DHAMAKA TRADING & CONSTRUCTION PVT. LTD.,NEW DELHI vs. DCIT (HQ), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B” NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND Ms. SUCHITRA KAMBLE : JUDICIAL MEMBER ITA no. 3575/Del/2013 Asstt. Yr: 2008-09 Dhamaka Trading & Vs. DCIT (HQ), Construction Pvt Ltd., Central Circle-III, (now known as Deus Trading & New Delhi. Construction Pvt. Ltd.), 308, Arunachal Building, 19, Barakhamba Road, New Delhi. PAN: AABCD 9454 H ( Appellant ) (Respondent) Appellant by : Shri V. Raja Kumar Adv. Respondent by : Shri Amrit Lal Sr. DR Date of hearing : 09/12/2015. Date of order : 02/02/2016. O R D E R PER S.V. MEHROTRA, A.M:

This is assessee’s appeal against the order dated 20.03.2013, passed by the ld. CIT(A)-XXXIII, New Delhi in appeal no. 393/10-11/365, relating to A.Y. 2008-09. The assessee has taken following grounds: “That on the facts in the circumstances of the case and in law, the CIT(A) erred in:

1) Confirming additions and even venturing to make an enhancement of the income returned, without confronting any of the following material to the assessee: c) Material seized from the laptop and otherwise during the survey operation dated 20.11.2007, upon Shri S.K. Gupta; d) statement of Shri S.K. Gupta; 2) Returning an incorrect finding that the details of beneficiaries to whom payments were made by the assessee were not appearing in the seized material, though this had been clearly demonstrated through bank particulars themselves; 3) Not appreciating that the assessee company was only a conduit for funds transfer and hence, the credits in the assessee's books could not have been treated as its income under section 68 of the Income-tax Act, 1961; 4) Not appreciating the complete import of the proceedings in Shri S.K. Gupta's case, ignoring that such evidence is deemed to be correct as per Section 292(C) of the Act; 5) Not returning a cogent finding on the aspect of credits in the assessee's books also having been taxed in the hands of the other intermediaries; 6) Not accepting the findings given in the order u/s 245(D) (4) of the Act dated 22.06.2012 passed by the Hon'ble Settlement Commission in the case of Shri S.K. Gupta; 7) Ignoring that in respect of A.Y. 2004-05, the Ld. Addl CIT had issued directions u/s 144A of the Act on identical facts, to the effect that no addition was to be made in the hands of the assessee, since it was only a conduit company;

8) Not appreciating that in the preceding as well as subsequent years, on identical facts, the returned income of the assessee has been accepted after detailed scrutiny; 9) Enhancing the income by Rs. 77,50,000/- without appreciating the assessee's reply dated 1 4.03.2013; 10) Not allowing relief in respect of: a) RS.2,23,25,000/- taxed twice both in the hands of the appellant as well as in the hands of the various other conduit companies details of which were before him; b) Rs. 40,50,000/- received from debtors/beneficiaries details of which appear in the laptop impounded during the course of survey u/s 133A in the case of Shri S.K. Gupta; c) Cash deposited into the bank account out of the cash available with the company; d) Excess addition of Rs. 8,359/- on account of deposit in Federal Bank. 11) 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. 2. Brief facts of the case are that 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 AO observed that the

assessee company was one of the group concerns of S.K. Gupta group.

During the course of survey proceedings and assessment proceedings 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.In course of survey it was noticed that Shri S.K. Gupta operated a

number of accounts in the same bank/ branch or in different branches in the

names of companies/ firms/proprietary concerns and individuals. The

assessee had filed return declaring total income at Rs. 10,724/-. The AO has

observed that assessee was maintaining following bank accounts during the

FY 2007-08 showing total deposits as under:

S.No. Name of the Bank Account no. Deposits Deposits from Group concerns 1 Axis Bank (Defence 357010200002813 9,10,000 2,50,000-(Giriashe Co.) Colony) 65,00,000-(Namrata 2 Syndicate Bank 90361010006747 3,22,81,937 Mar) 10,00,000- (Simo (Barakhamba Road) Credits business) 3 Bank of Baroda 13830200000336 12,55,000 Grand Total 3,44,46,937 77,50,000

addition of the unexplained deposits u/s 68. Ld. CIT(A), while partly

allowing the assessee’s appeal, dismissed the assessee’s appeal on the

addition made u/s 68.

covered in assessee’s favour by the decision of the Tribunal in the case of

other group concerns M/s Omni Farms Pvt. Ltd. & others. Ld. counsel

further submitted that the Tribunal’s order has now been confirmed by the

Hon’ble Delhi High Court in the cases of Vijay Conductors India Pvt. Ltd.

(ITA 683/2015), Namrata Marketing Pvt. Ltd. (ITA 684/2015), Vishrut

Marketing Pvt. Ltd. (ITA 685/2015) and Beriwal Investment & Chit Fund

Pvt. Ltd. (ITA 686/2015), which group concerns were before the ITAT also.

He further pointed out that in the case of M/s KSA Chits Pvt. Ltd. Vs. DCIT

(ITA no. 4647/Del/2013- order dated 20.3.2015), the Tribunal has followed

the decision in the case of M/s Omni Farms Pvt. Ltd. Vs. DCIT (ITA no.

3477/Del/2013 – dated 28.01.2015) and others.

the mediators, the cash was deposited in the bank accounts of intermedietories 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:a. 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 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 ClT 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" elT's contentions that there are one 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.D. that the beneficiaries disclosed RS.l06.33 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, weare 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. " 6. Further, it is not disputed that the order of the Settlement Commission has been accepted by the revenue as it has not been challenged by the revenue before the Hon’ble High Court. The order of Settlement Commission has been given effect to by the AO after obtaining direction of the addl. Commissioner u/s 144A. The directions of the Addl. Commissioner were as under: "12. In view of these facts, it is clear that cash has been received by Sh. S.K. Gupta and routed through various entities to be passed on ultimately to the beneficiaries in the form of cheques. In such a scenario when it is clear that these other entities are mere conduit for converting cash to cheque, it would be appropriate to tax these transactions in the hands of beneficiaries and also in the hands of Sh. SK Gupta. The justification for bringing to tax the cash received (As per laptop) in the hands of Sh. S.K gupta (Individual) would be that he has not been able to produce these persons before the department to own up this cash and as such remains

unexplained cash as held in the order u/s 143(3) for the assessment year 2008-09. In the absence of owning up of cash by mediators/beneficiary, it is not possible to allow assessee the benefit of argument that the cash belongs to beneficiary and once the department is taking action against- beneficiaries, no action can be taken in the hands of the S~.K. Gupta. It is clear that cash has been received by S.K. Gupta in different years under consideration . and none of the creditors / beneficiary have come forward to own this cash. As to the case laws cited by assessee, they are not directly applicable to the facts of the case and are . distinguishable .. None of the cases cited by assessee deal with a clear evidence impounded during the course of survey operation u/s 133A, detailing receipt f cash on a day to day basis. The receipt of cash is not a conjecture. or figment of imagination on the part of Assessing Officer. In view of this, it shall be most appropriate that cash is brought to tax in the hands of Sh. S.K.• Gupta. Addition has also been made on account of premium income received by assessee on account of these transactions for AY 2008-09. Assessee's contention that he should be allowed certain expenditure from the premium received by it, also cannot be entertained as assessee has brought nothing on record to prove that expenses were paid to other persons and neither there is anything on record to show that these other persons have acknowledged this income in this regard. Certain additions were made u/s 68 for credit entries appearing in bank account of assessee in A Y 2008-09. The AO may decide the issue on merit after examining the material produced before him. This issue does not seem to arise from impounded documents. 13. The Assessing Officer has informed that information pertaining to beneficiaries has been passed on to the concerned Assessing Officer. He should ensure that there is no deficiency

in this regard. On the basis of modus operandi and material impounded, it is clear that there is a very strong case to bring to tax the accommodation entries obtained by beneficiaries. The information with . relevant records should be communicated to the concerned AOs. 14, To tax the cash received by SK. Gupta in the hands of conduit companies also, wherein the same finds. reflection as credit entries in bank accounts, would make the stand of the department ambiguous vis-a-vis beneficiaries. It will dilute the case of the department against beneficiaries. Additions made in the case of conduit entities shall confuse the stand of the department and shall jeopardize the efforts of the . department to bring to tax these transactions in the . hands of beneficiaries and Sh. S.K. Gupta .. This shall . also lead to frivolous litigation, of no significance, once we have brought these transactions to tax as its two legs, firstly, in the case of Sh. S.K. Gupta and secondly in the cases of beneficiaries. 15. In view of foregoing discussion, it would be in the best interest of revenue to tax these transactions in the hands of beneficiaries (para 13) and also Sh. S.K. Gupta . (individual- Sr.No.1-4, as discussed in para 12), without making any additions on this account in the hands of conduit entities (Sr.No.5 to 41 - as discussed in para 11 & 14). These directions are issued accordingly u/s 144A of the Income Tax Act 1961. These are composite directions u/s 144A of the Act with respect to all the entities referred to by the Assessing Officer vide his office letter No.261 dated 7.12.2011."

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 5 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 5 K Gupta Group.• During the course of survey proceedings Enid assessment proceedings, Sh SK Gupta edmitted 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./( 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./( 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. 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 end cheques are issued on the same day/within few days to various parties tram 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 indifferent 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 intermediatries 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 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". Thereafter, the Settlement Commission noted" Further, the report of the A.D. that the beneficiaries 'disclosed Rs.l06.33 crores against the cheques received by them from £lie applicant, further strengthen applicant's case that he was only entry provider arid 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 Shrl 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 we~ 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 "metters" necessarily could comprehend disputed questions, items or heads of income, disallowance, ete. or variants of it, but always with reference to a particular assessment year. In this case, the Setttement 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 -jt!risdiction. 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 17h 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 C1T(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 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 's 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 essessment is 'pending and. if he considers that, having regard to the •natDre 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 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 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. 8. The Hon’ble Delhi High Court has also confirmed the findings of the Tribunal. We, therefore, respectfully following the decision of the Tribunal in the case of M/s Omni Farms Pvt. Ltd. (supra), delete the addition made u/s 68 of the Act. 9. In the result, assessee’s appeal is allowed.

Order pronouncement in open court on 02/02/2016.

Sd/- Sd/- (SUCHITRA KAMBLE ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 02/02/2016. *MP* Copy of order to: 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi.