Tnr Infraprojects Limited (Formerly ... vs Assessee

M/s. TNR Infraprojects Ltd Dy. Commissioner of (formerly known as TNR Vs. Income Tax, Circle 2(3) Infrastructures P Ltd) 6-3- Hyderabad 347/222 Flat No.9, Ishwarya Nilayam, Dwarakapuri Colony Punjagutta, Hyderabad 500082 PAN- AAEFT 7690 M (Appellant) (Respondent)

For Assessee : Shri Mohd. Afzal For Revenue : Shri Ramakrishna Bandi, DR

Date of Hearing : 16/03/2015 Date of Pronouncement : 17/04/2015

ORDER

Per Smt. Asha Vijayaraghavan, J.M.

This is an appeal filed by the assessee against the order of the CIT (A)-III Hyderabad, dated 20th August, 2014 passed for A.Y 2010-11.

2. Briefly stated, the assessee is in the business of construction of dams and irrigation works at various places in Maharashtra. During the period relevant to the subject A.Y the assessee's work allotted includes a part of work, as sub-contract work by M/s. Bajoria Construction Co. (P) Ltd, M/s. Sumit

Page 1 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

Bajoria and M/s Sumit Bajoria Infrastructure Pvt. Ltd. During the period relevant to the subject A.Y the assessee's turnover was at Rs.62,00,37,260, out of this, work obtained from Bajoria Group is at Rs.8,68,72,234. The assessee admitted profit at Rs.2,93,87,830 after depreciation.

3. During the course of search & seizure operations in the premises of Bajoria Group, the Department found some blank signed and unsigned cheques of the assessee company lying with the said group. AO made enquiries in respect of the transactions wherein the amounts were withdrawn by the Bajoria Group persons from the assessee's bank a/c, for facilitating withdrawals on the instructions of the assessee and cash was handed over to the concerned person of the assessee.

4. The assessee company was issued a detailed questionnaire wherein it was requested to explain as to why the cheques belonging to the assessee company were kept in the custody of M/s Bajoriya Construction Company Ltd., why cash was withdrawn by persons belonging to Bajoriya Group, what was the end use of the said cash withdrawals and how they accounted in their books of accounts.

5. In response, assessee claimed that cash withdrawn were used towards labour payments, material purchases, staff salaries etc. Some portion of the cash was again deposited in the banks. The AO observed that when specific questions were raised about particular cash withdrawal, no credible explanation was

Page 2 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

furnished. The AO stated as example, on 24.08.2009, Rs.1.00 crore was withdrawn as cash from Akola Urban Coop. Bank. However, as per the cash books produced by the assessee, the same was entered in the cash book of Hyderabad. AO observed that when asked how and why the cash was transported to Hyderabad, Shri T. Gangadhar Rao, M.D. of the assessee company submitted that:

"I do not remember the said transaction. I also cannot remember if the amount was transferred to Hyderabad. I also do not readily remember the end use of the amount".

Similarly, AO pointed out that Rs.50.00 lakhs was withdrawn in cash on 29.09.2009 and another Rs.50.00 lakhs was withdrawn on 03.10.2009. The same are entered in the cash book of Nagpur. In addition to these around Rs.90.00 lakhs was further withdrawn till 31.10.2009 as per the cash book of Nagpur. However, there were no major expenses other than re-deposit of cash in the end of October, 2009 to the tune of Rs.70.00 lakhs. The AO observed that when asked why were the two withdrawals of Rs.50.00 lakhs made when they were not used and where was such huge amount of cash placed, assessee submitted that:

"I do not remember why the withdrawals were made. I have a house in Nagpur where I stay for about 20 days in a month. Therefore, that sum would have been kept at my home".

6. AO held that though the assessee has some bills and vouchers, it is pertinent to mention that there are cash withdrawals from banks other than Akola Urban Coop. Bank. Therefore, the AO observed that it appears that while the withdrawals from other banks were probably used for the purpose of business, the cash withdrawn from Akola Urban Coop. Bank was handed over to M/s Bajoriya Group. AO stated

Page 3 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

that it was also informed by the ACIT, Central Circle -3 Nagpur that the self-cheques of M/s TNR Infrastructures Pvt. Ltd were encashed by employees of Bajoria Group. Though Shri T. Gangadhar Rao claimed that cash withdrawn by Bajoriya group employees was handed over to his employees, he could neither substantiate his claim nor produce the employees who supposedly received the cash. AO held that the fact that the cash withdrawn from the said bank was not used and that the relevant self cheques of the assessee were found in the premises of Bajoriya Group reinforces the fact that the amounts withdrawn from Akola Urban Coop. Bank were not put to business use by the assessee. The AO listed the details of amounts withdrawn from Akola Urban Coop. Bank during the period 1.4.2009 to 31.03.2010 are as under:

Date Cheque No. Amount (Rs.) Person receiving the payment 2.6.2009 2062533 25,00,000 Sumeet Bajoriya 24.8.2009 2062534 1,00,00,000 A.U.B. Jai 4.9.2009 2062545 28,05,000 G.S. Patel 29.9.2009 2062536 50,00,000 G.S. Patel 3.10.2009 2062536 50,00,000 G.S. Patel 24.2.2010 2081802 10,25,000 G.Ganesh Babu TOTAL 2,63,30,000

The AO opined that the amounts which has been given back to M/s Bajoriya group is from the books of accounts of the assessee company and not for the purpose of business and the assessee could not substantiate the claim that the said withdrawals were used for the purpose of business. The AO observed that it is evident from the facts mentioned about that the said amounts were given to M/s Bajoriya Group. The AO held that the amount of Rs.2,63,30,000 is to be treated as unexplained expenditure u/s 69C of the I.T. Act.1961.

Page 4 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

7. It was submitted before the CIT (A), as follows:

"that during the course of business, the assessee has to deal with an unorganized sector, for executing the contract work. The work spots are generally located at placed where no banking facilities are available. Therefore, the assessee was taking the assistance of persons belonging to Bajoria Group for facilitating the withdrawals from the Bank for making payments to the said unorganized sector. However, all the transactions were recorded in the books of accounts maintained by the assessee at Head Office/Branch Office. The AO assumed that the amounts withdrawn by the persons belonging to Bajoria Group (and handed over to the assessee) are not incurred for the business purpose. It was further submitted that the assumption is only on surmises and conjectores. ".

8. Further,the AO also disallowed an amount of Rs.1,95,000 paid to ROC for the enhancement of share capital assuming tha the payment is capital in nature.

9. The ld CIT (A) after hearing the submissions of the assessee stated as follows:

"5.2 The submissions of the appellant were perused and the various issues brought out in the submissions were also seen. The factual issues brought out by the appellant at the time of appellate hearings and in the written submissions do not hold water. In fact, the submissions made in a way tried to obfuscate the matter and do not address the issues of unexplained investments u/s 69C which has been added in the assessment. Hence, the addition of Rs.2,63,30,000 is upheld.

6. Ground No.4 relates to an amount of Rs.1,95,000 which fee paid to ROC for enhancement of share capital

Page 5 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

assuming the same as capital expenditure. The AO has noted that the authorised share capital of the company has been enhanced from 20 lakhs to Rs.50 lakhs and an amount of Rs.1,95,000 has been paid as fee to the Registrar of Companies which was debited to P&L a/c. This payment was clearly a capital expenditure and not a revenue expenditure and hence was added by the AO. The appellant in appeal did not have anything substantive to state. It is evident that this expenditure is clearly capital expenditure as it is for long term and enduring benefit to the company and it is clearly not revenue in nature. Hence, the addition of Rs.1,95,000 is upheld".

10. Aggrieved, the assessee preferred appeal before us by raising the following grounds:

"1. The order of the ld CIT (A) Hyderabad is against the law, weight of evidence and probabilities of case.

2. The ld CIT erred in confirming the addition of Rs.2,63,30,000 made u/s 69C of the IT Act.

3. The ld CIT erred in confirming the order, wherein an addition of Rs.2,63,30,000 is made u/s 69C without stating that for which part of the expenditure the assessee has offered no explanation/offered an explanation which is not satisfactory, in respect of the source of such expenditure, in the eyes of the AO.

4. The ld CIT erred in confirming the order, wherein an addition u/s 69C is made without pointing any defects in the books of accounts.

5. The ld CIT erred in confirming an addition of Rs.1,95,000 which is paid to ROC for enhancement of share capital".

Page 6 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

11. Ground No.5 was not pressed by the assessee during the hearing, hence this ground is dismissed not pressed.

12. The ld Counsel for the assessee submitted that:

• M/s Bajoriya Construction Co. (P) Ltd and their related concerns are our main contractors. Most of our works are located within a radius 80kms of Yavatmal. They have an account in Akola Urban Coop. Bank, Yavatmal. Therefore, we also opened an account in the same bank at Yavatmal because there could be faster transfer of funds. We have no Office in Yavatmal. Our nearest office is at Nagpur which is 150 kms from Yavatmal. Since we do not belong to that region, the bank officials would not let us to draw large amounts of cash which were required for our labour payments. The employees of M/s Bajoria Group, being locals, could get large amounts cash withdrawn. Therefore, we gave our cheques to M/s Bajoria Group. On our request, they used to withdraw cash from time to time and handover the same to us. It was submitted that the signed cheques were handed over to only Mr. Sumeet Bajoriya, M.D. of M/s Bajoriya Construction Company (P) Ltd. This was to prevent the possible misuse by our local staff.

• Mr. G.S. Patel and Mr. A.U.B. Jai are the employees of M/s Bajoriya Group. Mr. G. Ganesh Babu is an employee of our company who is stationed at Nagpur. The cheques encashed by the said persons were given to them by Mr. Sumeet Bajoriya at our request. However, Mr. G. Ganesh Babu also has some signed cheques in his custody. These cheques were encashed to make site payments and were duly recorded in the cash book.

• Mr. Sumeet Bajoriya stays at Yavatmal. Therefore, most of the cheques are given to him. However, some cheques are placed in the custody of Mr. Ganesh Babu so that they can be used in case Mr.Sumeet Bajoriya is not available. All the cheques are not given to Mr.Ganesh Babu because he stays in Nagpur and cannot frequently travel to Yavatmal.

Page 7 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

• The cash withdrawn were used towards labour payments, material purchases, staff salaries etc. Some portion of the cash was again deposited in the banks.

13. The ld Counsel for the assessee submitted that the AO added an amount of Rs.2,63,30,000 solely on surmises and conjectures u/s 69C. The Counsel relied on the decision of the CIT vs. Nahar Spinning Mills Ltd (2006) 8 SOT 6 (Chd.Trib) wherein it was held that the AO cannot invoke section 69C for an expenditure which is not based on evidence but which is presumed to have been incurred by the assessee on the basis of suspicion and the addition was deleted. The ld Counsel also relied on the decision in the case of Income Tax Officer vs. Anoj Kumar Agarwalla (2002) 74 TTJ (Gau.Trib) 573. Assessee also relied on the decision in the case of CIT vs. Bhushan Dua L/H of Gulshan Kumar (205) 147 Taxman 714 (Del.) wherein the Tribunal had found that there were no defects or any infirmity pointed out in the books of accounts of the assessee nor was there anything to question the expenditure incurred, therefore, it could not be said that the assessee had paid too high a price for the purpose of semi finished films. The ld Counsel for the assessee also pointed out that the phenomenon of withdrawal cash has been present in the earlier and subsequent years. The assessee produced the assessment order for A.Ys 2011-12 and 2009-10 at Page 86 of the Paper Book listed self cheques i.e. from which cash was withdrawn by the Bajoriya Group.

14. The ld DR filed written submission which is as follows:

"Assessee's effective grounds of appeal are ...

Page 8 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

2. The IdCIT(A) erred in confirming the addition of Rs.2, 63,30,000 made u/s.69C of the IT Act.

3. The IdCIT(A) erred in confirming the order, wherein an addition of Rs.2, 63,30, 000 was made u/s.69C without stating for which part of the expenditure the assessee has offered no explanation/offered an explanation which is not satisfactory in respect of the source of such expenditure, in the eyes of the AD.

4. The IdCIT(A) erred in confirming the order, wherein an addition of Rs.2, 63,30, 000. was made u/s. 69C without pointing any defects in the books of accounts.

I. Addition u/s.69C of the Income Act:

Facts of the addition are clearly given in pages 2 and 3 of the assessment order. However, the crux of the facts in issue is reiterated. There was a search & seizure action in the case of M/s. Bajoria Construction Company on 08.09.2010, which is a principal contractor and the assessee-company is the sub- contractor. During the course of search in the case of the Principal, it was found the some signed and unsigned cheques issued by the assessee-company were available in the premises of the Principal. It was further quantified in the assessment order as to how much of the cash belonging to the assessee-company was drawn through self cheques in Akola as shown in the table in page 3 of the assessment order. The major finding of the search action was that the Principal was transferring money to the Sub- Contractor's account and claiming such money transfer as sub-contract expenses. It was also found that the subcontractors such as the assessee- company & others were returning the money in cash to the Principal by way of cash withdrawal from assessee's bank account. The surprising fact that was noticed was that the assessee-company did not have any operations in Akola but opened a bank account in Akola, wherein the Principal Company has operations. It was also the finding of the search action that the main purpose of opening and maintaining the bank account by the assessee-company in Akola (where it does not have operations but its Principal has operations) was to facilitate returning of the money in cash to the Principal Company. Since it was discovered during search that the subcontract expenses of the Principal Company claimed to be attributable towards the assessee-company by an extent ofRs.7,13,72,234 was bogus, the AO of the Principal company has disallowed the entire sub-contract expenses in the case of the Principal Company (M/s.Bajoria Construction Company Pvt

Page 9 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

Ltd). Whereas in the case of the Sub-Contractor, i.e., the assessee-company, the AO has treated a sum of s.2,63,30,OOO as unexplained expenditure u/s.69C of the Income Tax Act.

Modus operandi of the accommodation entries between the assessee-company and its Principal: The Principal company awards subcontract work to the assessee-company and accordingly transfers money to the bank accounts of the assessee-company. Since it was found during search that the assessee-company withdraws money from its bank account only to repay the withdrawn money to the principal, the assessee-company did not recognize such withdrawn money as its expense. Rather, the assessee-company claimed that it had received the cash back from its Principal (3fd paragraph in page 2 of the assessment order). The assessee clearly failed to establish the need for withdrawing the money from Akola and also failed to establish the end use of such withdrawn cash. It is not sufficient just to claim that the same cash was available as per the cash book. What is required is to show how that cash was utilised by the assessee-company. In the absence of any proofs, mere entries and written claims do not establish the assessee's case".

15. We heard both the parties. The facts culled out from the records are that Bajoriya Construction Co Ltd is the principal contractor which had awarded the work to the assessee on sub contract basis. The assessee company is the main contractor for the construction of Raigadh Dam located at Amaravati. Most of the suppliers including, labour payments, material purchases, which were engaged in this work had agreed to work based on the reputation of the Bajoriya Construction as the assessee was a new entrant to that area. The assessee company being a sub contractor took the assistance of the principle contractor in getting the materials/labour payments, material purchases, hiring of vehicles etc. Since the assessee was located at Nagpur which is 150 kms away from the site, the assessee used to utilize

Page 10 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

the office facilities of the principle contractor whenever needed. The assessee for sake of easy deposit and encashing of cheques issued by the principle contractor opened bank account in the same bank/branch where the principle contractor had bank accounts and the cheques were drawn by the staff of the principal contractor on behalf of the assessee whenever the assessee requires funds for the site expenses. Due to this reason cheque books were kept sometime with principle contractor and assessee used to take cheques for withdrawing the cash whenever it require funds.

16. The following facts emerged:

(i) that the books of accounts have been accepted

(ii) that such phenomenon of withdrawal has been there in subsequent and previous years which has been accepted by the Department.

(iii) Assessee has now produced details of cash deposits in the banks out of the earlier withdrawals.

17. In these circumstances, we set aside the issue to the file of the AO who shall identify the expenditure which had not been recorded in the books of accounts.

18. The assessee had submitted that he has produced the books of accounts, supporting vouchers for the subsequent expenditure in cash, which was generated by withdrawals. AO is also directed to verify the books wherein part of cash which was un-used over a period of time deposited into Bank is reflected.

Page 11 of 12 ITA No.1525 of 2014 TNR Infraprojects Ltd Hyderabad

19. Further we find that the allegations of the AO that cash withdrawals through the persons of contractee is not to be considered for the purpose of business cannot be accepted, once the books of accounts are accepted. Hence to sum up the AO shall verify whether withdrawals of cash is recorded in the books of accounts with subsequent expenditure laid out for the purpose of business and also to verify the re-deposits of part of cash from the cash flow statement and the books of accounts furnished by the assessee after giving a reasonable opportunity to the assessee.

20. In the result, appeal is allowed for statistical purposes.

Order pronounced in the Open Court on 17th April, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 17th April, 2015.

Vnodan/sps Copy to:

1. Shri Mohd. Afzal, Advocate, 11-5-465 Shersons Residency. Flat No.402, Criminal Court Road, Red Hills, Hyderabad 500004

2. The Dy.Commissioner of Income Tax Circle 2(3) Hyderabad

3. The CIT(A) -III Hyderabad

4. The CIT-II Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

Page 12 of 12