M/S. POSITIVE MOVE INDIA CONSULTING PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

The facts in brief of the case are that the assessee filed return of income declaring income of Rs.42,03,050/-. Subsequent to filing of the return of income, an information was received by the Assessing Officer Directorate of Income Tax (Investigation) that in search/survey operations in the case of Sh. Aseem Kumar Gupta, it was revealed that assessee was a beneficiary of accommodation entry provided by Sh. Aseem Kumar Gupta through the companies floated by him, which were only paper companies and not doing any real business. It was observed that Sh. Aseem Kumar Gupta was doing the business of providing accommodation entries through concern/companies in lieu of certain commission for providing those accommodation entries, which usually varied from 1.5% to 3%. On perusal of these documents, the Assessing Officer found that the assessee company which was earlier known as M/s. Leading Edge Marketers Private Limited, had claimed to have paid amount of Rs.9,31,380/- to M/s. Suma Finance and Investment Pvt. Ltd. (SF & IPL) and amounts of Rs.21,51,425/-, Rs.16,98,232/-, Rs.13,11,189 and Rs.20,46,745/- to M/s. Moderate Credit Corporation Limited (MCCL) on account of commission charges. On examination of report/documents, the Assessing Officer found that prima facie the entire transaction lack ingredient of genuineness and, therefore, he had reason to believe that income had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the year under consideration. 2.1 Accordingly, the Assessing Officer reopened the assessment invoking provision of Section 147 of the Income Tax Act, 1961 (in short ‘the Act’) and issued a notice under section 148 of the Act which was served on the assessee company on 29/03/2012. The assessee company filed return of income on 20/11/2012. A notice under section 143(2) of the Act was issued and re-assessment proceedings were commenced. 2.2 During assessment proceeding, it was observed that M/s. SF & IPL later renamed as M/s. MCCL. The Assessing Officer issued summon 131 of the Act on 11/02/2013 to M/s. Moderate Credit Corporation limited (MCCL) to whom the entire commission payment of Rs.1,06,64,354/- was made by the assessee. The MCCL was asked to present before the Assessing Officer on 18/02/2013. The assessee company was also requested to present on the said date for furnishing evidence with respect to receipt of services and genuineness of the expenses debited in the books of accounts. On the specified date, neither the representative of assessee nor anyone on behalf of ‘MCCL’ attended. Further, on the addresses of MCCL provided by the assessee company, no one could be found and contacted. The Assessing Officer observed that in other cases including case of M/s. Param Dairy Ltd., for assessment year 2007-08, M/s. ‘MCCL’ was found to be engaged in providing accommodation entries/transactions and share capital and the genuineness of identity of M/s. MCCL was not established. The Assessing Officer further observed as under: i. No details of services rendered by M/s. Moderate Credit Corporation Limited (MCCL) were provided by the assessee company. ii. Nothing was brought on record to justify the credit of commission to M/s. Moderate Credit Corporation Limited (MCCL) i.e. nature of services provided or business procured by it for the assessee company. iii. No details of payments made on account of outstanding payments were placed on records in the subsequent period. iv. No representative of the assessee company attended in compliance to summons to substantiate the claim of expenses. 2.3 In view of the above facts observed, the Assessing Officer held that amount of Rs.1,06,64,354/- debited as commission in books of accounts of the assessee company was a bogus expense, which was not supported by any evidence and thus he disallowed the same. He further held that in view of commission entry obtained, the assessee company paid charges at the rate of 2.5% of the amount for getting an entry of amount of Rs.1,06,64,354/-, which was worked out to Rs.2,66,609/-. The Assessing Officer added this amount also as undisclosed income of the assessee. 2.4 Before the learned Commissioner of Income-tax (Appeals), the assessee claimed that it was engaged in the business of manpower management which included recruitment training etc. for its client since 1991 and in the year under consideration the assessee company outsourced part of its business segment to M/s. MCCL to provide the specialized technical services with a view to enhance and expand its existing business. A copy of letter of appointment issued by the assessee company was submitted before the learned Commissioner of Income-tax (Appeals). The assessee submitted that due to outsourcing to M/s. MCCL the turnover of the assessee company increased from Rs.239.76 lacs in preceding year to Rs.333.76 lacs during the year under consideration. According to the assessee, the contract business handled by the M/s. MCCL aggregated to Rs.1,99,25,226/- with following clients: S. No. Name of client Invoices raised(Rs.) 1. Tata AIG Life Insurance Co. Ltd. 57,83,319/- 2. Tata AIG General Insurance Co. Ltd. 34,22,459/- 3. Hindustan Lever Ltd. 65,32,356/- 4. Howden Insuracne 3,00,756/- 5. Emerson Electric Co. 10,68,449/- 6. Pepsi Foods Pvt. Ltd. 12,81,472/- 7. Western Union Financial Services 15,36,415/- Total 1,99,25,226/- 2.5 The assessee further submitted that M/s. MCCL attended technical services in the field of manpower recruitment to the clients of the assessee company. It was further submitted that M/s. MCCL was registered under the Companies Act, the Income Tax Department and Service Tax Authorities and it was regularly filing service tax and income tax returns and proper TDS was deducted on the payment made to the assessee company at the prescribed rate. It was further submitted that the amount payable as on 31/03/2005 was duly paid in subsequent year. 2.6 It was argued before the learned Commissioner of Income Tax (Appeals) on behalf of the assessee that the assessee had fully discharged the onus of providing the genuineness of expenditure by placing sufficient material on record and proving the identity of the payee. Further, it was submitted that the recipient has been taxed on the payment of commission and, therefore, disallowance of commission would lead to same income being taxed twice. 2.7 The learned Commissioner of Income-tax (Appeals) forwarded the submission of the assessee to the Assessing Officer for his comment, calling for a remand report. In the remand report, the Assessing Officer observed: (i) that part of the bills submitted by M/s SF & ICL and M/s MCCL were not on the letterhead of those companies. (ii) that copy of bills issued by those companies to the assessee company were also seized by the investigation wing in the course of search proceeding and the seized copy of bills were undated, whereas the copy of bills submitted by the assessee before the Assessing Officer were bearing dates i.e. seller copy and customer copy of same bill are different (iii) that the seized copy of Bill was containing a condition that “ payment must be as per term of agreement”, but no copy of such agreement between the assessee and M/s MCCL was M/s MCCL as business associate. (iv) that no correspondence of discussion with either with M/s. SF & ICL or M/s MCCL regarding services rendered was filed by the assessee. (v) that service tax was not charged in bills of first and second quarters of the financial year concerned. (vi) that the payment of the alleged commission was not paid during the year under consideration and it was paid in the subsequent year. (vii) that no documentary evidence in the form of correspondence in respect of technical services rendered by M/s SF & IL or M/s MCCL was produced before the Assessing Officer (viii) that the assessee company did not produce any documentary evidence of deduction of tax at source by the assessee and payment of service tax to M/s MCCL (ix) that the assessee did not file any evidence in respect of alleged commission of which Rs.97,62,613/-assessed in the hand of the recipient. (x) that the assessee company filed only permanent account number (PAN) of party and no details of Income-tax return etc. had been filed in respect of party to whom alleged commission was paid. 2.8 A copy of remand report was forwarded to the assessee and the assessee submitted reply on the comments of the Assessing Officer, which have been reproduced by the learned Commissioner of Income-tax (Appeals) in the impugned order. After considering the comments of the Assessing Officer and reply of the assessee on the Commissioner of Income-tax (Appeals) held as under: “6.6. After considering all aspects of the case I shall now discuss the addition of Rs.1,09,30,693/-. The appellant had made commission payment of Rs.1,06,64,354/- to M/s. Moderate Credit Corporation Ltd. The appellant stated that M/s. Moderate Credit Corporation Ltd. was providing technical services. However, the appellant has not given copy of any agreement. The appellant has not given what technical services were being provided by M/s. Moderate Credit Corporation Ltd. There is no detail on record as to how M/s. Moderate Credit Corporation Ltd. was qualified enough to render the technical services. A payment of Rs.1,06,64,354/- is being made, and there are no details of the nature of services rendered and no written agreement specifying the services to be rendered. Further, there was sufficient evidence with the AO that M/s. Moderate Credit Corporation Ltd. was one of entities providing bogus accommodation entries. 6.7. Even in remand proceedings the appellant did not produce any person from M/s. Moderate Credit Corporation Ltd. No books of account were produced, no documentary evidence was produced for nature of services rendered and business procured. No documents were shown to show that M/s. Moderate Credit Corporation Ltd. had shown the amount of its income. No TDS certificates were furnished to show that TDS was deducted. The AO has also given comments on the bills Submitted by the appellant. The AO stated that bills are date bearing bills. However, the bills seized by the investigation using were undated. 6.8. In my view of the above discussion, I am inclined to go as per the reasoning of the AO that the commission payment to M/s. Moderate Credit Corporation Ltd. was not genuine and not incurred for the purpose of business. The addition of Rs.1,09,30,693/- is therefore confirmed. The ground No. 2 of applied against the appellant.

7. Ground No. 2 is also in respect of Rs.2,66,609/- on account of expenses incurred towards getting the accommodation entry. Since I am holding that the amount of commission paid was not genuine and merely an expense entry obtained, I am agreeing AO that some expenditure would have been incurred to obtain the entry. The addition of Rs.2,66,609/- is confirmed. The ground of appeal is ruled against the appellant.”

On the other hand, the learned Senior Departmental Representative, relying on the order of lower authorities submitted: (i) that neither any documentary evidence except permanent account number (PAN) in support of genuineness of M/s MCCL was filed by the assessee before the lower authorities nor said party was produced before the authorities. No detail of directors of the M/s MCCL and their whereabouts was provided by the assessee. (ii) that the said party was not found at the addresses as provided by the assessee. (iii) that no agreement between the assessee and M/s MCCL regarding rendering of services and other terms and condition was filed before the authorities. From the copy of letter of appointment made available in assessee’s paper book at page 4, it is seen that it is not signed by the representative of M/s MCCL and therefore it is merely an offer letter and there is no evidence that this offer was accepted by M/s MCCL. (iv) that no proof or documentary evidence in the form of correspondence , in support of the services rendered by M/s MCCL was filed by the assessee. (v) that before the Ld. Commissioner of Income-tax (Appeals) the assessee claimed that M/s MCCL was engaged in handling contract business of the parties namely M/s Tata AIG life Insurance Company Limited, M/s Tata AIG General Insurance Company Limited, M/s Hindustan Lever Ltd, M/s Howden Insurance, M/s Emerson Electric Company, M/s Pepsi Foods Private Limited and Western Union financial services. But the assessee has not submitted any documentary evidence in support of the claim that M/s MCCL has executed contract work of those parties. (vi) that in the search proceeding, Sh. Aseem Kumar Gupta admitted of the fact of controlling the affairs of companies including M/s. MCCL and issuing accommodation entry to the assessee in lieu of commission without rendering any services.

In view of above submissions, the learned Sr. Departmental Representative prayed that the order of the learned Commissioner of Income-tax (Appeals) might be upheld.

We have heard the rival submissions and perused the material on record including the paper book filed by the assessee. We find that the main issue in dispute is whether M/s MCCL is a genuine party and whether M/s MCCL has rendered services to the assessee for justifying the claim of commission expenses of the assessee.

As regard to the first issue in dispute we find that the Assessing Officer issued summon under section 131 of the Act both to the assessee as well as M/s. MCCL but none attended before him. The learned Authorized Representative contended that summon was served on M/s MCCL and failure to attend by M/s MCCL, the assessee cannot be penalized. But we find that the fact that summon was served on M/s MCCL, is not emanating from the order of the Assessing Officer. The Assessing Officer has simply mentioned that M/s. MCCL on 11/02/2013, but none attended on given time and date on behalf of M/s. MCCL. We find that the Assessing Officer has mentioned that efforts were made to locate and contact principle officer/director of M/s. MCCL but no one could be contacted at the addresses given by the assessee. The Assessing Officer has also mentioned that the assessee submitted only permanent account number (PAN) of M/s MCCL and no other details.

The second issue is whether M/s. MCCL has rendered any services to the assessee. The assessee has not filed any agreement between the assessee and M/s MCCL. Evidently, the copy of appointment letter issued by the assessee company to M/s. Suma Finance and Investment Pvt. Ltd (subsequently changed the name as “M/s. MCCL”), is only an offer letter and there is no evidence on record that this offer was accepted by M/s. Suma Finance and Investment Pvt. Ltd. Further, in the remand report the Assessing Officer has raised discrepancies in the copies of bills issued in respect of alleged commission charges. The Assessing Officer has mentioned copy of bills found in the course of search were undated, whereas the customer copy produced by the assessee is containing date of bills issued. This kind of inconsistency in the two sets of bills i.e seller copy and customer copy raises doubt on the genuineness of the bills issued. Further, we find that no evidence either in the form of correspondence between the assessee company and M/s. MCCL regarding the nature of services rendered has been filed before the lower authorities or before us which could establish that M/s. MCCL has rendered any services to the assessee. For claim of expenses as incurred wholly and exclusively for the purpose of business, it was the onus of the assessee to produce credible evidences which could establish that the party to whom the assessee has paid commission has rendered services to the assessee, and particularly when the revenue had alleged that the said party was engaged in providing accommodation entry without rendering any real services. In our opinion, producing extract copy of Ledger accounts of the said party in the books of account of the assessee, which were audited under the Income Tax Act or Companies Act, was not sufficient to establish that said party has rendered services to the assessee. Making payment through cheque is also not an evidence in itself that the services were rendered by the M/s. MCCL, particularly when we take into account the statement of Sh. Aseem Kumar Gupta that M/s. MCCL was engaged in only accommodation entry, i.e., M/s MCCL has taken cheque from the assessee and returned the same in cash in lieu of certain incidental charges or commission. We do not agree with the contention of the learned Authorized Representative that it is not for the Department how to run the business of the assessee. We find that the Assessing Officer has asked for evidence in the form of correspondence between the parties and not directed as how to run the business of the assessee.

In view of above discussion, we are of the opinion that order of the learned Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no interference on our part is required and accordingly we uphold the same. The solitary ground of appeal