Case Law Details
Sumo Advertises Pvt. Ltd. Vs ACIT (ITAT Delhi)
A perusal of the assessment order reveals that during the course of the assessment proceedings, the Id. AO asked the appellant to establish the credits appearing in its books of account. However, no details were filed by the latter. As per the provisions of section 68, the onus was on the appellant to establish the identify and credit worthiness of the creditors and the genuineness of the transaction. However, the said onus was not discharged by the appellant. Based upon the statement of Sh. V.K. Jain, who controlled the companies which allegedly gave credits to the appellant, wherein he stated that he had provided accommodation entries to various entities through such conduit companies, Id. AO held such cash credits as bogus.
Further inquiries were conducted by Id. AO during the remand proceedings and notices u/s 133(6) were issued to all the four companies from whom the appellant has shown to have taken credits. However, all such notices were returned undelivered by the postal authorities. Therefore, Id. AO concluded in para 2.4 of the remand report that this confirms the finding recorded in the assessment order that all these creditors are nothing but entities used for providing accommodation entries. Ld. AR has filed various documents like ITR, financial statements etc. of the creditors, however, it is a well known fact that such paper formalities of filing required statutory returns with various agencies, getting the accounts audited, routing the funds through banking channels, preparation of other documents/papers like share application forms etc. are done to give a colour of genuineness to the whole transaction and therefore, this by itself cannot justify or prove the genuineness of the cash credits when the transaction is considered in totality.
As per the rejoinder, Id. AR argued that the companies with whom the appellant dealt with were shell companies and therefore, relying upon various case laws, he contended that no addition u/s 68 be made in the case of shell/conduit companies. This argument of Id. AR is devoid of any merits as the addition u/s 68 has not been made in the case of the conduit companies but in the hands of the appellant which allegedly took credits from such conduit companies. Therefore, reliance upon said decisions by Id. AR is not well placed. On the contrary, since admittedly credits were taken from conduit/shell companies, the action of the Id. AO is very much as per law as the appellant had failed to establish the credits appearing in its books of account. In the case of Commissioner of Income-tax v. UP Bone Mills India Ltd. (333 ITR 119), it has been held by Hon’ble Delhi High Court that the initial burden is upon the assessee to explain the nature and source of the cash credits received by it. In order to discharge this burden, the assessee is required to prove(i) the identity of the creditors, (ii) the genuineness of the transaction, and (iii) the creditworthiness of the creditors.
Revenue submitted that AO have rightly made addition as the assessee grossly failed to explain and furnished details as called for during the assessment proceedings.
From the above, it is evident that the assessee failed to prove the genuineness of transaction and creditworthiness of the creditors. Even before this Tribunal, no material is placed to substantiate its claim by the assessee. Therefore, we do not see any reason to interfere into the finding of lower authorities. The grounds raised by the assessee are hereby, dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal filed by the assessee for the assessment year 2008-09 is directed against the order of Ld. CIT(A)-31, New Delhi dated 15.02.2017. The assessee has raised following grounds of appeal:-
1. “That the assessment order passed u/s 143(3) r.w.s. 147 of the Act on 31.03.2016 is perverse to the law and to the facts of the case, because of not invoking the provisions of law contained u/s 153C of the I.T. Act, which the Ld. CIT(A) has failed to appreciate while passing the appellate orders.
2. hat the assessment made u/s 143(3)/r.w.s. 147 of the I.T. Act is illegal as having no locus standi under the law as the AO has failed to record independent satisfaction and has acted only upon the borrowed information which is not tenable under the law which the Ld. CIT(A) has further failed to appreciate while passing the appellate orders.
3. That the appellant company denies its liability to be assessed at total income of Rs. 1,61,45,000/- as against returned income at Rs. 2,38,100/- and accordingly denies its liability to pay tax, cess and interest demanded thereon.
4. That having regard to the facts and circumstances of the case Ld. AO has erred in law and on facts in framing the impugned assessment order and that too without assuming jurisdiction as per law.
5. That the order passed u/s 143(3)/r. w.s. 147 of the I.T. Act is further perverse Under the law and to the facts of the case because of not obtaining proper permission from the concerned / competent authority as required u/s 151 of the Act prior to the issue of notice u/s 148 of the Act.
6. That the AO has grossly erred in law and to the facts of the case in making lump sum addition of Rs. 1,61,45,000/- being commission income in the hands of the appellant at the rate of 0.60% merely on the basis of his presumption and guess work, without the support of any material either collected or placed upon records.
7. That the Assessing Officer and Ld. CIT(A) has failed to appreciate while passing the orders, that the appellant company has already been declared as a conduit / shell company the Assessing Officer while passing the orders, therefore, no additions if any were further required to be made in the declared income.
8. That the addition of Rs. 1,61,45,000/- made further suffers from infirmity as such laconic and ironic in nature because the additions have been made in the income of the appellant only on the basis of his presumption and guesswork and not on the basis of any material either collected or placed upon records prior to doubting its genuineness thereof.
9. That the order passed on 31.03.2016 is further illegal as unconstitutional because consequently the investment made out of the said receipts of Rs. 1,61,45,000/- received through account payee cheques, have already been accepted as correct while finalizing the assessment proceedings.
10. That in any case and in any view of the matter, action of Ld. AO in making addition of Rs. 1,61,45,000/- on the basis of presumption and guesswork of the AO because the provision of law contained u/s 145 has never been invoked.
11. That the order passed further suffers from infirmity as such the additions made are not liable to be upheld because on the identical facts the declared income have already been accepted as correct in the preceding year and in the subsequent year.
12. That no proper and reasonable opportunity if any was ever afforded by the AO prior proceeded to complete the assessment proceedings and thereby making illegal and impugned additions in the declared income of the appellant.
13. That having regard to the facts and circumstances of the case, Ld. AO has erred in law and on facts in charging interest u/s 234A and 234B of the I.T. Act, 1961.
14. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
2. No one appeared on behalf of the assessee when the appeal was called for hearing. It is seen from the record that from the various dates of hearing, no one has attended the proceedings on behalf of the assessee. The assessee has been grossly negligent for non-prosecuting the present appeal. Therefore, the appeal is taken up for hearing in the absence of the assessee and is being disposed off on the basis of material available on records.
FACTS OF THE CASE
3. Facts giving rise to the present appeal are that in this case, original return of income declaring income of Rs.2,38,100/- was filed on 30.09.2008 which was processed u/s 143(1) of the Income tax Act, 1961 (“the Act”). Subsequently, on enquiries conducted by the Department, it was found that the assessee company had obtained accommodation entries from certain conduit/paper companies. The assessment was re-opened u/s 147 of the Act. Accordingly, a notice u/s 148 of the Act was issued to the assessee on 25.03.2015 to furnish return of income in prescribed form and manner. In response to the statutory notice, Shri I.S.Gulati, Ld.AR for the assessee attended the proceedings and filed letter dated 23.02.2016 requesting that original return filed u/s 139(1) of the Act may be considered as return filed u/s 148 of the Act. Further, he also requested for reasons recorded for reopening of assessment proceedings and the same was provided by AO to the assessee vide letter dated 23.02.2016. The AO recorded that notice u/s 143(2) and 142(1) of the Act dated 24.02.2016 was issued to the assessee. However, no details as called for during proceedings was been furnished by the assessee. Thereafter, notice u/s 142(1) of the Act alongwith detailed questionnaire was issued to the assessee on 04.03.2016 and the assessee was required to show cause as to why Rs.1,61,45,000/- allegedly credited in the books of accounts should not be treated as unexplained. The AO observed that the assessee failed to furnish any details called for during the assessment proceedings and has also failed to offer any explanation regarding the credits received from the conduit companies. In view of the above facts and in the absence of any explanation offered by the assessee, the AO held that the assessee had taken accommodation entries amounting to Rs.1,61,45,000/- and therefore, same was added to the income of the assessee being unexplained credits.
4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions of the assessee, dismissed the appeal of the assessee.
5. Aggrieved against the order of Ld.CIT(A), the assessee preferred appeal before the Tribunal.
6. The only effective ground in this appeal is against the sustaining of addition of Rs.1,61,45,000/-.
7. Ld. Sr. DR opposed the grounds of appeal and supported the orders of the authorities below and submitted that the authorities below have duly examined the issue and have rightly made addition as the assessee grossly failed to explain and furnished details as called for during the assessment proceedings. Therefore, he prayed that the findings of the authorities below may be sustained.
8. We have heard contention of the Ld. Sr. DR and perused the material available on record and gone through the orders of the authorities below. Ld.CIT(A) has decided the issue by observing as under:-
5.5. “I have considered the findings recorded by the Id. AO as per the assessment order, the submissions of the appellant, the remand report and the rejoinder thereto, the position of the law and the facts of the case on record. A perusal of the assessment order reveals that during the course of the assessment proceedings, the Id. AO asked the appellant to establish the credits appearing in its books of account. However, no details were filed by the latter. As per the provisions of section 68, the onus was on the appellant to establish the identify and credit worthiness of the creditors and the genuineness of the transaction. However, the said onus was not discharged by the appellant. Based upon the statement of Sh. V.K. Jain, who controlled the companies which allegedly gave credits to the appellant, wherein he stated that he had provided accommodation entries to various entities through such conduit companies, Id. AO held such cash credits as bogus.
5.6 Further inquiries were conducted by Id. AO during the remand proceedings and notices u/s 133(6) were issued to all the four companies from whom the appellant has shown to have taken credits. However, all such notices were returned undelivered by the postal authorities. Therefore, Id. AO concluded in para 2.4 of the remand report that this confirms the finding recorded in the assessment order that all these creditors are nothing but entities used for providing accommodation entries. Ld. AR has filed various documents like ITR, financial statements etc. of the creditors, however, it is a well known fact that such paper formalities of filing required statutory returns with various agencies, getting the accounts audited, routing the funds through banking channels, preparation of other documents/papers like share application forms etc. are done to give a colour of genuineness to the whole transaction and therefore, this by itself cannot justify or prove the genuineness of the cash credits when the transaction is considered in totality.
5.7 As per the rejoinder, Id. AR argued that the companies with whom the appellant dealt with were shell companies and therefore, relying upon various case laws, he contended that no addition u/s 68 be made in the case of shell/conduit companies. This argument of Id. AR is devoid of any merits as the addition u/s 68 has not been made in the case of the conduit companies but in the hands of the appellant which allegedly took credits from such conduit companies. Therefore, reliance upon said decisions by Id. AR is not well placed. On the contrary, since admittedly credits were taken from conduit/shell companies, the action of the Id. AO is very much as per law as the appellant had failed to establish the credits appearing in its books of account. In the case of Commissioner of Income-tax v. UP Bone Mills India Ltd. (333 ITR 119), it has been held by Hon’ble Delhi High Court that the initial burden is upon the assessee to explain the nature and source of the cash credits received by it. In order to discharge this burden, the assessee is required to prove(i) the identity of the creditors, (ii) the genuineness of the transaction, and (iii) the creditworthiness of the creditors.
5.8 It is important to mention here that in the case of CIT Vs Durga Prasad More (1971) 82 ITR 540 (SC), it was held by Hon’ble Supreme Court as under:
“It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. But a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour, then the door will be left wide open to evade tax. The taxing authorities are not required to put on blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents-. ”
5.9 In the case of CIT versus Nova Promoters and Finlease (P) Ltd. (342 ITR 169), Hon’ble jurisdictional High Court observed that the findings of the Tribunal were based on irrelevant material or had been entered ignoring relevant material. The finding that the share application monies had come through account payee cheques was, at best, neutral. The question required a thorough examination and not a superficial examination. The fact that the companies which subscribed to the shares were borne on the file of the Registrar of Companies was again a neutral fact. That these companies were complying with such formalities did not add any credibility or evidentiary value. In any case, it did not ipso facto prove that the transactions were genuine. Material was gathered by the investigation wing and made available to the Assessing Officer, who in turn had made it available to the assessee. The Tribunal had ignored relevant material. The Tribunal also erred in law in holding that the Assessing Officer ought to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee.
5.10 In another recent judgment dated 30.07.2012 in ITA 427/2012 in the case of CIT vs. M/s. Neelkanth Ispat Udhyog Pvt. Ltd., Hon’ble High Court of Delhi has not agreed with Hon’ble ITAT that in view of pronouncement of the Supreme Court in CIT vs. Lovely Exports Pvt. Ltd., 216 CTR (SC) 195, once identity of the creditors is proved, the department is free to proceed against the creditors and addition cannot be made in the hands of the assessee. Hon’ble Jurisdictional High Court has considered its own judgment in the case of Commissioner of Income Tax vs. Nova Promoters & Finlease (P) Ltd. (supra) along with many other judicial pronouncements and has set aside the order of the ITAT and has restored the order of the AO. As noted above, in the appeal under consideration the appellant has not been able to prove even the identity of the creditors.
5.11 Reliance is also placed on the decision of Hon’ble Apex Court in the case of Sumati Dayal (214 HR 801).
5.12 Based upon the discussion in the preceding paras, the detailed findings recorded by the Id. AO and placing a strong reliance on the decisions cited supra, I hold that the Id. AO was justified in adding back the amount of Rs. 2,21,47,750/- u/s 68 to the total income of the appellant. The aforesaid addition is accordingly, confirmed and the ground nos. 6 to 10 are rejected.”
9. From the above finding of Ld.CIT(A), it is evident that the assessee failed to prove the genuineness of transaction and creditworthiness of the creditors. Even before this Tribunal, no material is placed to substantiate its claim by the assessee. Therefore, we do not see any reason to interfere into the finding of lower authorities. The grounds raised by the assessee are hereby, dismissed.
10. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 24th May, 2022.
