QUEST ONLINE ,KOLKATA vs. ITO,WARD-49(1), KOLKATA. , KOLKATA

order

: May 03, 2024 ORDER

Per Rajesh Kumar, Accountant Member:

s is against the confirmation of addition by CIT(A) of Rs.14,82,41,932/- as made by the Assessing Officer u/s 68 of the Act r.w.s. 115BBE of the Act.

3. The facts in brief are that the assessee filed return of income on 09.01.2021 declaring total income from business and profession at Rs.36,73,790/-. The case was selected for complete scrutiny under CASS and statutory notices were duly issued and served upon the assessee. During the assessment proceedings, the various documents and evidences were called for by the Assessing Officer from the assessee Assessment Year: 2020-21 Quest Online which were duly furnished. The Assessing Officer noted from the submissions of the assessee that during the year the assessee has received huge commission but returned only a very low income relatively. Besides, the assessee has made huge payments of commission against the said commission received to various individuals who had either filed very meagre return of income or not filed any return of income, therefore, the genuineness of these payments was required to be verified. Accordingly, the assessee was called upon to explain the same. The assessee vide written submissions dated 12.07.2021, 17.12.2021, 10.03.2022 and 20.09.2022 submitted various information and details as called for by the AO during the assessment proceedings. Besides, the assessee also filed the copies of audited P&L account, audited balance sheet, bank statement of Bandhan Bank and Axis Bank etc. The assessee submitted before the Assessing Officer that against the receipt of commission of Rs.14,82,41,932/-, it had paid total commission of Rs.13,74,15,133/-. The assessee also submitted detailed information qua the recipients of commission which has been extracted by the Assessing Officer in Table-A on page 3-4 in the assessment order. The assessee also submitted that due TDS has been deducted on the commission paid to various parties and deposited in the Govt Exchequer. The assessee submitted before the Assessing Officer that it has received commission of Rs.14,82,41,932/- from Zilingo Pte limited. The assessee also filed MOU between Zilingo Global Pvt. Ltd. (Indian Subsidiary of Zilingo Pte Limited) and the assessee. The assessee also filed commission bills along TDS challans, ledger accounts of commission income received, copies of bills raised by the assessee firm to Zilingo Pte ltd., random travelling bills, copies of bills raised by the parties for rendering services to the assessee firm etc. The Assessing Officer issued notices u/s 133(6) of the Act to various parties, however, some of the parties denied the said transactions where in some cases the notices could not be served and in one case the party did not exist at the given address. 2 Assessment Year: 2020-21 Quest Online Finally, the Assessing Officer came to the conclusion that the payments made by the assessee to these parties were bogus and not genuine on the ground that none of the parties have confirmed the transactions with the assessee. The Assessing Officer also noted that MOU furnished by the assessee is not legally tenable and did not cover the period from 01.04.2019 to 31.03.2020 and also the MOU did not mention the nature of services rendered and nature of receipt of commission and basis of such quantification for receipt of commission etc. Finally, the Assessing Officer concluded that the commission received of Rs.14,82,41,932/- remained unexplained and added the same to the income of the assessee under the head ‘income from other sources’ as unexplained cash credit to be taxed as per the provisions u/s 115BBE of the Act and also that the Assessing Officer rejected the claim of expenditure of Rs.13,74,151,133/- charged in the P&L A/c on a/c of payment against the said commission received in the assessment framed u/s 143(3) r.w.s 144B of the Act vide order dated 27.09.2022.

4. In the appellate proceedings also, the ld. CIT(A) dismissed the appeal of the assessee by observing and holding as under:

“6.2.1 I have carefully gone through the findings of the Assessing Officer and the submissions of the assessee. I am constrained to uphold the addition made by the Assessing Officer for the following reasons:

1. 1. Though the appellant has admitted an amount of Rs. 14,82,81,932/- as commission income from M/s Zillingo pte Limited, it could not substantiate or explain the nature of services rendered to M/s Zillingo pte Limited.

2. The appellant claimed in its submissions as quoted in page 04 of assessment order, that it is a trader in LED TV and electronic gadgets and worked as an aggregator of M/s Zillingo pte Limited, Singapore to collect incentive from Zillingo pte Limited, Singapore and distribute among its counter parties. Though the appellant claimed to be only an aggregator/ facilitator, it has not proved what aggregation has been carried out by it during the year. The parties to whom the appellant has claimed to have transacted, have all denied such transactions.

3. The MOU filed by the appellant states that, the appellant would act as a facilitator between M/s Zillingo Global Pvt Ltd (Subsidiary of M/s Zillingo pte Ltd.) and the manufacturers/ wholesalers within Indian market. 3 Assessment Year: 2020-21 Quest Online However, the appellant could not furnish any evidence on what transactions have been facilitated between M/s. Zillingo and the India manufacturers/ wholesalers.

4. The wholesalers/ manufacturers claimed to have had transactions with the appellant, have all denied such transactions with the appellant.

5. The appellant claims that it is a disbursement agent. Out of Rs14.82 crores received as commission, it is claimed that Rs.13.74 crores have been distributed to five parties. Four parties have denied such transactions and one was not in existence at the given address on verification by the Assessing Officer.

6. M/s Siddhi Trading Mfg. Co. (Proprietor - Parimal Dey) has in his response to the Assessing Officer, expressed shock on learning about the alleged claim of transaction. He has stated that he is not in the business but is only a jute Mill worker.

7. M/s Rudra Industries (Raja Sharma) has clearly stated that he is a driver employed in Ravi Enterprises and he has had no transactions with the appellant M/s. Quest Online.

8. Similarly, Riddi Industries (Raj Kumar Paswan) and Shiv Shakti Industries (Chatoo Chaudary) have stated that they were not aware of such transactions.

9. Verification caused at the given address by the Assessing Officer revealed that M/s Alfiya Multi Services (Mohd Ayub Akhtar) did not exist at the said address.

10. Even though all the above findings are discussed in the assessment order, the appellant has not offered any explanation during the appellate proceedings. Neither has there been any submissions with regard to these findings of the Assessing Officer nor there been any evidence adduced denying or contradicting the findings of the Assessing Officer.

11. During the course of appellate proceedings, copies of invoices raised by the appellant on a. M/s Rudra Industries b. M/s Siddhi Trading & Mfg. Co were furnished by the appellant. A sample copy, is reproduced as below: A perusal of the above invoice reveals that, it is for "supply meant for export with payment of Integrated Tax (IGST)". The description in the invoice states that, it is for "Foreign Services provided for fee/ commission for Siddi Trading Mfg. Co.". Though the invoices states that it is supply meant for exports, no evidence or details have been advanced to show that any goods have been exported. On the other hand, M/s Rudra Industries & Siddhi Trading Mfg. Co. have both denied having had any 4 Assessment Year: 2020-21 Quest Online transactions with the appellant. In fact, the Assessing Officer has found that Mr. Raja Sharma (Rudra Industries) is a car driver and Mr. Parimal Dey (Siddhi Trading Mfg. Co.) is a jute mill worker. 6.2.2 In the case of A.Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), the Hon'ble Supreme Court has held that the burden is on the assessee to prove or explain the source of the money or investment. Where an assessee fails to prove satisfactorily the source and nature of the investment, the Income Tax Officer is entitled to draw an inference that the amount is of an assessable nature. The relevant portion of the decision is reproduced hereunder: "In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation, he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been, it was clearly open to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature.” 6.2.3 In the case of Roshan Di Hatti v. CIT [1977] 107 ITR 938(SC), the Hon’ble Apex Court laid down that the onus of proving the source of a sum of money found to have been received by an assessee, in on the assessee. The relevant portion of the decision is reproduced hereunder: “To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that that income is from any particular source. Vide Commissioner of Income Tax v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC), Here, in the present case, the assessee introduces in the books of account of its business on 30th March, 1948, capital of Rs. 3,33,414/- which consisted of gold raw, gold ornaments, stones and cash. The burden of accounting for the receipt of these assets was clearly on the assessee and if the assessee failed to prove satisfactorily the nature and source of these' assets, the Revenue could legitimately hold that these assets represented the undisclosed income of the assessee.” 6.2.4 In Sumati Dayal v. CIT [1995] Supp. (2) SCC 453, the Hon’ble Supreme Court has held that there is a prima facie evidence against the assessee in the case of section 68 wherein no satisfactory explanation is offered by the assessee. The relevant portion of the decision is extracted hereunder: 5 Assessment Year: 2020-21 Quest Online “…In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provi- sion and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut , the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature.” 6.2.5 In the case of NRA Iron and Steel Ltd. [2019] 103 taxmann.com 48 (SC), the Hon’ble Supreme Court of India, after discussing various other decisions on section 68, held as under: “8.2. As per settled law, the initial onus is on the Assessee to establish by cogent evidence the genuineness of the transaction, and credit-worthiness of the investors under Section 68 of the Act. The assessee is expected to establish to the satisfaction of the Assessing Officer CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) : Proof of Identity of the creditors; Capacity of creditors to advance money; and Genuineness of transaction This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. On the issue of unexplained credit entries/share capital, we have examined the following judgments: i. In Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 this Court held that: “if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, 6 Assessment Year: 2020-21 Quest Online not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut , the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably.” ii. In CIT v. P. Mohankala [2007] 161 Taxman 169/291 ITR 278 this court held that: “A bare reading of Section 68 of the Income Tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by an assessee; (ii) such credit has to be of a sum during the previous year; and (iii) either (a) the assessee offer no explanation about the nature and source of such credit found in the books; or (b) the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offer no explanation" means where the assessee offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.” iii. The Delhi High Court in a rend judgment delivered in PR. CIT v. NDR Promoters (P) Ltd. [2019] 102 taxmann.com 182/410 ITR 379 upheld the additions made by the Assessing Officer on account of introducing bogus share capital into the assessee company on the facts of the case. iv. The Courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, and establish the genuineness of the transactions. The initial onus of proof lies on the assessee. This Court in Roshan Di Hatti v. CIT [1992] 2 SCC 378, held that if the assessee fails to discharge the onus by producing cogent evidence and explanation, the A.O would be justified in making the additions back into the income of the assessee. V. The Guwahati High Court in Nemi Chand Kothari v. CIT(2004/ 130Taxman 213/[2003] 264 ITR 254 held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of he transaction. "It cannot be said that a transaction. which takes place by 7 Assessment Year: 2020-21 Quest Online way on Cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-à-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself" In a recent judgment the Delhi High Court CIT v. N.R. Portfolio (P.) Ltd.2014] 42 taxmann.com 339/222 Taxman 157 (Mag.) (Delhi) held that the credit-worthiness or genuineness of a transaction regarding share application money depends on whether the two parties are related or known to each other, or mode by which parties approached each other, whether the transaction is entered into through written documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, credit-worthiness of the recipient, object and purpose for which payment investment was made, etc. The incorporation of a company, and payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus.

6.2.6 In the above facts and circumstances, considering that, the onus is on the appellant to prove the genuineness of the transaction and such onus has not been discharged. The addition u/s 68 of the Act made by the Assessing Officer is upheld. The grounds of appeal raised by the appellant are dismissed.”

5. We have heard the rival contentions and perused the records including the various evidences filed and the MOUs and copies of agreement with M/s Zilingo Global Pvt. Ltd. whereby the assessee was appointed as facilitator and also copy of agreement dated 23.04.2019 with M/s Zilingo Global Pvt. Ltd. We have also perused the authorization letter, collection of payment from M/s Zilingo Global Pvt. Ltd. We note that the parties who were paid commission to the assessee were provided services to M/s Zilingo Global Pvt. Ltd. and have raised their invoices on the said company. We note from the agreement dated 01.10.2018 with M/s Zilingo Global Pvt. Ltd. and the assessee under which the assessee was to act as facilitator between M/s Zilingo Global Pvt. Ltd., the first I.T.A. No.472/Kol/2023 Assessment Year: 2020-21 Quest Online party and the manufacturers and the wholesalers in the Indian market. We note that the first party was engaged in trading activities of fashion and lifestyle products in India and under the agreement it would purchase the said materials from the manufacturers and the wholesalers in the Indian market for trading the same in the Indian market through its resources. It was also provided in the said agreement that as per the instructions of the first party, the manufacturers/wholesalers would raise two separate invoices, one for the cost of the said materials purchased by the first party on behalf of its foreign holding company Zilingo Pte limited in favour of the first party and the second invoice will be raised in favour of the second party the assessee for the incentive given by the first party to the manufacturers or the wholesalers for business transactions or working with the first party. It was also provided in the said agreement that the agreement would be effective from 1st day of November 2018 to 30th day of September 2019. As per the Clause no.2 of the said agreement, the manufacturers/wholesalers will raise invoices for incentive given for the purchases of the fashion and lifestyle products made by the first party from the manufacturers or wholesalers on the second party and the second party upon receipt of the said incentive, hand over the same to the first party for onward transmission to M/s Zilingo Pte. Ltd. for releasing the payment towards incentive amount to the second party’s bank account. We also note from the agreement dated 23.04.2019 that the said understanding was extended till 30th September 2019.

I.T.A. No.472/Kol/2023 Assessment Year: 2020-21 Quest Online Assessment Year: 2020-21 Quest Online I.T.A. No.472/Kol/2023 Assessment Year: 2020-21 Quest Online 7. We also note that the Assessing Officer has issued notice u/s 133(6) of the Act to all the suppliers/recipients of the commission, however, none of them replied to the said notice. In the present case, the Assessing Officer referred to some statement by the suppliers before the verification unit but the said statement was never furnished to the assessee and even did not form part of the show-cause notice issued on 16.09.2022 to the assessee. The assessee claimed before us that the order passed by the lower authorities relying on such statement is bad in law and is non-est. Even no cross-examination was provided to the assessee. The assessee submitted before us that the Assessing Officer could have made reference to verification unit u/s 144B(iv)(b) of the Act and on receipt of verification report as stated in section 144B(vii) of the Act, the same was sent to the Assessing Officer and then the Assessing Officer has to issue show-cause notice as per provision of section 144B(xii)(b). However, no such notice was ever given to the assessee nor was there any whisper of the report of verification unit. Therefore, the assessee was denied the opportunity of cross-examination of any of the persons who gave statements against the assessee. It was also contended before us that no notice u/s 131 of the Act was issued to the principal for verification of the contract of service or supply made by the parties through the principal which were the key factor on the issue. In the present case, the assessee merely acted as a facilitator receiving the payment of on one hand and passing the same to the other parties under the MOU on the other. The assessee relied on the decision of the Karnataka High Court in the case of Bharti Airtel Ltd. vs. DCIT reported in 372 ITR 33(Kar) and CIT(TDS) vs. Super Religare Labortories Ltd. reported in 284 Taxman 657 (Bom) which relate to the TDS on sale of SIM card by the middleman wherein the Hon’ble Courts have held that the transaction was between the manufacturer and the retailer as principal to principal through the distributor and the payment cannot be treated to have been made by the distributor who was only middlemen. 13 Assessment Year: 2020-21 Quest Online We also note that the Assessing Officer has relied on the fact that agreement/MOU was not valid as the same was not registered. However, the ld. AR contended that MOU/agreement entered between parties, were not required to be registered compulsorily u/s 17(1) of the Registration Act, 1908. Considering the aforesaid facts and circumstances, we are inclined to hold that the assessee was only a facilitator and the transactions between the parties were only on principal to principal basis with the assessee acting only as facilitator. Therefore, the payments cannot be treated to have been made by the assessee who was only a middleman/facilitator. Considering the aforesaid facts, we are inclined to set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition.