Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES : E : NEW DELHI
Before: SHRI J. SUDHAKAR REDDY, AM & SHRI SUDHANSHU SRIVASTAVA, JM
ORDER PER J. SUDHAKAR REDDY, AM: All these appeals filed by the assessees are directed against the common order passed by the CIT(A)-XXXIII, New Delhi, dated 14.8.2014 for the assessment years 2005-06 to 2011-12.
The facts of the case are brought out at para 3.1 of the ld.CIT(A)’s order. For the sake of brevity, we do not extract the same. Suffice to say that Shri Surendra Kumar Jain and Shri Virendra Jain were involved in providing accommodation entries. A search and seizure action was carried out at the residence-cum-office of Shri Surendera Kumar Jain and Shri Virendra Jain and their group concerns on 20.11.2010. During the course of search, a number of documents, loose sheets, note books, registers and diary belonging to these persons and their group concerns were seized.
Notices u/s 153A of the IT Act, 1961 was issued. The assessees filed a letter stating that the return filed u/s 139 may be treated as the return filed u/s 153A of the Income-tax Act. The AO framed 2 assessments on 28.3.2013 u/s 143(3) read with section 153A of the Act.
He briefly discussed the modus operandi of Jain brothers. The modus operandi as brought out by the ld.CIT(A) at page 4, last para is extracted for ready reference:-
“They receive cash from beneficiary companies who has unaccounted cash. They introduce these cash in the bank accounts of various firms/companies and rotates these amount through bank accounts of various companies/concern so that the identity of such cash received from particular beneficiary is lost and finally the beneficiary company gets these amount by cheques in form of share capital/share application, share premium, bogus capital gain or for inflation of expenses. For this operation Jain brothers has created hundreds of paper entries and operates numerous bank accounts for this purposes.”
4. After examining the evidences and the statements, the AO determined the total income of the assessees. For Assessment Year 2005-06 such total income has been determined as follows which is extracted for ready reference:-
“Shri Virendra Jain owned up the documents, the amount of commission of Rs.12375395/- received at the rate of 1.8% assessed in the hands of assessee on substantive basis and the amount of Rs.68,75,21,969/- being the total amount credited but not explained on protective basis.”
Similarly, for all the assessment years, the AO made addition of commission on substantive basis and cash credits on protective basis.
The assessee carried the matter in appeal. The ld.CIT(A) in the impugned common order converted the protective assessment made by the AO u/s 68 into a substantive addition while upholding the income assessed on commission. He dismissed the appeals of the assessee.
Aggrieved, the assessee is before us in all these appeals on the following grounds:-
“1. That on the facts and in the circumstances of the case and in law Ld AO erred in passing impugned assessment order in strangulation of principles of natural justice and without giving adequate opportunity to assessee to plead his case and without making requisite independent enquiry and without confronting back material utilized against the assessee and in making an arbitrary and high pitched assessment.
2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in passing impugned non speaking order where not only order passed by Ld AO is sustained in adhoc manner but various submissions made by appellant are suitably ignored and without any natural justice enhancement and modification is made by converting wrongful protective additions to substantive additions.
3. That on the facts and in the circumstances of the case and in law, Id AO and Id CIT-A erred in passing impugned orders in violation of principle of audi altrem partem which is writ large on the face of the proceedings and accordingly the orders passed are nullity and deserves to be set aside in TOTO.
That on the facts and in the circumstances of the case and in law, Id AO and Id CIT-A i) erred in assessing commission income @ 1.8% which is not as per similar decided cases/precedents and ii) further erred in applying and invoking section 68 of the Act in present case of assessee to entries on which commission is already added, where present assessee who is alleged to be mere entry provider can't be treated to be beneficiary also.” 6. We have heard Shri Kapil Goel, the ld. counsel for the assessee and Ms Nirupama Kotru, the ld. DR on behalf of the Revenue. The sum and substance of the submissions of Shri Kapil Goel is that there is a violation of principles of natural justice. Further, it was submitted that the assessments were not properly framed and that the same amount has been taxed multiple times as there were circuitous and chain transactions which were not eliminated or netted out. He submitted that the AO relied on an apprisal report and on some other material, but has not confronted the assessee with the same. He further argues that section 68 does not apply to these assessees and that these cases are covered by the decision of the jurisdictional High Court in the case of Principal Commissioner of Income-tax vs. Vijaya Conductors Pvt. Ltd. and other cases, judgment dated 29.9.2015 and the decision of the ‘B’ Bench of the Tribunal in the case of Tarun Goyal in ITA Nos.4636 & 4637/Del/2012, vide order dated 18.10.2013. He pleaded that all these appeals should be restored to the file of AO for fresh adjudication and that the assessee should be given adequate opportunity.
He further prayed that the AO should apply the propositions laid down by the Tribunal in the case of Tarun Goyal (supra) and by the Hon’ble Delhi High Court in the case of Vijaya Conductors Pvt. Ltd. and others (supra) and complete the re-assessment proceedings.
The ld. DR Ms Nirupama Kotru, on the other hand, strongly opposed the contentions of the assessee. She submitted that adequate opportunity has been granted to the assessee. She submitted that the AO has only made an addition of commission income earned by these people by providing accommodation entries and had made a protective addition of the cash credits. She further pointed out that the ld.CIT(A) after giving adequate opportunity to the assessee had converted the protective addition u/s 68 as a substantive addition. She strongly supported the order of the first appellate authority. On a query from the Bench as to whether the same amount has been taxed more than once, wherever there were chain and circuitous transactions between intermediary companies, she submitted that it was for the assessee to lead evidence and in the absence of the same these amounts can be added in the hands of these companies. On the issue whether the assessee was provided with the material based on which additions were made by the AO, the ld.CIT, DR submitted that the appraisal report was a confidential document and it cannot be given to the assessee. Though not leaving her ground, ultimately the ld.CIT, DR was fair enough to submit that circuitous transactions between intermediate companies have to be taxed only once if the assessee conclusively pursues the same. She relied on the order of the AO as well as the ld.CIT(A) and supported the same.
After hearing rival submissions and perusing the papers on record as well as the orders of the authorities below, we hold as follows. In our considered view, in the case on hand, there was violation of principles of natural justice. No proper opportunity was given to the assessee. The AO extensively relied on a report called “appraisal report.” This finds mention on pages 24, 26, 49 and 56 of the assessment order. In case the AO relies on a report of any authority, natural justice demands that, a copy of that report be made available to the assessee, so as to enable him to place his contentions on the same. If the Revenue cannot furnish this report to the assessee on the ground of confidentiality, then, no addition whatsoever can be made in the hands of the assessee based on this report. A statement was recorded from one Shri Rajesh Aggarwal. A copy of the statement was also not furnished to the assessee, though the AO relied on this statement for making certain additions.
Evidence was gathered during the search of Jagat Group and these evidences were also not confronted to the assessee. We also find that the assessment order was framed in a hurry, possibly due to constraint of time. Though the notice u/s 153A was given on 1.5.2012, show cause notices were issued only on 5.2.2013, 8.2.2013 and 14.2.2013. The assessee gave a reply on 8.3.2013 and the assessments were framed on 28.3.2013. Though the AO had written a very detailed order, we find that the contention of the assessee that, material relied upon by the AO in his orders were not confronted to the assessee is correct. The contents of the show cause notices does not conform to the reasoning in the assessment order. Similarly, the first appellate authority has converted the protective addition made by the AO into a substantive addition without specifically confronting the assessee with such a proposal. The commission income was also bifurcated on ad hoc basis by the ld.CIT(A) without giving any opportunity to the assessee. Though the assessee has pleaded violation of principles of natural justice, the ld.CIT(A) did not address the objection by providing adequate opportunity by furnishing the evidences and by calling for the remand report on these issues from the AO.
In view of the above discussion, we are of the considered opinion that there is violation of principles of natural justice in this case and, hence, all these appeals should be set aside to the file of the AO for fresh adjudication in accordance with law. Needless to say, the AO shall give adequate opportunity to the assessee. The AO shall confront the assessee with all the material/evidences/statements, etc. that he chooses to rely upon while making the assessment. The AO is also directed to take into consideration the principles laid down by the jurisdictional High Court and the Tribunal in various cases and dispose off the case by applying these principles some which we extract in this order for ready reference. The Delhi Bench of ITAT in the case of Tarun Goyal (supra) at para 23 and 24 has held as follows:-
"23. The AO shall after examining the evidence submitted by the assessee, consider all the cases together and; a) restrict the addition u/s 68 to only the peak unexplained credit in each case after elimination circular transaction. b) To eliminate taxation of the same amount multiple times, due to the chain transactions which resulted due to layering indulged by the assessee. c) Considere the material on record and the precedence available on the issue and determine the percentage of commission, which the assessees would have earned and bring the same to tax.
Before parting we make it clear that the burden of proof lay on the assessee. It is for the assessee to demonstrate the chain of transaction, the layering indulged by him, the calculation of peak unexplained credit etc. and to prove each credit in the books of each assessee. In the result all these appeals are set aside to the file of the AO for fresh adjudication in accordance with law. "
The Delhi Bench of the ITAT in the case of M/s Vijay Conductors India Pvt. Ltd., Assessment year 2008-09, order dated 28.1.2015 at para 17 held as follows:-
“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 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.”
The Hon’ble Delhi High Court in the case of Vijay Conductors India Pvt. Ltd. in vide judgment dated 29.9.2015 upheld this order in the case of M/s Vijay Conductors India Pvt. Ltd. and others in the following words:-
“The common issue in all the appeals issues concerns the additions made under Section 68 of the Income Tax Act ("Act") which was directed to be deleted by the ITAT. The ITAT referred to the order dated 28th December 2010 of the Settlement Commission which records inter alia that Mr. Gupta was an entry provider and that in his case only the amount of premium /commission received by him after reducing expenses incurred would be his additional income.
The Assessing Officer (AO) gave effect to the order of the Settlement Commission and determined the income of Mr. S.K. Gupta without making any addition for unexplained cash credit. During the course of assessment Proceedings of the intermediary companies, including the Respondent Assessees, the AO sought directions from the Additional Commissioner of Income Tax under Section 144-A. The Additional CIT passed an order in which after discussing the facts he inter alia directed that it would be in the best interest of the Revenue to tax these transactions in the hands of beneficiaries and Mr. S.K. Gupta "without making any additions on this account in the hands of conduit entities". The said orders of the Settlement Commission or of the Additional CIT were binding on the AO. It is not in dispute that the Respondent Assessees are the conduit entities and not the beneficiaries. Consequently. the order of the ITAT deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity."
The AO is directed to follow the propositions laid down in these case laws.
In the result, all the appeals of the assessee are allowed for statistical purposes.
The order pronounced in the open court on 03.02.2016.