the cash from M/s.
StartrekBuildcon Pvt. Limited during FY 2010-11 & 2011-12 against
various cheques issued for Rs. 9.45 cr. & 4.90 Crore for FY 2010-11
& 2011-12 respectively. He explained that these amount were in the
nature of excess expenditure charged, therefore, it has over booked
the revenue expenditure in its books of account by obtaining
excess/inflating of bills and thus suppressed its profit in the books
of account of the assessee company. In the statement he
additionally disclosed amount of Rs. 55 lakh & Rs. 10 lakh for FY
2010- 11 & 2011-12 respectively to cover any other discrepancy
22
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
arising out of books of account. The relevant part of the statement of
Sh. Arun Kumar is reproduced as under:-
".....
Q. 19: - What were the total value of works allotted to
StartrekBui/dconPvt Ltd and how much cash was received
against payments made to them by your company M/s JDMS
during the financial year2010-11 and 2011-12?
Answer: - During the financial year 2010-11 and 2011-
12contracts worth Rs. 10 crores and Rs. 5 crores respectively
were allotted to M/s StartrekBuildconPvt Ltd which could not be
fully executed by them. The said sub contractor paid back
certain funds given to them in return in cash. However, the
payment to the said sub contractor stands reflected as
expenditure in our books of account. Therefore, on account of
such excessive expenditure, we offer to tax an amount of Rs.
9.45 crores and Rs. 4.90 for the financial years 2010-11 and
2011-12 respectively. Additionally we offer an amount of Rs. 55
lacs and Rs. 10 lacs for the financial years 2010-11 and 2011-
12 to cover any other disallowance on account of excessive
expenditure, investment, income or issues of any other nature
in the hands of Jubilant Developers and Management Services
Pvt Ltd. Thus, in aggregate, we hereby offer an amount of Rs.
10 crores and Rs. 5 crores for the financial years 2010-11 and
2011-12 respectively, as income with an understanding that
neither any penalty nor any punitive proceedings of any nature
will either be initiated or imposed against our companies or
individuals of our group in future.
Q. No. 20: - During the course of recording of your statement in
the office of the undersigned on05/09/2011, you had offered
an aggregate amount of Rs. 15 crores to tax in the hands of
Jubilant Developers and Management Services Pvt Ltd. Explain
the basis of the same.
Answer: -. As stated above, it is fact that our company, M/s
Jubilant Developers and Management Services Pvt Ltd was
executing various construction contracts as allotted by Educomp
Infrastructure and Projects Ltd since May/June 2009. In fact
we introduced Sh. Sanjay Saini and his group companies, M/s
OSN Infrastructure and Projects Pvt. Ltd for meeting the
additional requirements of execution of the construction
contracts of the above said Educomp Group in the month of
June 2010. Various constructions contracts were allotted to
them by the Educomp Group on our recommendation and the
same are being executed by Sh. Sanjay Saini and his
companies till date. I often used to visit the business premises
23
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
of Sh. Sanjay Saini and his consultant, Sh. Ashish Mittal in
order to discuss various aspects of the common construction
business. During the course of survey/search of Sh. Sanjay
Saini and his group companies, he discussed the matter with
me and after due consultation with him, I advised him to
include an amount of Rs. 15 crores as income of Jubilant
Developers and Management Services Pvt Ltd also. It was on
this basis that I reiterated and confirmed the offer of Rs. 15
crores in the hands of M/s Jubilant Developers and
Management Services Pvt Ltd. in my statement on 05/09/2011.
I hereby reconfirm that out of the total amount of Rs. 15 crores,
Rs. 10.00 crores will be offered to tax for the financial year
2010-11 and Rs. 5.00 crores for the financial year 2011-12
with an understanding that neither any penalty nor any
punitive proceedings of any nature will either beinitiated or
imposed against our companies or individuals of our group."
1.2 Thus, the assessee company offered undisclosed income to
the extent of Rs. 10 crores for the relevant period under
consideration. The relevant amount of suchincome was directly
offered in the computation of assessable income and tax liability due
thereon was discharged by the assessee company.
2. During the course of assessment proceedings, the
assessee vide questionnaire u/s. 142(1) of the Act dated 27.01.2014
was asked the details of surrender of Rs. 15 crores and how the
same is reflected in your books of accounts. The relevant extract is
reproduced as under:
"...
2. During the course of search proceedings, statement u/s.
132(4) of the Act of ShriArun Kumar, Director of your company
was recorded, where he admitted a surrender of Rs. 10 crores
and Rs. 5 crores as additional business income of your
company for the F.Y. 2010-11 and 2011-12, respectively on
account of "Cash Received Back out of Land Development
Contracts, Land Deals, Other Disallowances and Miscellaneous
Heads". The relevant extract of statement is as under:
Q. 19: - What were the total value of works allotted to
StartrekBuildconPvt Ltd and how much cash was received
against payments made to them by your company M/s JDMS
during the financial year 2010-11 and 2011-12?
Answer- During the financial year 2010-11 and 2011-12,
contracts worth Rs. 10 crores andRs. 5 crores respectively were
allotted to M/s StartrekBuildconPvt Ltd which could not be fully
executed by them. The said sub contractor paid back certain
24
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
funds given to them in return in cash. However, the payment to
the said sub contractor stands reflected as expenditure in our
books of account. Therefore, on account of such excessive
expenditure, we offer to tax an amount of Rs. 9.45 crores and
Rs. 4.90 for the financial years 2010-11 and 2011-12
respectively. Additionally we offer an amount of Rs. 55 lacs and
Rs. 10 lacs for the financial years 2010-11 and 2011-12 to
cover any other disallowance on account of excessive
expenditure, investment, income or issues of any other nature
in the hands of Jubilant Developers and Management Services
Pvt Ltd. Thus, in aggregate, we hereby offer on amount of Rs.
10 crores and Rs. 5 crores for the financial years 2010-11 and
2011-12 respectively, as income with an understanding that
neither any penalty nor any punitive proceedings of any nature
will either be initiated or imposed against our companies or
individuals of our group in future.
Q. No. 20: - During the course of recording of your statement in
the office of the undersigned on 05/09/2011, you had offered
an aggregate amount of Rs.15 crores to tax in the hands of
Jubilant Developers and Management Services Pvt Ltd. Explain
the basis of the same.
Answer: - As stated above, it is fact that our company, M/s
Jubilant Developers and Management Services Pvt Ltd was
executing various construction contracts as allotted by Educomp
Infrastructure and Projects Ltd since May/June 2009, In fact
we introduced Sh. Sanjay Saini and his group companies, M/s
OSN Infrastructure and Projects Pvt. Ltd for meeting the
additional requirements of execution of the construction
contracts of the above said Educomp Group in the month of
June 2010. Various constructions contracts were allotted to
them by the Educomp Group on our recommendation and the
same are being executed by Sh. Sanjay Saini and his
companies till date. I often used to visit the business premises
of Sh. Sanjay Saini and his consultant, Sh. Ashish Mittal in
order to discuss various aspects of the common construction
business. During the course of survey/search of Sh. Sanjay
Saini and his group companies, he discussed the matter with
me and after due consultation with him, I advised him to
include an amount of Rs. 15 crores as income of Jubilant
Developers and Management Services Pvt Ltd. also. It was on
this basis that I reiterated and confirmed the offer of Rs. 15
crores in the hands of M/s Jubilant Developers and
Management Services Pvt Ltd. in my statement on 05/09/2011.
I hereby reconfirm that cut of the total amount of Rs. 15 crores,
Rs. 10.00 crores will be offered to tax for the financial year
2010-11 and Rs. 5.00 crores for the financial year 2011-12
25
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
with an understanding that neither any penalty nor any
punitive proceedings of any nature will either be initiated or
imposed against our companies or individuals of our group.
In view of the above, you are required to furnish the details of
income aggregating to Rs. 15 crores surrendered and
admitted by Shri Arun Kumar during the search and how
these income are reflected in your books of accounts."
2.1 In response to same, the A.R. of the assessee vide letter
dated 07.02.2014 replied the following:
".......
In reply to your questionnaire vide letter No. F.No.. DCIT/CC-
7/2013-14/1324 dated 27/01/2014, under instructions of the
assessee, it is clarified at the onset that no search or survey
proceedings were conducted against the assessee company.
However, certain documents were found and seized from rhjj
business premises of third party on the basis of which
additional income was offered by the Director, Mr. Arun Kumar
in his statement recorded in response to notice issued under
section 131 of the Act.
It is to reiterate that additional income to the extent of Rs. 5
crores was offered for the captioned assessment year on the
basis of various papers found, especially pages 1 to 79 of
Annexure AA3 found and seized from the premises as
mentioned supra.
It may also be appreciated that the assessee company has duly
complied with its offer of additional income and has
incorporated the same in its return of income duly filed with the
department. A copy of the computation of assessable income
filed for the relevant period is enclosed to substantiate that the
relevant additional income to the extent of Rs. 5 crores stands
duly included in addition to the regular income for the said
period. Necessary tax liability due thereon has already been
discharged which is apparent from the said return filed.
It is also clarified that the said additional income has been
offered in addition to the income derived on the basis of the
books of account. Therefore, no adverse inference may kindly
be drawn against the same.
No fresh contracts were entered during the relevant period. A
confirmed copy of the ledger account of M/s EISML as per our
books of account is enclosed. No fresh contracts were allotted to
any sub contractor during the relevant period."
26
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
The assessee has already furnished detailed reply regarding the
manner of inclusion of additional income offered of Rs. 5 crores for
the relevant period under consideration. Keeping in view the above
said facts, no adverse cognizance is taken in this regard."
6.3 On perusal of the above finding in the case of OSN and
JDMS, it is evident that OSN and JDMS in their books of account
had shown receipt from the assessee and expenditure towards
construction of the building for the assessee and claimed that
they further paid to subcontractors for such construction
expenditure by cheque. However, as a result of documents found
and investigation during search and survey proceeding on the
premises of Educomp group and those contractors, they
admitted that no such construction work was actually done or
value of such construction done was actually very less and the
payment made to the subcontractors by way of cheque was
returned back in cash to them.
6.4 In the case of the assessee, the Assessing Officer has
observed that employees of the assessee Sh. Shalabh Raizada
(Senior Executive) and Brig (retired) Vikram Singh (Vice President
of the assessee company) has signed documents in the capacity of
authorised signatory of those contractors, namely, OSN and
JDMS. He also noted that the fact of actual value of the
construction being less as compared to the value shown by
contractors in their books of accounts as paid to the
subcontractor and this fact was within the knowledge of the
assessee. Based on these facts, the Assessing Officer concluded
that the assessee was in collusion with the contractors for
27
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
artificially raised or inflating capital cost of the building in order
to claim enhanced depreciation.
6.5 The assessee on the other hand submitted that there is no
evidence on record that assessee authorised its personal to
manage or supervise the affairs of the contractor and no benefit
in the form of salary or otherwise derived by the personnel of the
assessee from said contactors. In our opinion, the personnel of
the assessee shall not act for the contractors in their own sweet
will without any remuneration by the contractors and they can
act without remuneration only on the implied direction of the
assessee for managing the entire game of claiming excess
depreciation for reducing the tax liability of the assessee. When
documentary evidence of managing affairs of the contractor by
the personnel of the assessee are found during search action and
the Assessing Officer duly notified the assessee regarding those
evidences to suggest that the assessee has acted in collusion with
the contractors for enhancing cost of construction of the building,
the onus was on the assessee to produce those personnel before
the Assessing Officer to bring the truth as on whose direction
they signed document as authorised signatory of the contactors.
The assessee has failed to discharge its onus and cannot shift the
burden on the Revenue that no document authorising those
persons to manage the affairs of the contractor was found during
the course of the search. The assessee contended that the cost of
the assets accounted for in the books of account of the assessee
is not more than the receipt offered by the contractors in their
books of accounts. This argument is also of no help to the
assessee, as the contactors have already accepted the fact of
28
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
obtaining bogus bills from the subcontractors and routing of the
money back in the form of cash, without doing actual work or
doing work less than billed for.
6.6 In view of the above factual observations, it is beyond doubt
that the relevant capital asset in the form of the building of the
assessee corresponding to the expenditure not incurred actually
by those two contractors mentioned above, did not come into
existence and thus the assessee cannot be entitled for
depreciation in respect of the capital asset which has never come
into existence. The bills raised by the contractors on the assessee
are inflated one and not of actual amount of the work done for the
assessee. Consequently, the cost debited by the assessee in
respect of the building, which has been capitalized is inflated and
not the actual cost. The reliance placed by the Ld. counsel of the
assessee in the case of M/s SSIPL Luxury Fashion Private Limited
(supra) and Discovery Estate Private Limited (supra) is of no
assistance as facts and circumstances of those case are different
from the case of the assessee. In the case of SSIPL Luxury
Fashion Private Limited (supra) a particular receipt was already
taxed in the hands of the holding company and thus the assessee
contested that it should not be taxed in the hands of the
assessee, whereas the learned DR contested that receipt should
be taxed in the hands of the correct person. The Tribunal held
that same income cannot be taxed twice unless so provided in the
Act. In the case of discovery Estate Private Limited (supra) , the
observation of the Hon'ble High Court are regarding that no
addition should be made on the basis of the suspicion or
surmises or by taking note of notorious practice prevailing in that
29
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
trade circles. The relevant paragraph of the decision of the
Hon'ble Delhi High Court in the case of Discovery Estate Private
Limited (supra) is reproduced as under:
"17. It only remains for us to refer to the observations of the
assessing officer to the effect that no one makes a loss in real estate
business and that the market perceptions indicate that the prices of
the immoveable properties are always on the upward trend. These
observations have, inter alia, formed the basis of the additions made
by the assessing officer. It was even suggested before us on behalf
of the revenue that it is a "notorious practice" prevailing in real estate
circles that in all property transactions there is non-disclosure of the
Tull consideration. As pointed out earlier, this cannot per se
constitute the basis of the addition, though we must hasten to add
that it can very well be a starting point for further investigation. In
Lalchand Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288, the
Supreme Court disapproved the practice of making additions in the
assessment on mere suspicion and surmises or by taking note of the
"notorious practice" prevailing in trade circles. It was observed as
under:
"Adverting to the various probabilities which weighed with the
Income-tax Officer we may observe that the notoriety for
smuggling food grains and other commodities to Bengal by
country boats acquired by Sahibgunj and the notoriety achieved
by Dhulian as a great receiving centre for such commodities
were merely a background of suspicion and the appellant could
not be tarred with the same brush as every arhatdar and grain
merchant who might have been indulging in smuggling
operations, without an iota of evidence in that behalf."
6.7 Thus, facts and circumstances of the cases relied upon by
the assessee being distinguishable, the ratio of those decisions
cannot be applied in the case of the assessee. In the facts of the
case the preponderance of the probability suggests that raising of
bogus bills by the subcontractors to the contactors and then
routing back of the money in the form of the cash definitely must
have been done on the direction of the assessee as assessee is the
ultimate beneficiary by way of excess deduction of depreciation on
the capital asset in the form of building.
30
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
6.8 In view of the facts and circumstances discussed above, in
principle we hold that the assessee is not entitled for the
depreciation on the inflated portion of the cost of capital asset
shown by the assessee as incurred through two contractors,
namely, OSN and JDMS.
6.9 As far as the quantum of depreciation is concerned, we find
that while computing the cumulative inflated expenses in the the
case of JDMS, the learned CIT(A) has missed the undisclosed
income of Rs.10 crore declared by the JDMS for financial year
2010-11 and the net capital work-in-progress has been shown
that Rs.111,16,58,703/- instead of Rs.101,16,58,703/-.
Similarly, in the case of OSN also the undisclosed income
declared by the said party in respect of building constructed for
the assessee has not taken into account for reducing the capital
cost of the building. The AO was required to examine relevant
bills of the two contractors, where the value of construction work
has been inflated. As the quantum of depreciation to be
disallowed on the account of inflation of capital asset of building
has not been computed correctly by the lower authorities, we feel
it appropriate to restore this issue of computation of disallowance
of depreciation in the case of the assessee to the file of the
Assessing Officer for deciding in view of our observation made
above. It is needless to mention that assessee shall be afforded
adequate opportunity of being heard.
6.9 The ground of the appeal of the Revenue is accordingly
allowed party for statistical purposes.
31
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
ITA Nos.545/Del/2016 & 193/Del/2017
Assessment years: 2013-14 & 2014-15
7. Now we take up the appeal of the assessee having ITA No.
545/Del/2016 and ITA No. 1931/Del/2017 for assessment year
2013-14 and 2014-15 respectively. Identical grounds have been
raised in both these appeals except the change of the amount,
which in assessment year 2013-14 is 1,89,47,963/- and in
assessment year 2014-15 is 1,70,53,166/-. The ground of the
appeal for assessment year 2013-14 is reproduced as under:
1. The of the learned CIT(A) is not correct in law and on facts.
2. Whether on the facts and circumstances of the case the Ld.
CIT(A) has erred in law in deleting the addition of
Rs.1,89,47,963/- made by the Assessing Officer on
account of excessive depreciation.
3. The appellant craves leave to add, amend any/all the
grounds of appeal before or during the course of hearing of
the appeal."
8. The learned CIT(A) in assessment year 2013-14 deleted the
disallowance of depreciation in view of his finding in assessment
year 2012-13 observing as under :
"4.2.2 This matter emanate from the disallowances in the
immediately preceding assessment year wherein the AO had, based
on his observation that the contractors, M/s Jubiliant Developers &
Management Services Pvt. Ltd. (JDMS) and M/s OSN Infrastructure
& Projects Pvt. Ltd. (OIPPL), had disclosed certain expenses on
account of the contract work of construction awarded to them by the
appellant, held that the appellant has inflated cost of capital assets
through booking of inflated bills raised by these contractors and had
worked out the excess invoices against work done by the contractors
vis-a-vis the capitalization of asset by the appellant after considering
the expenses on contract allegedly inflated by the contractors, and
had disallowed commensurate depreciation. After detailed
discussion in the appellate order dated 07.10.2015 in Appeal
No.81/14-15 in the case of the same assessee for AY 2012-13 I have
held that there is no case of excess capitalization and therefore the
32
ITA Nos.6894/Del/2015;
545/Del/2016 &193/Del/2017
depreciation disallowed by the AO was deleted. The disallowance of
depreciation in this year has been made by the AO by adopting the
WDB as on 31.03.2012 as per his findings in the assessment order
for AY 2012-13 which stands modified by my above order dated
07.10.2015, and therefore there is no case for disallowance on
account of depreciation on the alleged excess capitalized assets. The
addition of Rs. 1,89,47,963/- is therefore deleted."
9. As the issue in dispute in both the years under
consideration is dependent on the outcome of assessment year
2012-13, which we have restored to the Assessing Officer for
deciding the quantum of the depreciation, we feel it appropriate to
restore the grounds raised in assessment years 2013-14 and
2014-15 for deciding the quantum of the depreciation on the
basis of the written down value of the capital asset of the building
determined for assessment year 2012-13. It is needless to
mention that the assessee shall be afforded adequate opportunity
of being heard. The ground of appeal is accordingly allowed partly
for statistical purposes.
10. In the result, all the three appeals of the Revenue are
allowed partly for statistical purposes.
Order is pronounced in the open court on 29th November, 2019.
Sd/- Sd/-
(SUDHANSHU SRIVASTAVA) (O.P. KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 29th November, 2019.
RK/-(D.T.D.)
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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