ITO-4(3)(4), MUMBAI vs. M/S. SATYA IMPEX PVT. LTD., MUMBAI

This appeal by the Revenue is directed against the order of Commissioner of Income Tax(Appeals)-2, Mumbai [ in short ‘ the CIT(A)’] dated 27/05/2019 for the Assessment Year 2006-07.

The solitary ground raised by the Revenue in appeal reads as under:-

Shri Sanjay J. Sethi representing the Department submitted that consequent to search in the case of Anil Dalmia and Harish Dalmia by Central Bureau of Investigation, it was found that the aforesaid persons have floated various companies for providing accommodation entries. One of such company is Empire Commercial Company Pvt. Ltd. (ECCPL). As per the information received by Commissioner of Income Tax (Central), Mumbai the name of the assessee figures in the list of sundry debtors of ECCPL. As per the said list the assessee is shown as sundry debtor of Rs.2,20,245/- from Assessment Year 2006-07 and the said amount is continuing till Assessment Year 2010-11. In view of the above information assessment in the case of assessee for Assessment Year 2006-07 was reopened. The assessee is one of the beneficiaries of accommodation entries from ECCPL. On detailed investigation it was found that the assessee had claimed bogus purchases in earlier years thereby disclosing sundry creditors outstanding as on 01/04/2005 of Rs.11,60,000/-. Though the assessee had claimed that he has paid part of aforesaid amount in subsequent Assessment Years and the only amount that is payable to ECCPL is Rs.2,20,245/-, however, the explanation and arguments made by assessee cannot be accepted as the transaction itself is bogus. The Assessing Officer after having examined the entire gamut of transaction made addition of the entire bogus transaction of Rs.11,60,000/- u/s 41(1) of the Income Tax Act, 1961 ( in short ‘the Act’) as cessation of liability. The ld. Departmental Representative submitted that the CIT(A) has erred in deleting the aforesaid addition on the ground that provisions of section 41(1) of the Act are not attracted. The ld. Departmental Representative prayed for reversing the findings of CIT(A) and upholding the assessment order.

On the other hand, Shri A.K.Tibrewal appearing on behalf of the assessee vehemently supported the order of CIT(A). The ld. Authorized Representative for the assessee submitted that apart from allegation that ECCPL is engaged in providing accommodation entries there is no tangible material on record to substantiate that the assessee has obtained accommodation entries from the said company. The ld. Authorized Representative for the assessee submitted that the transaction between the assessee and ECCPL is genuine. The assessee had made purchases from ECCPL to the tune of Rs.11,60,000/-. Thereafter, the assessee had made payments to ECCPL on 13/04/2004 Rs.5,000/- and Rs.9,36,755/- on 30/03/2006. Thus, as on 31/03/2006 the outstanding amount payable to ECCPL was Rs.2,20,245/-. The CIT(A) has rightly observed that the provisions of section 41(1) of the Act are not attracted as there is no remission of trading liability during the imputed Assessment Year. Further, the Revenue has failed to establish that the assessee is one of beneficiaries of alleged accommodation entries provided by ECCPL. The ld. Authorized Representative for the assessee prayed for upholding the order of CIT(A) and dismissing appeal of the Revenue.

Submissions made by rival sides heard, orders of authorities below examined. The Assessing Officer in the assessment proceedings has held that the assessee is one of the beneficiary of ECCPL who is engaged in providing accommodation entries. This observation has been made by the Assessing Officer on the basis of information received from CBI in search operations carried out in the case of Dalmia Brothers. ECCPL is one of the companies operated by Dalmia Brothers. However, we observe that apart from the information there is no documentary evidence on record to link that the assessee is one of the beneficiaries of alleged bogus entries provided by ECCPL. Ostensibly, the assessee had made purchases to the tune of Rs.11,60,000/- from ECCPL in the year. Thereafter, assessee made payment of Rs.5,000/- in 2004 and Rs.9,36,755/- on 30/03/2006. Thus, the outstanding amount payable by the assessee to ECCPL as on 31/06/2006 was Rs.2,20,245/-.

A bare perusal of section 41(1) of the Act would show that for invoking provisions of said section following conditions should be fulfilled: