DCIT Vs Skyway Infra Projects Pvt. Ltd. (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal (ITAT), Mumbai “G” Bench, in DCIT Vs Skyway Infra Projects Pvt. Ltd., adjudicated eight appeals filed by the Revenue and eight cross-objections filed by the assessee for Assessment Years 2013-14 to 2020-21. The consolidated order dated 28 February 2023 arose from a common appellate order passed by the Commissioner of Income Tax (Appeals)-53, Mumbai, on 27 July 2022. The assessee company was engaged in executing civil construction and infrastructure contracts for government and municipal authorities, including the Municipal Corporation of Greater Mumbai. Following a search and seizure operation conducted on 6 November 2019 under Section 132 of the Income-tax Act, 1961, assessments were framed under Section 153A read with Section 143(3). The disputes principally concerned alleged bogus purchases, unexplained unsecured loans under Section 68, consequential interest expenditure, subcontract expenses, the validity and limitation of search assessments, and credit for tax deducted at source.
The assessee challenged the validity of the assessment for AY 2013-14, contending that Section 153A permitted assessments only for six years preceding the year of search and that the relevant assessment year fell outside this period. The Tribunal examined the amendments introduced by the Finance Act, 2017, which permitted assessment of additional relevant assessment years, extending the period up to ten assessment years where the statutory conditions were satisfied. Considering that the search was conducted after 1 April 2017 and the income involved exceeded the prescribed threshold of Rs. 50 lakh, the Tribunal held that the Assessing Officer was empowered to issue notice under Section 153A for AY 2013-14. The assessee’s jurisdictional objection was therefore rejected. The assessee also alleged that the assessment order dated 30 September 2021 was barred by limitation because it was not visible on the Income-tax Department’s portal immediately after midnight. The Tribunal rejected this contention, observing that delayed uploading on the portal did not, by itself, establish that the assessment order had been passed beyond the limitation period, particularly in the absence of supporting evidence.
A major dispute related to purchases from thirteen suppliers that the Assessing Officer treated as non-genuine on the basis of material gathered during search and survey proceedings. The investigation identified deficiencies in purchase invoices, delivery records, transportation documents, stock registers and other supporting evidence. Statements of certain suppliers and enquiries conducted at their business premises also raised doubts regarding the actual supply of materials. For AY 2013-14, the Assessing Officer disallowed purchases of Rs. 48,04,750. The CIT(A), after considering additional evidence and the remand report, deleted additions relating to certain suppliers and restricted the disallowance for the remaining suppliers to five per cent of the purchase amounts. The Revenue challenged the relief, while the assessee maintained that purchases were supported by invoices, banking transactions and the execution of municipal infrastructure contracts. The Tribunal examined the evidence, the suppliers’ responses and the conclusions of the lower authorities, and did not accept the CIT(A)’s treatment of the disputed purchases.
The Tribunal also considered the assessee’s argument that additions could not be made under Section 153A in completed assessments without incriminating material discovered during the search. The assessee relied upon the principle governing unabated assessments and contended that the Assessing Officer had made additions without identifying relevant incriminating evidence. The Tribunal examined the material gathered during the search, including statements of suppliers, discrepancies in invoices, enquiries concerning business premises and documentary deficiencies. It distinguished the factual circumstances from cases where additions were made merely by revisiting material already available in completed assessments. The Tribunal found that the search investigation had revealed material relevant to the disputed purchases and unsecured loan transactions. Consequently, the assessee’s objection based on the alleged absence of incriminating material did not succeed.
Another substantial issue concerned additions under creditworthiness-genuineness-loans. Section 68 relating to unsecured loans from various parties. The Assessing Officer questioned the identity and creditworthiness of the lenders and the genuineness of the transactions, relying upon enquiries conducted during the search, inspection reports and deficiencies in the supporting records. The CIT(A) deleted the additions after considering the documents produced by the assessee and the remand proceedings. The appellate authority also noted that no relevant loan entries existed in the assessee’s books for certain parties and that the assessee had discharged its evidentiary burden for other lenders. The Revenue challenged these findings, contending that the documents produced were insufficient to establish genuine loan transactions and that the field enquiries revealed serious doubts about the existence and financial capacity of the alleged creditors.
On examining the unsecured loan additions, the Tribunal emphasised that creditworthiness-genuineness-loans. Section 68 requires the assessee to establish the identity of the creditor, the creditor’s creditworthiness and the genuineness of the transaction. It observed that merely furnishing PAN details, income-tax returns, ledger accounts and other primary documents would not necessarily discharge this burden where independent enquiries revealed contradictory facts. The Tribunal considered the investigation reports indicating that several alleged creditors were not found at their stated addresses and that the assessee had failed to produce adequate evidence establishing their financial capacity and the actual genuineness of the transactions. Relying on the principles governing unexplained cash credits, the Tribunal concluded that the assessee had not satisfactorily discharged the statutory burden. It therefore reversed the relief granted by the CIT(A) in respect of the disputed unsecured loan additions. The consequential dispute concerning interest claimed on such loans was also considered in the consolidated adjudication.
The appeals further involved disallowances of subcontract expenditure claimed in connection with the assessee’s infrastructure projects. During the search, the Department questioned payments to subcontractors, including Ashok Construction and Rajni Developers, because of deficiencies in supporting documents and doubts concerning their business premises. The Assessing Officer disallowed the expenditure, while the CIT(A) deleted the disallowances after considering additional documents and the fact that the subcontractors appeared during remand proceedings. Before the Tribunal, the Revenue argued that establishing the identity of the subcontractors was insufficient without proving that the relevant services had actually been rendered. The Tribunal accepted that the appearance of the subcontractors helped establish their identity but held that adequate evidence of actual services, including supporting project and measurement records, remained necessary. It therefore restored the subcontract expenditure issue to the Assessing Officer for fresh examination after considering the assessee’s submissions and supporting evidence.
In its final decision, the ITAT applied its findings for AY 2013-14 to the connected appeals and cross-objections for the subsequent assessment years wherever the underlying facts and grounds were common. It rejected the assessee’s challenges concerning the ten-year assessment period and limitation, reversed the CIT(A)’s relief on disputed purchases and creditworthiness-genuineness-proved. unsecured loans, and directed reconsideration of subcontract expenditure on the question of actual services rendered. The assessee’s grounds supporting relief on purchases, loans and related matters were rejected or treated as infructuous, while the ground concerning TDS credit was also dismissed as infructuous because it merely supported an undisputed direction for verification. Accordingly, the Tribunal dismissed the assessee’s cross-objections and partly allowed the Revenue’s appeals, including relief granted for statistical purposes on the remanded subcontract expenditure issue. The order highlights the importance of search-related evidence, independent verification of creditors and suppliers, and substantive proof of transactions beyond the production of basic documentary records.
Cases Discussed
1. CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 58 taxmann.com 78 (Bombay HC): Cited regarding the restriction on additions in completed assessments under Section 153A in the absence of incriminating material.
2. All Cargo Global Logistics Ltd. Vs DCIT (2012) 137 ITD 287 (ITAT Mumbai Special Bench): Discussed regarding the distinction between abated and unabated assessments and the scope of additions in search assessment proceedings.
3. CIT Vs Murli Agro Products Ltd. (2014) 49 taxmann.com 172 (Bombay HC): Cited regarding the scope of reassessment under Section 153A where the original assessment had attained finality.
4. B. Kishore Kumar Vs DCIT (2014) 52 taxmann.com 449 (Madras HC): Discussed regarding the evidentiary value of a clear and voluntary admission of undisclosed income made during search proceedings.
5. CIT Vs Harjeev Aggarwal (Delhi HC), ITA No. 8/2004: Discussed regarding the relationship between statements recorded under Section 132(4) and incriminating material discovered during search.
6. PCIT (Central) Vs Anand Kumar Jain (HUF) (Delhi HC), ITA No. 23/2021, dated 12 February 2021: Considered regarding reliance on material discovered in searches involving entry providers when making additions in a beneficiary’s completed assessment.
7. CIT Vs Bholanath Poly Fab (P.) Ltd. (2013) 355 ITR 290 (Gujarat HC): Cited for restricting additions on alleged bogus purchases to the embedded profit element where the underlying purchases and corresponding sales are established.
8. PCIT Vs Rishabhdev Technocable Ltd. (2020) 424 ITR 338 (Bombay HC): Discussed regarding estimation of the profit element in disputed purchases instead of disallowance of the entire purchase amount.
9. PCIT Vs Jakharia Fabric (P.) Ltd. (2020) 429 ITR 332 (Bombay HC): Cited regarding the treatment of purchases from alleged hawala dealers where the materials were necessary for completing the assessee’s business operations.
10. PCIT Vs Mohommad Haji Adam & Co. (Bombay HC), ITA No. 1004 of 2016: Discussed regarding estimation of additions arising from non-genuine purchases and the relevance of corresponding sales.
11. CIT Vs Simit P. Sheth (2013) 356 ITR 451 (Gujarat HC): Cited concerning taxation of the profit element embedded in alleged bogus purchases.
12. CIT Vs N.K. Industries Ltd. (Gujarat HC), Tax Appeal No. 240 of 2009: Discussed in connection with disallowance of purchases found to be non-genuine.
13. N.K. Proteins Ltd. Vs DCIT (2017) 84 taxmann.com 195 (SC): Relied upon in the Tribunal’s discussion of the circumstances in which the entire amount of bogus purchases may be disallowed.
14. ACIT Vs Pritam S. Mahale (ITAT Pune), ITA No. 183/PUN/2020: Discussed regarding the application of the principles governing disallowance of bogus purchases.
15. PCIT Vs Pinaki D. Panani (Bombay HC), ITA No. 1543 of 2017: Considered in the Tribunal’s discussion of the evidentiary circumstances relevant to disputed purchase transactions.
16. CIT Vs Nikunj Eximp Enterprises (Bombay HC): Cited regarding the genuineness of purchases and the evidentiary value of purchase documentation and banking transactions.
17. Roshan Di Hatti Vs CIT (1977) 107 ITR 938 (SC): Cited in connection with the assessee’s obligation to explain the nature and source of amounts credited in its accounts.
18. Kale Khan Mohammad Hanif Vs CIT (1963) 50 ITR 1 (SC): Discussed regarding unexplained cash credits and the Revenue’s authority to assess unexplained amounts as income.
19. Shreelekha Banerjee Vs CIT (1963) 49 ITR 112 (SC): Cited concerning the evidentiary burden where the explanation for a cash credit is found unsatisfactory.
20. CIT Vs Orissa Corporation (P.) Ltd. (1986) 159 ITR 78 (SC): Relied upon before the Tribunal regarding the assessee’s initial evidentiary burden and the significance of enquiries conducted by the Revenue into creditors.
21. Additional CIT Vs Hanuman Agarwal (1984) 151 ITR 150 (Patna HC): Discussed regarding the evaluation of evidence and explanations concerning unsecured creditors.
22. DCIT Vs Acro Exports Trade (P.) Ltd. (2019) 111 taxmann.com 51 (ITAT Mumbai): Cited regarding the evidentiary implications of creditors not appearing in response to departmental enquiries.
23. Dhakeswari Cotton Mills Ltd. Vs CIT (1954) 26 ITR 775 (SC): Discussed regarding reliance on material gathered by the Department and the requirement of a fair opportunity to meet adverse evidence.
24. Kishinchand Chellaram Vs CIT (1980) 125 ITR 713 (SC): Cited regarding the use of material collected behind the assessee’s back without affording an adequate opportunity to respond.
25. H.R. Mehta Vs ACIT (2016) 72 taxmann.com 110 (Bombay HC): Discussed concerning reliance on third-party statements and the opportunity to challenge adverse evidence.
26. CIT Vs Rajesh Kumar (2008) 306 ITR 27 (Delhi HC): Cited in connection with evidentiary material and procedural fairness in income-tax proceedings.
27. CIT Vs Kamal Trading Company (2013) 346 ITR 60 (Rajasthan HC): Discussed concerning the treatment of evidence collected during enquiries and the opportunity available to the assessee.
28. CIT Vs Raja Ginning Udyog (2005) 268 ITR 383 (MP HC): Cited regarding the evaluation of evidence and the basis for sustaining additions.
29. PCIT Vs NRA Iron & Steel (P.) Ltd. (2019) 412 ITR 161 (SC): Relied upon for the three essential requirements under Section 68: identity of creditors, their creditworthiness and genuineness of the transactions. The Tribunal considered the decision particularly relevant to the investigation findings concerning unsecured loans.
