J. Kumar Infraprojects Ltd. v. DCIT

Case snapshot

Sections / provisions: 151; 151A; 37(1); 69A; 69C

Questions before the Court / Tribunal

• Multi-issue search/reassessment and estimation judgment: The reported consolidated order contains several issues: staff/professional expenditure, profit estimation on unrecorded receipts, alleged unexplained investment, out-of-book expenditure, purchase estimation, sanction authentication and faceless-reassessment jurisdiction. Finin2min should publish one canonical judgment with separate issue anchors and primary-check each issue.

Material facts and background

24.06.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, (NFAC) Delhi / CIT(A), Mumbai for the assessment years 2016-17 to 2022-23. The above titled cross appeals have been preferred against the order dated 24.06.2024 of the Commissioner of Income Tax (Appeals) – 53, Mumbai [hereinafter referred to as CIT(A)] relevant to assessment years 2016-17, 2017-18, 2018-19, 2019-20, 2020-21, 2021-22 and 2022-23. First of all we take up assessee’s appeal No. 4147/Mum/2024 and revenues appeal No. 4585/Mum/2024 as both the appeals pertains to same assessment year i.e A.Y 201617 and are against the order of Ld. CIT(A) dt. 24.06.2024. 1. For this year, the Assessee has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case and law on the subject, the learned Assessing Officer erred in making addition of Rs.25,79,334/- as income from sale of scrap in cash u/s 69A r.w.s 115BBE of the Act. The learned CIT (A) erred in confirming addition of Rs.2,20,791/- @. 8.56% of Rs.25,79,334/- on estimate basis without correct appreciation of the facts of the case and law on the In view the facts & circumstances of the case...

facts and law on the subject. In view of the facts and circumstances of the case and law on the subject, the same be deleted. 3. The appellant craves leave to add, amend, alter or delete any ground of appeal on or before the date of hearing.” 2.

The Department has raised the following grounds of appeal: "1. Whether the Ld.CIT(A) erred in restricting addition made by the AO for Rs.25,79,334/- u/s 69A of the Act to Rs. 2,20,791/- as business income of the assessee on the issue of cash income from scrap sale and considering that appropriate profit percentage as average PBT % at 8.56% ignoring the facts and circumstances of the case established by the Assessing Officer. 2. Whether the Ld.CIT(A) erred in restricting/deleting addition made by the AO for Rs.77,48,409/- u/s 69A of the Act to Rs.6,63,264/- as business income of the assessee on the issue of cash income from piling business and considering that appropriate profit percentage as average PBT % at 8.56% ignoring the facts and circumstances of the case established by the Assessing Officer. 3. Whether the Ld.CIT(A) erred in providing relief on the issue of unaccounted income from scrap sale and piling business as business income by estimating unaccounted income from scrap sale and piling business ignoring the facts and circumstances of the case established by the Assessing Officer that the whole income from scrap sale and piling business is profit itself as the incidental...

Appellant / assessee submissions

6.3. In the assessment order, the AO has made reference to various evidences andfindings. In para 2.1.3 of the assessment order, it has been noted that the sheetsprepared by Shri Puneet Srivastava and his team contain the details of scrap that hasbeen sold in cash and the same is reduced from the cost of material as per the abovebalance sheets. Another finding has been given in page 10 of the assessment orderof AY 2016-17 wherein a reference is drawn to page No. 193 of the loose paperbundle. It states that expenses mentioned are also in cash. The code word “murum”(discussed in a separate ground) is also found referred and linked to therein. The AOhas also noted that page No. 212 of loose paper bundle is also of similar nature andthat the excess cash is being sent back to "HO" which is the abbreivation of HeadOffice so that the same may be utilised for making cash expenses for other projects.In page 19 of the assessment order for AY 2016-17, the AO has referred to statementof Shri Jagdish Gupta, who has confirmed that cash expenses have been incurred. Inpage 20 of the assessment order for AY 2016-17, the AO has referred to statement ofShri Nalin Gupta, who in response to question...

totally arbitrarily, but there is necessarilysome amount of guess work involved in a best judgment assessment,and it is the assessee himself who is to blame as he did not submitproper accounts. In our opinion, there was no arbitrariness in the presentcase on the part of the income-tax authorities” 6.11. Similarly, in the case of Commissioner of Sales-tax vs H.M. Esufali H.M.Abdulali, 90 ITR 271, the Hon’ble Apex Court has held as under:“The task of the assessing authority in finding out the escaped turnover was byno means easy. In estimating any escaped turnover, it is inevitable that thereis some guess-work. The assessing authority while making the "bestjudgment" assessment, no doubt, should arrive at its conclusion without anybias and on rational basis. That authority should not be vindictive or capricious.If the estimate made by the assessing authority is a bona fide estimateand is based on a rational basis, the fact that there is no good proof insupport of that estimate is immaterial. Prima facie, the assessing authorityis the best judge of the situation. It is his "best judgment" and not of anyoneelse. The High Court could not substitute its "best judgment" for that ofthe...

Revenue / respondent submissions

3. The Assessee has raised the following additional grounds of appeal vide letter dated 25.11.2024 filed with registry on 29.11.2024: “1. The Ld. AO erred in issuing a Notice under section 148 of the Act by obtaining a properly signed approval under section 151 of the Act. 2. The Ld. AO erred in issuing a Notice u/s.148 of the Act in violation of section 151A of the Act read with CBDT Notification 18 of 2022 dated March 29, 2022 as the same has to be issued by Faceless Assessing Officer. The Appellant craves to leave to add, amend, alter or delete any or all the above grounds of appeal.” 4. In respect of the additional grounds of appeal raised by the Assessee, the Ld. Department Representative (Ld. DR in short) did not objected to the admissibility of the same. The additional grounds of appeal being legal grounds for which no new facts were required and hence, the same were admitted for adjudication following the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC) wherein it is held that where question of law is concerned, additional grounds on legal issued can be raised at any time. 5. First of all we deal with the...

requirement. It is not a ministerial act or an empty formality which can be dispensed with. "Signed" means to sign one's name; to signify assent or adhesion to by signing one's name; to attest by signing or when a person is unable to write his name then affixation of "mark" by such person. The document must be signed or the mark must be affixed in such a way as to make it appear that the person signing it or affixing his mark is the author of it. Therefore, a notice or other document, as referred to in section 282A (1) of the Act will take legal effect only after it is signed by that Income-tax Authority, whether physically or digitally. The usage of the word "shall" makes it a mandatory requirement. (Page 1 to 14 of Paper Book – II; Relevant para 25-29 on page 12-14) Reliance is placed on the decision of the Hon’ble Jurisdictional High Court in the case of CIT v.Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom)(HC) wherein it was held that when section 140A(3) of the Act has already been declared ultra vires by competent High Court in country, authority like Tribunal acting anywhere in country has to respect law laid down by High Court, though of different State, so long as there...

Court / Tribunal analysis and reasoning

recipients offer incomefor taxation using progressive rates and not based on flat rates. Thus, there is anelement of tax evasion involved in the form of reduced tax outgo, which stands aidedby the appellant. Under these circumstances, it would be appropriate to apply theprinciple of proportionality. A reasonable anology can be drawn with Section 40(a)(ia)whereby 30% disallowance is made for nondeduction of TDS and enabling therecipient of payment to evade taxes. The splitting of payments in the name ofdifferent entities even when services are rendered by only one entity can be stated tobe something similar. On an overall consideration of facts, it would be fair to restrictsuch disallowance to 30% of payments. Accordingly, the addition of Rs. 59,53,706/-is restricted to Rs. 17,86,112/- (i.e. 30% of 59,53,706). The disallowance for each ofthe year is as under:Asst. Addition Made Addition Relief Year by theAO restricted to Granted by 30% of gross CIT(A) receipts 2017-18 59,53,706 17,86,112 41,67,594 2018-19 82,33,728 24,70,118 57,63,610 2019-20 98,01,222 29,40,367 68,60,855 2020-21 1,57,23,098 47,16,929 1,10,06,169 2021-22 1,49,63,889 44,89,167 1,04,74,722 2022-23 1,96,89,131...

Therefore, all the conditions of section 37(1) are satisfied and the same may be allowed as an expense. The Hon’ble High Court in the case of Hemraj Nebhomal Sons v. CIT [2005] 146 Taxman 345 (MP) held that once the conditions laid down in section 37(1) of the Act are found satisfied, it is not proper on the part of the taxing authorities to probe into the question as to whether the expenditure is legitimate or necessary, etc. This type of inquiry is neither contemplated nor called for. It is only when the Assessing Officer finds that the claim made is bogus or false or not incurred as a fact, it can be disallowed, otherwise not. (Page 77 to 78 of Paper Book – II; Relevant para 8-11 on page 78)

Therefore, no disallowance can be made under section 37 of the Act Without prejudice to the above: It is submitted that estimate addition cannot be made without rejecting the books of accounts: Reliance is placed on the decision of the Hon’ble Bombay High Court in the case of Teletronics Dealing Systems (Supra) and the Hon’ble Delhi High Court in the case of Forum Sales (Supra). Hence it is prayed that the revenue appeal may be dismissed and the assessee’s appeal may be allowed.” 90. The Ld. DR on the other hands has contended that the CIT(A) was not correct in restricting the disallowance @30% estimated basis and since the entire payments made to spouse of the employees are without rendering of any services, the same are bogus and thus, the AO has rightly disallowed the entire payments of salary and professional fees paid to spouse of employees and the order of the AO may be restored. 91. We have gone through the findings given by the AO in the assessment order as well as that of the CIT(A) order as also the arguments made before us by both the parties to the appeal. The facts of the case are clear that the salaries of few of the employees are split between the employee and his...

96. In view of the above, we are of the considered view that the Assessee has neither claimed excess salary / professional fees nor is any bogus salary / professional fees claimed and thus, no part of the salary / professional fees claimed can be disallowed u/s.37(1) of the Act. The disallowance made by the AO is directed to be deleted in totality and the order of the Ld. CIT(A) is reversed. The Assessee succeeds on this issue and the ground of the Assessee is allowed and that of the department is dismissed. 97. The only other grounds remaining in this year relates to department appeal i.e. grounds of appeal nos.7 to 11 relating to out of books expenses (murrum expenses) deleted by Ld. CIT(A) for this year. We have already dealt with this issue in the order passed for AY 2016-17 and facts being same for this year, on the same reasoning, the department appeal on this issue is dismissed. 98. In view of the above, for AY 2017-18the appeal of the Assessee is party allowed and that of the Department is dismissed. Now we take up assessee’s appeal No. 4149/Mum/2024 and revenues appeal No. 4591/Mum/2024 as both the appeals pertains to same assessment year i.e A.Y 2018-19 and are against...

Operative decision and relief

239. Grounds of appeal nos.3 & 5 of the Assessee appeal and grounds of appeal nos.1 to 6 of the department appeal are against the part relief given by CIT(A) in respect of the issue of scrap of sale in cash and scrap of sale from piling work. We have dealt with this issue in detail in the order passed for AY 2016-17 and facts are same in this year, hence following the order for AY 2016-17, the appeal of the Assessee on this issue is partly allowed and that of the department is dismissed.

241. Grounds of appeal no.6 of the Assessee appeal is in respect of disallowance of PF/ESIC u/s.36(1)(va) of the Act. During the course of hearing, the Assessee filed revised grounds of appeal on this issue vide letter dated 13.01.2025 filed with the registry on 17.01.2025. The revised grounds of appeal in lieu of original grounds of appeal no.6is reproduced as under: “On the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) [CIT(A)] erred in confirming the disallowance of Rs. 27,61,353/- of business promotion expenses under section 37 of the Income-tax Act, 1961.” 242. Although the Assessee filed revised grounds of appeal in lieu of the grounds of appeal no.6 filed originally, however, during the course of appeal hearing, the Assessee did not press this ground of appeal and hence, the same is dismissed. 243. Grounds of appeal nos.15 to 19 of the department appeal is against the relief given by CIT(A) in respect of the issue of unexplained money u/s.69A of the Act. As the CIT(A) has given full relief in this year, the Assessee is not in appeal. We have already dealt with this issue in the order passed for AY 2019-20 and dealt with the...

Authorities and precedents appearing in the judgment

• National Thermal Power Co. Ltd. v. CIT 229 ITR 383
• Vikas Gupta v. UOI 2022
• Leader v. Duffey (1888) L.R.13 App.Cas.294
• New Noble Educational Society vs. The Chief
• Mumbai v. Dilip Kumar and Co. And Ors
• VikasGupta v. Union of lndia Supra Note 1 to
• Bombay HighCourt in CIT v. Smt
• Bharat Krishi Kendra v. Union of lndia (2022)
• CIT v. Smt. Godavari devi Saraf
• Court in the case of CIT v. Vegetable Products Ltd
• Court in the case of K. Subramanian v. Siemens India Ltd
• Leader v. Duffey (1888) LR 13 App Cas 294

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Multi-issue search/reassessment and estimation judgment. The operative result is classified as Partly Allowed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Multi-issue search/reassessment and estimation judgment. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Reconstruct the reassessment timeline: original assessment, section 148A notice/reply, approval authority, notice date and the applicable section 149 limitation window.
• Preserve the complete response to section 148A(b), objections and proof of disposal; jurisdictional defects are often decided from the documentary chronology.
• Build a transaction-level evidence file: confirmations, bank trail, invoices, ledger, tax/GST records and counter-party material rather than relying on a generic explanation.
• Where the addition depends on a third-party statement or investigation report, record the request for the relied material and cross-examination at the earliest stage.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

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