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Facts
The assessee engaged in import activities, using various paper entities to remit under-invoiced amounts to Chinese suppliers. These transactions were deemed hawala transactions by the Assessing Officer, leading to additions under Section 69A of the Income Tax Act.
Held
The Tribunal held that the assessee was the owner of the monies credited in the bank accounts of the paper entities and failed to explain the source of these amounts. While the additions on merits under Section 69A were sustained, the quantification of the addition was modified.
Key Issues
Whether the amounts credited in the accounts of paper entities for under-invoiced imports constitute unexplained money, and if Section 69A is applicable. Whether the addition made by the AO on merits is sustainable and how it should be quantified.
Sections Cited
147, 69A, 131(1A)
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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
ORDER PER SATBEER SINGH GODARA, JM These assessee’s twin appeals & 1054/Del/2024 for assessment years 2014-15 and 2015-16 arises against the Commissioner of Income Tax (Appeals)-30 [in short, the “CIT(A)/NFAC”, New Delhi’s orders dated 11.01.20274 and 14.02.2024 having DIN and order no. ITBA/APL/M/250/2023- 24/1059619527(1) and ITBA/APL/M/250/2023- 24/1060901493(1), involving proceedings under section 147 r.w.s.
144 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), respectively. Heard both the parties. Case files perused.
Coming to the sole substantive issue between both the parties on merits, we note from a perusal of the assessee’s former “lead” appeal for assessment year 2014-15 that the Assessing Officer had held the assessee’s hawala transactions through his various entities; totalling to Rs.94,93,17,942/- as unexplained under section 69A of the Act; in assessment order dated 29th March, 2022 as upheld in the lower appellate discussion, reading as under: “10. Ground Nos.9 & 10: In these grounds, the appellant has challenged the addition made by the Assessing Officer amounting to Rs.94,93,17,942/-on merits. The appellant has submitted that most of the material used by the Assessing Officer has not been confronted to it and the Show Cause Notice proposing the addition was very cryptic. The appellant further submitted that the statement of the appellant was recorded under duress and the same was retracted after survey proceedings. The appellant further submitted that the Section 69A can be applied only in the case when assessee was found owner of money, bullions and jewellery etc., however, in this case the appellant was not found in the possession of such money or valuables, therefore, essential conditions for making addition u/s. 69A was not available. 10.1 The Assessing Officer has noted in the Assessment Order that the appellant in his statement on oath u/s. 131(1A) recorded on 01.02.2019 had categorically explained his modus operandi to facilitate unaccounted remittances to his supplier based in China and Hongkong for the import of Appeal No. 10006/2013-14 goods in India. It was also recorded by the Assessing Officer that no books of accounts are maintained by the entities controlled by Shri 2 | P a g e Deepak Vohra. On physical enquiries, the entities were not found to be available at the addresses mentioned in their bank documents. The appellant did not provide name of any ultimate beneficiary of illegal foreign remittances made by him to the supplier in China and Hongkong, nor the source of cash deposits and credit entries made in the accounts of entities controlled by him was explained at the time of recording of his statements or during the assessment proceedings. Accordingly, the amounts found to be credited in the bank accounts of fictitious entities controlled by the appellant were added u/s. 69A of the Act, treating the amounts deposited therein as money in the possession of the appellant. 10.2 I have carefully perused the submission of the appellant, observations of the Assessing Officer and the statement of the appellant recorded on oath on 1st/2nd February, 2019. The relevant part of the statement of the appellant is reproduced as under:-
3 | P a g e 4 | P a g e 5 | P a g e 6 | P a g e 7 | P a g e 8 | P a g e 9 | P a g e
10 | P a g e 10.3 On perusal of the statement of Shri Deepak Vohra, it is very clear that the entities M/s. S.S. International, M/s. Sunlight Overseas, M/s. Moonlight Overseas and M/s. Jhalak International were managed and controlled by him, therefore, he was liable to explain all the credit entries including the cash deposits made in the bank accounts of these entities directly or through other fictitious companies. The illustrations made by the Assessing Officer in the Assessment Order in which the cash trails were also mentioned by her further establishes that the appellant was routing unaccounted cash in these 4 companies through various other paper companies as well. It is also a matter of record that these entities were not filing any return of 11 | P a g e income and were also not maintaining any books of account. They were simply being used for the rotation of cash and ultimate remittances to the foreign countries for import of goods at under invoiced value. The appellant has though claimed in his statement that he used to get commission in the range to Rs.50,000/- to Rs.75,000/- per container in cash but he had failed to identify any importer who was being facilitated by him by depositing cash in the accounts of his fictitious entities and subsequent remittance to the Chinese / Hongkong suppliers. Further, no trail of cash has been established with ultimate beneficiaries (importers). Accordingly, I agree that the finding of the Assessing Officer that Shri Deepak Vohra being the ultimate beneficiary of the credit entries in the account of the entities controlled by him shall be assessed for such cash/money found to be credited in the bank account of these entities. The contention of the appellant that section 69A is not applicable in his case has also been carefully perused and found to be not tenable. The appellant himself had admitted that he had opened bank accounts in the name of above-mentioned paper entities for the purpose of remittances of under invoiced amount of imported goods to the suppliers and that bank accounts were solely and exclusively managed and controlled by him. The cash was being deposited in these accounts or the money was brought in these accounts by depositing cash in other paper companies. Accordingly, I find the appellant was the owner of all monies credited in the accounts of the four paper entities and the source of amounts were not explained by him to the satisfaction of AO. Therefore, all the essential requirements of section 69A is met in this case. 10.4 Further, contention of the appellant that his statement recorded on 01/02.02.2019 u/s 131(1A), relied upon by the AO, was not provided to it, therefore the principles of natural justice were not followed in his case, has no merit. Firstly, because the statement was given by appellant himself on oath in great details and he was in the knowledge of all the facts and impounded evidences confronted to him and the statements / explanations made/furnished by him before the DDIT. Secondly AO offered to provide the copy of statement as per official procedure vide her letter dated 28.03.2022. Accordingly, I find that the appellant was not serious to obtain his statement or other impounded material from Wing after survey and has willfully not collected the statement after it was recorded on 01.02.2019 either from the DDIT or AO, and made this point- a matter of contention for the sake of it. 10.5 The appellant submitted that statement dated 01.02.2019 was retracted. However, no evidence in this regard was submitted by the appellant during the appellate proceeding. The appellant has not submitted any retraction letter and has also not submitted any 12 | P a g e evidence to substantiate his contention that the statement was recorded under any pressure or duress. It is noted that the statement was recorded in the office of the DDIT after the survey operation was over. The appellant had access to superior authorities sitting in the same office premise in case of any force or pressure was applied on him to extract the statement. He was confronted with various incriminating materials impounded during the survey and the appellant made statements after due appreciation of materials gathered by the Department. The appellant in his own handwriting has recorded at the end of the statement that the statement was given without any fear, force, threat, inducement or coercion. The appellant has neither made any complaint for any mental duress and neither provided any material evidence to show that facts recorded in his statements were not true. Accordingly, I find that the statement of the appellant is a credible evidence against the appellant which is also supported by other evidences brought on record by the AO. Reliance is placed on the judgements of Hon'ble Delhi High Court in the case of CIT Vs S M Agarwal, 93 Taxmann.com 247 and Hon'ble Supreme Court in Pullan-gode Rubber Produce Co. Ltd. v. State of Kerala, (1973) 91 ITR 18. 10.6 In view of the facts stated above, I find that the statement of the appellant and other evidences relied upon by the AO are adequate to prove that the entities namely M/s. S.S. International, M/s. Sunlight Overseas, M/s. Moonlight Overseas and M/s. Jhalak International were managed and controlled by him and money found to be deposited in the accounts of these entities has not been explained. Therefore, the addition made by the Assessing Officer u/s 69A of the Act is sustained.”
We have given our thoughtful consideration to the assessee’s and the Revenue’s respective vehement submissions. After vehemently arguing for some time learned counsel does not press for the assessee’s legal grounds challenging validity of the impugned reopening and other technical issues. The same stand declined in very terms therefore.
So far as the above impugned section 69A addition on merits is concerned, we make it clear that although the learned counsel vehemently argued that there was indeed voluminous supportive evidence on record indicating his genuine import transaction from China and Hongkong based suppliers, we find no merit therein since it has already come on record as per CIT(A) detailed discussion that the Assessing Officer had rightly treated the corresponding remittances on behalf of the Indian buyers/importers to overseas suppliers through four entities herein, as hawala transactions in the nature of accommodation entries only. We thus uphold both the learned lower authorities’ respective findings to reject the assessee’s stand to this effect in principle.
Next comes the latter equally important aspect of quantification of the impugned bogus import invoices transactions. Learned CIT(DR) Ms. Pooja Swaroop’s case is that we ought to uphold the impugned addition in entirety since there exists clear- cut evidence against the assessee as per the above extracted lower appellate discussion which has also considered his statement recorded on oath. The fact, however, remains that once the 14 | P a g e assessee has been found as a hawala entry operator; the Revenue’s stand to assess him for the entire volume of transactions than the profit element, only does not deserve to be accepted. This is for the precise reason that what all the assessee prima facie appears to have earned is his entry commission only although not satisfactorily proved in both the lower appellate proceedings.
Faced with this situation, we deem it appropriate in the larger interest of justice that a lumpsum GP component addition of 12.50% only on the assessee’s foregoing hawala turnover of Rs.94,98,15,512/- would be just and proper with a rider that the same shall not be treated as a precedent. Necessary computation shall follow as per rules. The assessee’s instant lead appeal is partly accepted in very terms.
Same order to follow in assessee’s latter appeal since involving identical set of facts and the issues raised therein. No other ground or argument has been pressed before us. 8. These assessee’s twin appeals & 1054/Del/2024 are partly allowed in above terms. A copy of this common order be placed in the respective case files.