M/s. Emaar MGF Construction Pvt. Ltd. vs ACIT

“1.

The present appeals had come to be admitted on 27 May 2024 on the following question of law:

"2.1

Whether the Tribunal is justified in law and on facts in deleting the addition of INR 157.33 crores [ITA 710/2023] and INR 51.6 crores [ITA 745/2023] by taking resort to the finding that the AO has not rejected the books of account, though the AO has thoroughly discussed the issue before making the addition?"

2.

In terms of the detailed order passed on that date, we had taken note of the conclusions which had come to be recorded by the Assessing Officer' while framing the order of assessment and which stood reflected in paragraph 17.6 which reads as follows:

"17.6

Further, the assessee has shown sundry creditors at Rs. 99,68,32,820/- out of which sale & distribution is appearing at Rs. 188,18,134/-. This amount do not bear the name of the parties to whom payable and appears to be more like 'provisions of expenditure', which has not yet incurred hence cannot be allowed and expenditure to this extent will be disallowed and added to the income of the assessee.

In view of the above, the accounts maintained & submitted by the assessee is not correct and, therefore, liable to be rejected u/s. 145 of the 1.T. Act, as it has claimed bogus expenses to enhance the cost and to reduce the profit. The above transactions clearly depict the malafide intent of the assessee to enhance the cost and evade the tax. Therefore, the books of accounts submitted by the assessee are such from which the true and correct profit cannot be deduced and, therefore, rejected."

3.

However, and as we read the order of the Income Tax Appellate Tribunal dated 26 December 2019 and which is impugned before us today in the present appeals, we find that in paragraph 34 it has held and observed as follows:

"34.

Principally we find that the addition has been made solely based on the Shunglu Committee Report. The object of the Shunglu Committee was to determine, if the purchase of 333 additional flats by DDA was according to the norms/ rules and had not caused any loss to the exchequer. Its object was not to determine the cost or expenditure to the assessee, indeed, the assessee was never called to the proceedings of the Shunglu Committee, nor was any input /clarification taken from the assessee. It can also be find that another government agency, the Labour Commissioner, has accepted the cost of the assessee for the purpose of levy of labour cess on the CGV project. What is primarily required is to prove the inflation in the cost of construction is to determine, investigate and prove whether any expenditure claimed in the P&L account or said to be incurred for construction are bogus or inflated. This inflation could be either on payment of sub-contractors or cost of materials. The Issue of the purchase of materials is also dealt in this order while dealing with the ground taken up by the assessee relating to purchase of material. There is no dispute about the difference between the estimated specifications and executed specifications. Hence, incurring of additional expenditure over and above the contract given to the ACIL can be accepted. Further, after the departure of ACIL from the execution of the work, the same has been completed by resorting to the completion by other agencies. The increase in the cost of cement and steel cannot be ruled out. The Assessing Officer ultimately held and calculated the difference in POCM based on the budgeted cost and the payments made to EMLL. Nowhere, the method of accounting standard followed by the assessee has been disputed, in fact, no grounds could be brought out by the Assessing Officer to alter the percentage shown by the assessee except the document of estimated cost. The Assessing Officer held that the estimated cost of the project computed by the assessee at Rs. 1597.43 crores was higher by approximately Rs.270 crores on account of cost of construction computed at Rs.1027 crores. The AO's conclusion that the total construction cost cannot exceed Rs. 752.35 crores and hence total estimated project cost worked out to Rs.1322.71 crores against Rs.1597.43 crores estimated by the assessee cannot be accepted. This reduction in estimated expenditure consequently resulted in working of POCM at 69.32% instead of 57.40%. This resulted in the absolute figure of Rs.87.97 crores rise in the estimated income of the assessee which is not without any tangible basis and hence cannot be accepted. The AO's contention that the negligible profit declared by the assessee warrants the alteration in POCM is also cannot be accepted. We also rely on the judgment of CIT Vs Vikram Plastics 239 ITR 161 (Guj.) wherein it has been held that, where no discrepancies or defects pointed out in the books of account and further that they were regularly maintained and also on the finding that there was no material brought on record to establish that purchases or expenses were inflated or sales suppressed. The profits declared by the assessee cannot be altered. Similarly, the Hon'ble Delhi Court in the case of Winner Constructions Pvt. Ltd. in ITA 796/2011 held that low gross profit or net profit may be a ground are reason to conduct detailed and thorough investigation and verification but on that stand alone the profits cannot be rejected. System of accounting adopted by the assessee cannot be rejected on the grounds that gross profit disclosed by the assessee was low. It is also a fact and as submitted by the revenue that the assessee had constructed 230,689.33 sq. mt. against the approved built up area of 205,140 sq. mt. In that case, it is a natural corollary that the cost incurred for construction of the plots would be more than the estimated cost. The fact that the DDA purchased the flats for Rs.11,000 per sq. ft. and sold in auction @ Rs.24,000 per sq. ft. has been ignored by the Assessing Officer and took a fixed stance that the cost of construction cannot be more than RSs2875 per sq. ft. The factor such as increase in the input cost, exit of the main contractor, change in the specification are not considered by the Assessing officer. In the instant case, there has been no evidence of inflation of purchases, the Assessing Officer has not rejected the books of account, the accounts have been accepted but altered the profits based on the estimated project cost. This cannot be said to be legally tenable. The re-computation and the consequent addition made by the Assessing Officer is hereby directed to be deleted."

4.

It becomes ex facie apparent and evident that the Tribunal has proceeded on the basis that the AO had not rejected the books of account and since the accounts would be liable to have been duly accepted, alterations on the basis of estimated cost would not be legally tenable. It is thus apparent that the judgment rendered by the Tribunal is rendered perverse and contrary to the record.

5.

We accordingly answer the question as posited in the negative and in favour of the Commissioner. The appeal shall consequently stand allowed. The order of the Tribunal dated 26 December 2019 is hereby quashed and set aside. The matter shall in consequence stand remanded to the Tribunal on the aforesaid question for rendering a decision afresh.

6.

By way of abundant caution, we clarify that we were constrained to interfere with the ultimate order rendered by the Tribunal solely on the grounds aforementioned. Consequently, all rights and contentions of respective parties on merits are kept open.”

“2.

Since, the issues involved in both the appeals are common, they were heard together and are being disposed off by common order.

3.

In ITA No. 1731/Del/2014, the assessee has raised following grounds:

“1.

That the Commissioner of Income-tax (Appeals) [“CIT(A)”] erred on facts and in law in observing that the Assessing Officer could have drawn adverse inference regarding unsubstantiated purchases to the extent of Rs.17,76,06,532/- for the relevant assessment year, in respect of parties from whom confirmations were not received before the conclusion of assessment proceedings.

1.2

That the CIT(A) erred on facts and in law in not admitting and considering the confirmations received from 23 parties on the ground that-

(i)

the appellant had exhausted opportunity to file the said confirmations at an earlier stage;

(ii)

Revenue had no opportunity to examine/rebut the said evidences.

2.

That the CIT(A) erred on facts and in law in holding that the disbursement of income as per the revenue sharing agreement with EMLL, was not diversion of income by overriding the title, but application of income.

2.1

That the CIT(A) erred on facts and in law in not appreciating that in essence, under the arrangement between the parties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant.

2.2

That the CIT(A) erred on facts and in law in not allowing deduction of expenditure incurred towards services obtained from EMLL, at 25% of revenue, actually paid as per the terms agreed between the appellant and EMLL, and instead allowing deduction of cost/expenses incurred by EMLL in providing support to the appellant.

2.3

That the CIT(A) erred on facts and in law in adopting its own method of computing reasonable expenditure that ought to have been incurred by the appellant in relation to services obtained from EMLL, which is not permissible in law. ”

4.

In ITA No. 1732/Del/2014, the assessee has raised following grounds:

“1.

That the Commissioner of Income-tax (Appeals) [“CIT(A)”] erred on facts and in law in observing that the Assessing Officer could have drawn adverse inference regarding unsubstantiated purchases to the extent of Rs.56,79,06,899/- for the relevant assessment year, in respect of parties from whom confirmations were not received before the conclusion of assessment proceedings.

1.2

That the CIT(A) erred on facts and in law in not admitting and considering the confirmations received from 23 parties on the ground that-

(i)

the appellant had exhausted opportunity to file the said confirmations at an earlier stage;

(ii)

Revenue had no opportunity to examine/rebut the said evidences.

2.

That the CIT(A) erred on facts and in law in holding that the disbursement of income as per the revenue sharing agreement with EMLL, was not diversion of income by overriding the title, but application of income.

2.1

That the CIT(A) erred on facts and in law in not appreciating that in essence, under the arrangement between the parties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant.

2.2

That the CIT(A) erred on facts and in law in not allowing deduction of expenditure incurred towards services obtained from EMLL, at 25% of revenue, actually paid as per the terms agreed between the appellant and EMLL, and instead allowing deduction of cost/expenses incurred by EMLL in providing support to the appellant.

2.3

That the CIT(A) erred on facts and in law in adopting its own method of computing reasonable expenditure that ought to have been incurred by the appellant in relation to services obtained from EMLL, which is not permissible in law. ”

5.

In ITA No. 6114/Del/2014, the assessee has raised following grounds:

“1.

That the Commissioner of Income-tax (Appeals) [“CIT(A)”] erred on facts and in law in sustaining disallowance of purchases to the extent of Rs.1,68,17,082/- for relevant assessment year, in respect of parties from whom confirmations were not received directly by the Assessing Officer during the course of assessment proceedings.

2.

That the CIT(A) erred on facts and in law in following the order for assessment years 2009-10 and 2010-11 and holding that the disbursement of income as per the revenue sharing agreement with EMLL, was not diversion of income by overriding the title, but application of income.

2.1

That the CIT(A) erred on facts and in law in not appreciating that in essence, under the arrangement between the parties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant.

2.2

That the CIT(A) erred on facts and in law in not allowing deduction of expenditure incurred towards services obtained from EMLL, at 25% of revenue, actually paid as per the terms agreed between the appellant and EMLL, and instead allowing deduction of cost/expenses incurred by EMLL in providing support to the appellant.

2.3

That the CIT(A) erred on facts and in law in adopting its own method of computing reasonable expenditure that ought to have been incurred by the appellant in relation to services obtained from EMLL, which is not permissible in law.”

6.

In ITA No. 913/Del/2017, the assessee has raised f ollowing grounds:

“1.

That the Commissioner of Income-tax (Appeals)-23, New Delhi (hereinafter referred to as ‘CIT(A)’) has erred on facts and in law in following the order for assessment years 2009-10, 2010-11, 2011-12 and 2012-13 and holding that the disbursement of income as per the revenue sharing agreement with M/s Emmar MGF Land Ltd. (hereinafter referred to ‘EMLL’), was not diversion of income by overriding the title, but application of income.

2.

That the CIT(A) erred on facts and in law in not appreciating that in essence, under the arrangement between the parties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant.

3.

That the CIT(A) erred on facts and in law in not allowing deduction of expenditure incurred towards services obtained from EMLL, at 25% of revenue, actually paid as per the terms agreed between the appellant and EMLL, and instead allowing deduction of cost/expenses incurred by EMLL in providing support to the appellant.

4.

That the CIT(A) erred on facts and in law in adopting its own method of computing reasonable expenditure that ought to have been incurred by the appellant in relation to services obtained from EMLL, which is not permissible in law. ”

7.

In ITA No. 914/Del/2017, the assessee has raised f ollowing grounds:

“1.

That the Commissioner of Income-tax (Appeals)-23, New Delhi (hereinafter referred to as ‘CIT(A)’) has erred on facts and in law in following the order for assessment years 2009-10, 2010-11, 2011-12 and 2012-13 and holding that the disbursement of income as per the revenue sharing agreement with M/s Emmar MGF Land Ltd. (hereinafter referred to ‘EMLL’), was not diversion of income by overriding the title, but application of income.

2.

That the CIT(A) erred on facts and in law in not appreciating that in essence, under the arrangement between the parties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant.

3.

That the CIT(A) erred on facts and in law in not allowing deduction of expenditure incurred towards services obtained from EMLL, at 25% of revenue, actually paid as per the terms agreed between the appellant and EMLL, and instead allowing deduction of cost/expenses incurred by EMLL in providing support to the appellant.

4.

That the CIT(A) erred on facts and in law in adopting its own method of computing reasonable expenditure that ought to have been incurred by the appellant in relation to services obtained from EMLL, which is not permissible in law. ”

8.

In ITA No. 2001/Del/2014, the revenue has raised following grounds:

“1.

The order of ld. CIT (A) is not correct in law and facts.

2.

On the facts and circumstances of the case, the ld. CIT (A) has erred in deleting the addition of Rs.65.46 crores made by the Assessing Officer on account of wrong budgeted estimated used in POCM.

3.

On that facts and circumstances of the case, the ld. CIT (A) has erred in law in deleting the addition of Rs.105,90,50,000/- made by the AO on account of Sham transaction.

4.

On the facts and circumstances of the case, the ld. CIT (A) has erred in law in deleted the addition of Rs.2,33,47,177/- made by the AO under the head income from other sources as against claimed as netted off against project cost.”

“1.

The order of ld. CIT (A) is not correct in law and facts.

2.

On the facts and circumstances of the case, the ld. CIT (A) has erred in deleting the addition of Rs.Rs.100.54 crores made by the Assessing Officer on account of ‘Inflated/Bogus Construction Cost’.

3.

On the facts and circumstances of the case, the ld. CIT (A) has erred in law in deleting the addition of Rs.211,23,81,220/- made by the AO on account of Sham agreement.

4.

On the facts and circumstances of the cases, the ld. CIT (A) has erred in law in determination of business income for A.Ys. 2009-10 and 2011-12.

5.

On the facts and circumstances of the case, the ld. CIT (A) has erred in law in deleting the addition of Rs.6,54,80,690/- under the head “income from other sources & capital gain.”

“1.

The order of ld. CIT (A) is not correct in law and facts.

2.

On the facts and circumstances of the case, the ld. CIT (A) has erred in deleting the addition of Rs.49,91,82,918/- out of total addition of Rs.51,60,00,000/- made by the Assessing Officer on account of ‘Inflated/Bogus Construction Cost’.

3.

On that facts and circumstances of the case, the ld. CIT (A) has erred in law in deleting the addition of Rs.108,20,56,857/- made by the AO on account of Sham transaction.

4.

On the facts and circumstances of the case, the ld. CIT (A) has erred in law in directing the AO to determine the business income of the assessee based on findings for A.Y. 2009-10 and 2010-11.

5.

On the facts and circumstances of the case, the ld. CIT (A) has erred in law in directing the AO to treat certain incomes amounting to Rs.2,08,06,019/- as business income instead of capital gains and income from other sources (interest on Margin Money of Rs.49,66,039/-, Gain on Sale of Current Investment Rs.1,45,10,435/- and income from Scrap Sales Rs.13,29,545/-.”

“1.

The order of ld. CIT (A) is not correct in law and facts.

2.

That on the facts and circumstances of the case, the ld. CIT (A) has erred in deleting the addition of Rs.9,11,79,858/- made by the AO on account of ‘Sham Agreement’.

3.

That on the facts and circumstances of the case, the ld. CIT (A) has erred in directing the AO to compute the income of the assessee for the year under consideration based on his findings.”

List of remaining parties from whom confirmation could not be furnished