M/S. CENTRAL GUM & CHEMICALS LIMITED,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’ NEW DELHI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 1668/Del/2014 Assessment Year: 2008-09 M/s. Central Gum & Chemicals Vs. DCIT, Central –III, New Ltd., 308, Arunachal Building Delhi 19, Barakhamba Road, New Delhi GIR/PAN :AACCC4405A (Appellant) (Respondent) Appellant by Sh. V. Raja Kumar, Adv. Respondent by Sh. Sunil Chander Sharma, CIT(DR) Date of hearing 26.07.2016 Date of pronouncement 29.07.2016 ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 06/11/2013 of the learned Commissioner of Income-tax (Appeals)-XXXIII, New Delhi for assessment year 2008-09 raising following grounds: “That the Ld. CIT (A) erred in confirming the assessment order passed u/s 143 (3) of the Act on 27.12.2010 which is bad both on facts and in law; 2) That the authorities below erred both on facts and in law in making an addition of Rs.24,17,66,963/- u/s 68 of the Income-tax Act, 1961 without appreciating the fact

2 ITA No. 1668/Del/2014 AY: 2008-09 that the provision is applicable only in the case of credit entry in the books of accounts, whereas in the instant case, the amounts in question were all received back by the Appellant alongwith interest thereon from business constituents; 3) That the authorities below erred both on facts and in law in making the above addition without appreciating the fact that since in the instant case the items were outside the purview of section 68 of the Act and so there was no onus on the appellant to prove the identity, genuineness and creditworthiness of the payer; 4) That the facts had to be seen in totality as the doctrine of approbate and reprobate prohibits the Revenue department from blowing hot and cold in the same breath thereby accepting one part of the transaction as correct and not accepting the other part as valid. When the account itself had been originally accepted, the transactions of repayment of such loans/advances cannot be doubted and the amounts received on account of interest income, which had been duly taxed in the return of income filed for the instant year and so the addition made u/s 68 of the Act in respect thereof was erroneous and uncalled for and must be quashed; 5) That without prejudice to the other grounds, the authorities below erred both on facts and in law in making an addition of Rs.24,17,66,963/- u/s 68 of the Act without appreciating the fact that a substantial portion of both payment of advance and receipt thereof is in the same financial year and cannot be taxed multiple times; 6) That without prejudice to the other grounds the authorities below erred both on facts and in law in making an allowance of only Rs.2 crores pursuant to transfer of funds from one account to another without appreciating the fact that a much larger amount of funds had been transferred from one bank account to another;

3 ITA No. 1668/Del/2014 AY: 2008-09 7) That without prejudice to the other grounds of appeal the authorities below erred both on facts and in law in making a protective addition of Rs.7,53,97,023/- without appreciating the fact that even if the demand arises, the same could be in the hands of other concerns where the provisions of section 68 of the Act had not been complied with; 8) That the CIT (A) erred in enhancing the income u/s 68 of the Act by a sum of Rs. 1,08,37,500/- disregarding the explanation and contentions of the Appellant. 9). That the CIT (A) erred in not allowing relief in respect of: a) Rs. 2,11,40,000/- on account of transfer from FDR to bank account; b) Rs. 14,25,880/-on account of interest earned by the Appellant from the auto-sweep account and credited to bank account; c) Rs. 1,39,772/- on account of interest received on FDR; d) Rs. 19,58,569/- being the amount of hiring charges received by cheques and credited to bank account; 10. The appellant craves leave to add, alter, amend, substitute, delete and modify any or all the grounds of appeal, which are without prejudice to one another, before or at the time of hearing of the appeal.”

4 ITA No. 1668/Del/2014 AY: 2008-09 observed that the assessee company was a conduit entity operated by Sh. S.K. Gupta, in which case, the Investigation Wing of the Income Tax Department had carried out an extensive survey, wherein he admitted of using the assessee company for providing accommodation entry to the beneficiaries. The relevant observation of the Assessing Officer is reproduced as under:

“2. A survey operation was conducted in the S K Gupta group of cases on 20/11/2007 at 308, Arunachal Building, 19, Barakhamba Road, New Delhi-110001 and 1007-1008, Arunachal Building, 19, Barakhamba Road, New Delhi- 110001. The assessee company is one of the group concerns of S K Gupta Group. During, the course of survey proceedings and assessment proceedings, Sh S.K. Gupta admitted that he had been providing accommodation entries to various persons through a large no. of concerns effectively controlled by him. Further, it was seen that Sh. S.K. Gupta operates a number of accounts in the same bank/branch or in different branches, in the names of companies/firms/proprietary concerns and individuals. For the operation of these bank accounts, persons who are filing income tax returns are roped in. Like any other business it does require man power according to the scale of operations. Except for two or three persons who are required regularly to visit banks and do other work collection of cash etc, most of the other persons involved are on part time basis. The part time employees are called as and when required to sign documents, cheques books etc, Sh. S.K. Gupta has also roped in his own relatives for operation of various bank accounts and for filing the income tax returns. It was seen that Sh. S.K Gupta was controlling more than 35 companies from a small office premises without sufficient infrastructure or employees to carry out meaningful business activity in so many companies.

5 ITA No. 1668/Del/2014 AY: 2008-09 2.1 Further, from the perusal of ledger accounts maintained in one of the laptops impounded during survey, it is noticed that a large amount of cash is deposited and cheques are issued on the same day/within few days to various parties from the accounts of the company controlled by him. As per enquiries carried out by the Investigation wing the assessee was found to have been using the bank accounts opened in different banks to route the entries through two to four accounts to give the color of genuineness to these transactions.”

6 ITA No. 1668/Del/2014 AY: 2008-09

S. No. Name of Companies

7 ITA No. 1668/Del/2014 AY: 2008-09 Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 5. Before us, the learned Authorized Representative of the assessee submitted that additions under section 68 were made in the cases of conduit entities of Sh. S.K. Gupta, including the assessee, which figures at serial No. 7 of the list of the entities submitted by him before the learned Commissioner of Income Tax (Appeals). He further submitted that out of that list cases of seven entities have been decided by the Tribunal in order dated 28/01/2015 in ITA No. 3477 to 3478 & 3480 to 3485 & 3621/Del/2013, led by the case of M/s Omni Farms Private Limited Vs. DCIT. He further submitted that the appeal filed by the Revenue under section 260A of the Act against the order of the Tribunal has also been dismissed by the Hon’ble High Court of Delhi in ITA 683 to 686 of 2015 in the case of CIT Vs. Vijay Conductors India Private Limited, holding that no substantial question of law arises for the consideration. Accordingly, he submitted that case of the assessee is covered in the favour of the assessee by the order of the Tribunal, which has been upheld by the Hon’ble Jurisdictional High Court. 6. On the other hand, the learned Commissioner of Income Tax (Departmental Representative), relied on the findings of the lower authorities. 7. We have heard the rival submission and perused the material on record including the order of the Tribunal in the case of M/s Omni Farms Private Limited Vs. DCIT (supra) and the judgment of the Hon’ble Jurisdictional High Court in the

8 ITA No. 1668/Del/2014 AY: 2008-09 case of CIT Vs. Vijay Conductors India Private Limited (supra). The facts are not disputed by the parties. The assessee is a sister concern of M/s S.K. Gupta and finds place at serial No. 7 in the list of companies reproduced at page No. 7 of the Tribunal’s order in the case of M/s. Omni Farms Private Limited and others. The entities of M/s. S.K. Gupta Group have been held as conduit and the assessee was also one of the 32 entities of S.K. Gupta Group. The Tribunal in para 4 has referred to the conclusion of the Settlement Commission contained in para 26 and 27, which are reproduced hereunder:

“4. He submitted that the conclusion of the Settlement Commission is at paragraph 26 & 27 of its order which read as under:- “26. The facts on record are considered. It is observed that various documents impounded and extracts taken from the impounded laptop are enclosed by the applicant in paper books of five volumes with about 1200 pages. It is further observed that the paper books give complete details as to how and when cash was received from the mediators, the cash was deposited in the bank accounts of intermediatories and cheques were issued to the beneficiaries of almost the same amounts. It is seen from the reasons recorded by the A.O. for issue of notice under section 148 for the A.Y. 2006-07 (the facts are same for A.Y. 2008-09 which is under consideration) that the A.O. has stated that the applicant has provided accommodation entry and charged premium varying from 4% to 8%. After discussing various facts, the A.O. has stated that the applicant has been providing the accommodation entries to different parties by issuing the cheques after obtaining the cash and the amount of premium charged on giving such entry has not been reflected as income

9 ITA No. 1668/Del/2014 AY: 2008-09 by the applicant. It is further seen that the applicant has given list of mediators and beneficiaries with address and telephone numbers. It is noted that the CIT in Rule 9 report or during the hearing has not produced any material/evidence to rebut the presumption u/s. 292C in respect of correctness of the material impounded during the survey. It is further noted that there are overwhelming evidence in the impounded material as enclosed by the applicant in the paper book which show that the applicant is only entry provider and he had issued cheques after receiving cash from mediators and deposited the same in the bank account controlled by him. Thus, we do not agree with the CIT’s contentions that there are no evidence/material brought out by the applicant to prove that he was an entry provider and that he had deposited his own cash which was used to issue cheques to the beneficiaries. The reasons recorded for issue of notice u/s 148 clearly state that the applicant is an entry provider. Further, the report of the A.O. that the beneficiaries disclosed Rs.106.33 crores against the cheques received by them from the applicant, further strengthen applicant’s case that he was only entry provider and cash deposited in the bank accounts for issuing cheques are not his money but moneys of the beneficiaries to whom cheques were issued. 27. After examining the facts of the case, we are of the considered view that the applicant is an entry provider. Therefore, in his case, only, the amount of premium/commission received by the applicant after reducing expenses incurred will be his additional income.”

10 ITA No. 1668/Del/2014 AY: 2008-09 order of the Settlement Commission after obtaining directions of the Additional Commissioner of Income Tax under section 144A of the Act. In the background of these facts, the Tribunal in para 11 to 17 of the order has observed as under:

“11. We have carefully considered the arguments of both the sides and perused relevant material placed before us. The facts in the case of all the companies are similar. Therefore, they are being taken up together for adjudication. For the sake of brevity, we shall discuss the facts in the case of M/s Omni Farms Pvt.Ltd. instead of all the nine companies. 12. In the case of M/s Omni Farms Pvt. Ltd., the Assessing Officer, at paragraph 2, has recorded the following finding:- “2. A survey operation was conducted in the S K Gupta group of cases on 20/11/2007 at 308, Arunachal Building, 19, Barakhamba Road, New Delhi – 110001 and 1007-1008, Arunachal Building, 19, Barakhamba Road, New Delhi– 110001. The assessee company is one of the group concerns of S.K. Gupta Group. During the course of survey proceedings and assessment proceedings, Sh SK Gupta admitted that he had been providing accommodation entries to various persons through a large no. of concerns effectively controlled by him. Further, it was seen that Sh. S.K. Gupta operates a number of accounts in the same bank/branch or in different branches in the names of companies/firms/proprietary concerns and individuals. For the operation of these bank accounts, persons who are filing income tax returns are roped in. Like any other business it does require man power according to the scale of operations. Except for two or three persons who are required regularly to visit banks and do other work like collection of cash etc. most of the other persons involved are on part time basis. The part time employees are called as and when required to sign documents, cheque books etc. Sh. S.K. Gupta has also

11 ITA No. 1668/Del/2014 AY: 2008-09 roped in his own relatives for operation of various bank accounts and for filing the income tax returns. It was seen that Sh. S.K. Gupta was controlling more than 35 companies from a small office premises without sufficient infrastructure or employees to carry out meaningful business activity in so many companies. Further, from the perusal of ledger accounts maintained in one of the laptops impounded during survey, it is noticed that a large amount of cash is deposited and cheques are issued on the same day/within few days to various parties from the accounts of the company controlled by him. As per enquiries carried out by the Investigation wing the assessee was found to have been using the bank accounts opened in different banks to route the entries through two to four accounts to vie the color of genuineness to these transactions.” 13. Thus, the Assessing Officer himself has recorded the finding that the assessee company is one of the group concerns of S.K. Gupta group and Shri S.K. Gupta admitted that he had been providing accommodation entries to various persons through a large number of concerns effectively controlled by him. The Settlement Commission also has recorded the similar finding that Shri S.K. Gupta was providing entries to various beneficiaries by using various firms/companies. Admittedly, the companies under appeal before us are the part of companies which were utilized by Shri S.K. Gupta for providing accommodation entries. In paragraph 26, the Settlement Commission has recorded the finding “It is further observed that the paper books give complete details as to how and when cash was received from the mediators, the cash was deposited in the bank accounts of intermediatories and cheques were issued to the beneficiaries of almost the same amounts”. Thus, after examining the facts, the Settlement Commission has recorded the finding that the cash deposited in the bank account of the intermediary companies was the cash received from mediators on behalf of the beneficiaries who wanted to avail the accommodation entries. It is further observed by the Settlement Commission “It is further noted that there are overwhelming evidence in the impounded

12 ITA No. 1668/Del/2014 AY: 2008-09 material as enclosed by the applicant in the paper book which show that the applicant is only entry provider and he had issued cheques after receiving he had issued cheques after receiving cash from med cash from mediators and deposited the same in the bank account controlled by him”. Thereafter, the Settlement Commission noted “Further, the report of the A.O. that the beneficiaries disclosed Rs.106.33 crores against the cheques received by them from the applicant, further strengthen applicant’s case that he was only entry provider and cash deposited in the bank accounts for issuing cheques are not his money but moneys of the beneficiaries to whom cheques were issued”. Thus, the Settlement Commission has recorded the clear cut finding that Shri S.K. Gupta was only entry provider and for the purpose of providing entries, he utilized the various group companies which included the companies under appeal before us. He used to receive the cash from the beneficiaries who wanted to avail the accommodation entries and after depositing the same in the bank account of various companies, he issued the cheques to the beneficiaries. In view of this finding, the cash deposited in the bank account of various companies which were the conduit companies cannot be said to be unexplained cash credit because the source of cash is from the beneficiary who wanted to avail the accommodation entry and to whom cheques for accommodation entries were issued almost of the similar amount. The order of the Settlement Commission has become final because the Revenue has not challenged the order of the Settlement Commission before the Hon'ble Jurisdictional High Court. 14. That Hon'ble Jurisdictional High Court has considered the binding nature of the decision of the Settlement Commission in the case of Omaxe Ltd. & Anr. (supra) and held as under:- “Orders of Settlement Commission are final and conclusive as to matters stated therein. The “matters” necessarily could comprehend disputed questions, items or heads of income, disallowance, etc. or variants of it, but always with reference to a particular assessment

13 ITA No. 1668/Del/2014 AY: 2008-09 year. In this case, the Settlement Commission was seized of asst. yr. 2006-07. Whilst exercising its authority over the application, the Commission concededly exercised the vast plenitude of its power or jurisdiction. The petitioner had made a disclosure in its application – as it was duty-bound to. What is in controversy today is that the subsequent event of search and seizure operation conducted in the premises of M and the contention of the Revenue – have thrown light on material that had been suppressed from the Commission. If such is the case, it would be only logical that the Commission itself should be approached for a declaration that its order of 17th March, 2008 is a nullity. Allowing any other authority, even by way of a notice under s. 153C, would be to permit multiple jurisdictions which can result in chaos. After all non- disclosure or suppression of information in respect of what is required to be revealed to the concerned authorities is akin to fraud and if it has a material bearing on the outcome of the assessment, it would most certainly be misrepresentation.” 15. Thus, Hon'ble Jurisdictional High Court has held that the order of the Settlement Commission is final and conclusive as to the matter stated therein for the assessment year decided by the Settlement Commission. Admittedly, the order of the Settlement Commission in the case of Shri S.K. Gupta is for AY 2008-09 and all the appeals under consideration before us are for AY 2008-09. The CIT(A) denied to follow the order of the Settlement Commission remarking that all the relevant facts might not have been produced before the Settlement Commission. However, learned CIT(A) has not pointed out any specific facts which were not placed before the Settlement Commission. On the other hand, reading of the order of the Settlement Commission shows that all the relevant material including the seized material were duly considered by the Settlement Commission. Moreover, Hon'ble Jurisdictional High Court has held that even if some material has been suppressed from the Settlement Commission, the only course available to the Revenue is to approach the

14 ITA No. 1668/Del/2014 AY: 2008-09 Settlement Commission for declaring its order as nullity. In the case under appeal before us, the order of the Settlement Commission is of 2010. It has not been pointed out by the Revenue that it has approached the Settlement Commission for declaring its order as nullity. Therefore, respectfully following the decision of Hon'ble Jurisdictional High Court, in our opinion, the order of the Settlement Commission is binding on the Income Tax Department and all the logical consequences of the said order are to be given effect to. 16. We also find that the Additional CIT has issued direction under Section 144A in this regard. The Assessing Officer had asked for the specific direction of the Additional CIT in respect of the group companies which has been mentioned by the Additional CIT in paragraph 2 of his order under Section 144A. After considering all the facts, the Additional Commissioner held “it would be in the best interest of revenue to tax these transactions in the hands of beneficiaries and also Sh. S.K. Gupta, individual without making any additions on this account in the hands of conduit entities”. We may point out that the direction of the Additional CIT is for various years running from AY 2004-05 to 2007-08. However, the ratio of the said direction would continue to be applicable for AY 2008-09 also because the facts remain the same. The Additional CIT has discussed in detail that when the Revenue is taking action in the hands of the beneficiaries, if the addition is made in the case of conduit entities, it will dilute the case of the Department against the beneficiaries. The order of the Additional CIT under Section 144A is binding on the Assessing Officer which is evident from Section 144A which reads as under:- “144A. A Joint Commissioner may, on his own motion or on a reference being made to him by the Assessing Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for

15 ITA No. 1668/Del/2014 AY: 2008-09 the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer : Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Explanation. – For the purposes of this section no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.” (emphasis by underlining supplied by us) 17. Thus, there is an order of the Settlement Commission as well as the Additional Commissioner of Income Tax under Section 144A holding that Shri S.K. Gupta was providing accommodation entries, he used various companies as conduit for providing the accommodation entries, cash was received through mediators from the persons who wanted to avail the accommodation entries, such cash was deposited in the bank account of the conduit companies and thereafter, cheque of the similar amount was being issued to the beneficiaries (i.e. the person who wanted to avail the accommodation entry) within a day or so. The Assessing Officer himself in the assessment order has accepted these facts. Considering the totality of these facts and the logical consequences of the order of the Settlement Commission as well as of Additional CIT under Section 144A, we have no hesitation to ITA-3477/D/2013 & 8 others 19 hold that the addition under Section 68 cannot be made in the case of the conduit companies. Therefore, we delete the addition made under Section 68 in the case of all the nine companies, which are admittedly conduit companies of Shri S.K. Gupta.”

16 ITA No. 1668/Del/2014 AY: 2008-09 the enhancement made by the learned Commissioner of Income-tax (Appeals). 10. In the result, the assessee’s appeal is allowed.

The decision is pronounced in the open court on 29th July, 2016.

Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29th July, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi