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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by The Income Tax Officer, Ward – 24 (2), New Delhi (the learned AO) against the order of the ld Commissioner Of Income Tax (Appeal) – 28, New Delhi [ The Ld CIT(A)] dated 29.02.2016 for the Assessment Year 2010-11. 2. The AO has raised the following grounds of appeal:- “1. The Ld. CIT (A) has erred in not appreciating the fact that the assessee company is only an accommodation entry provider.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting of Rs 1,20,00,000/- on account of undeclared commission income.
3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting of T 73,283/- on account of disallowance u/s 14A of the Act.” Page | 1
3. The brief facts of the case are that assessee is a company which is stated to be in the business of financial services. It filed its return of income on 3/1/2011 declaring a loss of INR 73283/–. During the course of assessment proceedings it was found that assessee has received the share capital and share premium from 3 different companies amounting to INR 850,000,000/–. Further the assessee has invested this amount in unquoted shares of 3 different companies of Rs. 85,00,00,000. The learned assessing officer asked the investor companies in the assessee by issue of the notice u/s 133 (6) of the act. The reply was received from these 3 companies and the information was sent to the respective assessing officer of those companies. The learned assessing officer discovered during the process that all these companies belong to a group companies which were run and controlled by Sri surrender Kumar Jain for the purposes of giving accommodation entries. Further the learned assessing officer examined the bank statement filed by these investors and recorded his finding which, according to him, ultimately proved that these are the paper/dummy companies managed and controlled by Sri SK Jain and others. Therefore the learned assessing officer held that these 3 companies were not in any actual financial business but were merely rotating money through cheques among companies controlled and operated by Sri Surendra Kumar Jain and others for a specific purpose. The learned assessing officer further issued summons to the directors of these company and the statements were recorded on oath. The directors stated that they are in the business and are assessed to income tax having permanent account number and as the transactions were routed through cheques and they were genuine. The learned assessing officer rejected the contention and found that they all have bank account in one branch of Axis Bank, the investigation done by the investigation wing showed the modus operandi of the entry operators. Further to investigate the matter, the learned assessing officer called the detail from the bank account of the companies from where funds were initially infused in the share capital or share premium in the companies. It was found that most of these companies are opened accounts in the month of March 2000 in same branch of Axis bank and has started by introduction of funds from its group controlled company and then rotated same among themselves till it reached ultimate beneficiaries. Based on these enquiries conducted by the assessing officer himself, coupled with the report received from the investigation wing, he held that it was proved that these companies are nothing but the facilitator in the chain of companies controlled and operated by Mr. Surendra Kumar Jain and others in providing accommodation entry to the beneficiary company. The learned AO further noted that the amount received is further advanced by the assessee to other group companies which stands in the middle of the chain of the companies, which starts from the introduction of cash in the accounts and ending with the issue of cheque to the beneficiaries, the entry operators earns the commission of 1.75 to 3% from the beneficiaries, and as assessee is in the middle of chain, the learned assessing officer estimated the commission income in the hands of the assessee of 0.75 percentage and made an addition of INR 12,000,000/- on account of the transaction of 85,00,00,000 of share capital received and 80,00,00,000 of the loan advanced. The learned assessing officer further made a disallowance of INR 73283 u/s 14 A of the income tax act out of the expenses claimed, despite the fact that the assessee has not earned any dividend or exempt income. Consequently the assessment order u/s 143 (3) of the income tax act was passed on 28/3/2013 determining the returned income of the assessee at INR 12,000,000 as against the declared a gross loss of INR 7 3283/-.
4. Assessee being aggrieved with the order of the learned AO has preferred an appeal before the learned Commissioner Of Income Tax (Appeals) – 28, New Delhi. The learned CIT – A deleted the above addition of INR 12,000,000 vide para number 4.2 – 4.3 as under:- “4.2 However it is noted that the shareholders and investor company in which investment was made by the appellant all are assessed to tax and order in their cases has also been passed under section 143 (3) of the act. Further the share capital and share premium of the appellant are duly accepted as genuine in their respective assessment orders as mentioned above without any adverse finding. Moreover on perusal of the assessment order of M/s Akul Securities Private Limited 2010 – 11, it is evident that on the basis of search and seizure actions were carried out in the premises of the SK Jain group on 14/9/2010, proceeding under section 153C of the act was initiated in the case of one of the shareholders, M/s Akul securities private limited and vide order dated 29/3/2013 passed by ACIT central circle – 23, New Delhi, the returned income declared by the assessee company has been accepted. Hence it is apparent that the finding of the assessing officer is not corroborated by the finding of other assessing officer. 4.3 It is further noted that the assessing officer has given a specific finding that the appellant company is nothing but 1 of paper/dummy company controlled and managed by Sri SK Jain to provide entries to the beneficiaries. It has been further stated that the entry operator used to take commission of 0.75% – 3% for providing entries. Accordingly the entries rooted through this company has been ignored and held to be part of entry process. However deemed commission on down 0.75% for every entry debit and credit entries has been calculated and added in the hands of the appellant company. Even if it is established that the appellant company is a dummy/paper company created and managed by entry operators Shri SK Jain, then also addition on account of earning of commission has to be made in the hands of the entry operator who control and manage the dummy companies and not in the hand of various companies through whom the entries have been routed by the entry provider. Taking all the facts into consideration the addition of INR 1.20/by the AO under the head “undeclared commission on earned” is deleted.”
5. The ld AO aggrieved with the finding of the learned CIT – A has preferred this appeal. The ground number 1 and 2 of the appeal are specifically with reference to the deletion of the addition of 1,20,00,000 on account of undeclared commission income.
The learned departmental representative vehemently submitted that assessee is a clear-cut entity which is managed by Sri SK Jain and is providing accommodation entries. He further stated that it is very apparent that this company who is having a loss of INR 73,000 has received the share capital and premium of INR 850,000,000 and has further made an investment of almost similar amount in another company clearly Shows that the business of the company is of an accommodation entry provider. He further submitted that the bank statement obtained by the learned assessing officer clearly shows that who introduced these companies to the bankers and how money has been routed through this company. He further referred page no 2 of the assessment order to demonstrate that. He therefore submitted that as assessee is one of the entities which is in the chain of events of the provision of accommodation entry, learned assessing officer noted that the total commission is earned by @ 1.75% – 3% by accommodation entry provider and therefore only 0.75% of the commission has been charged. Coming to the order of the learned CIT – A, he submitted that the learned CIT appeal has grossly erred in stating that these companies are assessed to tax and there is no adverse inferences drawn in case of these companies. He submitted that as these companies are also accommodation entry provider, naturally there cannot be any addition in the hands of these companies u/s 68 or under section 69 of the income tax act, as these additions are required to be made only in the hands of the beneficiaries. The real income belongs to the beneficiaries and not to these entry operators and therefore the learned CIT – A has grossly erred in holding that the revenue has accepted the genuineness of the transaction of the investment and of the introduction of capital in these companies. He further submitted that merely because an assessment order does not make any addition on these entries, it cannot be said that AO has accepted them as genuine. This is more so when the only real income in the form of the commission income of the accommodation entry provider is charged to tax in those hands, Hence, it is absolutely clear that revenue does not intend to make any addition in the hands of the intermediary companies but in the hands of the beneficiaries. Coming to the rate of the commission, he submitted that the learned CIT – A has grossly erred in noting that the learned assessing officer has stated that commission of 0.75% to 3% is charged by the accommodation entry providers. He stated that the learned assessing officer has stated 1.75% to 3% is charged as commission by the accommodation entry providers and only 0.75% is charged to tax in the hands of the assessee company. Therefore it is submitted that the learned CIT – A has wrongly taken the figures from the assessment order and deleted the addition. With respect to the taxability of the commission income in the hands of the operations Shri SK Jain, the learned DR submitted that as assessee is an intermediary in the whole chain of the provision of the accommodation entries to the beneficiaries, part of the addition is required to be made in the hands of the assessee company as transactions have been routed through this company. In view of this, he submitted that the order of the learned CIT – A is incorrect and the order of the learned assessing officer is required to be restored.
The learned authorised representative vehemently supported the order of the learned CIT – A and submitted that assessee has submitted all the details with respect to the shareholders including their income tax returns and bank statements. Further in summons u/s 131 of the income tax act the investors have confirmed the above transaction and has stated that the investment is not merely an accommodation entry. He further stated that the learned CIT – A has held that the investment made by the assessee as well as the investment made in the assessee in the form of share capital and share premium are duly accepted as genuine in their respective assessment orders. He further stated that on the basis of the search and seizure action in the premises of Sri SK Jain on 14/9/2010 returned income declared by the one of the investors has been accepted. Therefore he submitted that the transactions are genuine and the addition has rightly been deleted by the learned CIT – A.
We have carefully considered the rival contention and perused the orders of the lower authorities. Apparently in this case the learned assessing officer has made detailed enquiry coupled with the inquiries of the investigation wing and search and seizure carried out on Mr. Surendra Kumar Jain , then it was found that the amount of investment received by the assessee and amount of investment made by the assessee, both are in the form of accommodation entries and therefore the learned assessing officer has treated the part of the commission at the rate of 0.75% taxable in the hands of the assessee as it is part of the chain of the accommodation entry providers. The learned CIT – A has deleted the same giving the detailed reasons as we have already incorporated in our order above. We are not inclined to agree with the order of the learned CIT – A but to agree with the order of the learned assessing officer for the following reasons:- i. The assessee has a meager loss of INR 73283/– according to its return of income, whereas it has received share capital of INR 850,000,000 from 3 different companies and has further made an investment of identical sum in 3 other different companies which are unquoted shares. Merely the statement of the above transaction itself shows that the above transaction of the investment in the assessee company of 85,00,00,000 and investment made by the assessee company of 85,00,00,000 in 3 different companies are in nature of accommodation entries. ii. It is also highly improbable that in such a company like assessee, 3 unknown companies will make an investment of INR 850,000,000, further, such a small company as an assessee, will make an investment in other 3 companies of Rs . 85,00,00,000. Further there is no income to the investor from these companies and neither the assessee has made any return to investor in the assessee company. iii. The learned assessing officer made an enquiry from the bank statement of these companies who made investment of INR 850,000,000 and found that all these 3 companies are having their bank account in the same branch of the axis bank. The amount of debit and credit entries in those bank statements are also routed through and to the other dummy and paper companies controlled by Sri SK Jain and others. iv. All 3 investors who have made investment in the assessee company opened their bank account between 3/3/2010 – 10/3/2010 with the same branch and makes investment of INR 850,000,000 in the assessee company which is a private limited company engaged in service sector as it is engaged in business of financial services by three different, stated to be unknown companies, controlled by unknown directors as stated by the assessee, cannot be a mere coincidence but coupled with the composite facts of the case goes on to strengthen the fact that these are accommodation entries. v. Further it is important to note that M/S Akul securities Ltd which has made an investment of INR 120,000,000 in the assessee company in turn received the sum in part from M/s Yuvraj exports private limited and assessee has made a further investment in Yuvraj exports private limited of INR 350,000,000. Both these facts are evident in page number 2 of the assessment order where the AO has discussed the investor company and the investor company in the assessee. Therefore it’s unusual that assessee received funds through layering from one company and makes investment in the same company. vi. Looking to the investment made by the assessee company, it is apparent that all these investing companies have also account in the same branch of the axis bank. They are also used for giving an accommodation entry by debit and credit in their bank account to the group concern of SK Jain for onward beneficiaries. The learned AO noted that the debits and credits have gone to the other paper in dummy companies controlled by Sri SK Jain.
vii. Further it is also interesting to note that the three companies in which the assessee has also made an investment all have opened their bank account in the same branch of axis bank within 2 days i.e. 4/3/2010 – 6/3/2010 and garnered INR 850,000,000. viii. The learned assessing officer on the enquiry also noted that the cash was deposited in one account and later on through chain of the companies and layered investments the money has gone to the assessee company and in turn is also routed from assessee company to other intermediaries and in the end to the beneficiaries. ix. In all these series of transactions entered into by the assessee of investment in and investment by, clearly shows that only one branch i.e. Rajendra Nagar branch of Axis bank have been used. Further the source of deposit in cash as well as the further layering of the funds also have been investigated by the assessing officer along with the investigation wing and found to have been the complete modus operandi of giving an accommodation entry to the beneficiaries. Investors and Investees in the assessee company for rotation of such a huge fund have used only one bank branch of Axis bank. x. The finding of the learned CIT – A that all these companies have been assessed u/s 143 (3) of The Income Tax Act and no addition has been made in the hands of these companies u/s 68 of the income tax act and therefore he reached at a conclusion that these transactions have been accepted by the learned AO of the respective companies as genuine. The above findings results to be rejected for the simple reason that when the income does not belong to these companies there cannot be any addition in the hands of these accommodation entry providers or one of the entities in the chain of accommodation entry providers. Such additions are required to be made only in the hands of the real beneficiaries. Furthermore, the learned CIT – A has reached at the conclusion without having any facts on the record that as income tax department has accepted these entries as genuine. Contrary to that, investigation wing and the learned assessing officer has made the detailed enquiries with respect to the bank account of the investor or in the investor and has shown that the whole transaction is merely of a pass-through transactions of the accommodation entry and the assessee is one of the entities involved in that. xi. Further with respect to the amount of the commission the learned CIT – A has wrongly recorded the fact that the learned AO has noted that accommodation entry operators charges commission at the rate of 0.75% – 3% and therefore the whole amount of 0.75% added in the hands of the assessee company is unjustified. On careful perusal of the assessment order, the learned assessing officer has recorded that entry operator’s charges commission from the range of 1.75% – 3% and as assessee is one of the entities involved in the provision of accommodation entries to the beneficiaries, the learned AO estimated the commission income of 0.75% in the hands of the assessee. In view of this, it is apparent that the learned CIT Appeal has erred in deleting the above addition. xii. The learned CIT – A has also erred in stating that as Sri SK Jain and others are the accommodation entry providers then addition on account of earning of commission has to be made in the hands of the entry operator who control and manage the dummy companies and not in the hands of the various companies from whom the entries have been routed by the entry provider. If the order of the learned CIT Appeal is taken to the logical conclusion that he should have ordered that identical amount should be added in the hands of Sri SK Jain, which has not been done by him. Further, the assessee is one of the entities which is a corporate entity, transaction have been routed to these entity, the corporate identity of this company has been used to give the colour of genuineness to the whole transaction, therefore it is imperative that the addition of the proportionate amount with respect to the commission earned is required to be taxed in the hands of the assessee company.
In view of the above findings we are of the opinion that the commission income with respect to the above transaction entered into by the assessee are required to be taxed in the hands of the assessee company, provided the same have already not been taxed in the hands of Sri SK Jain. In view of this, we direct the assessee to show before the learned assessing officer that commission income earned by Sri SK Jain on these transactions of the accommodation entries have already been offered by him as income in his hands. If the assessee shows that same have been already taxed in the hands of Sri SK Jain, then commission with respect to the above accommodation entries will not be added in the hands of the assessee as it will amount to double addition. If the assessee fails to show that commission income has been offered by Sri SK Jain on these accommodation entries as income in his hands , then the assessing officer is directed to retain the addition of INR 12,000,000 in the hands of the assessee company. Accordingly ground number 1 and 2 of the appeal of the AO is allowed with above direction.
With respect to the ground number 3 of the appeal of the learned AO with respect to the deletion of the addition under section 14A of the income tax act of INR 73283/– despite there being no dividend income earned by the assessee during the year, the learned CIT DR supported the order of the learned assessing officer where the learned authorised representative supported the order of the learned CIT – A.
We have carefully considered the rival contention and found that assessee has not earned any exempt income during the year and therefore there is no question of making any disallowance u/s 14 A of the income tax act. Therefore we find no infirmity in the order of the learned CIT – A in deleting disallowance of INR 7 32 83/–. Accordingly ground number 3 of the appeal of the AO is dismissed.