Concept Communication Ltd Vs DCIT (ITAT Mumbai)
Conclusion – Addition cannot be made merely on the basis of the statement unless the same is supported by the documentary evidence. Statement recorded Under Section 133A of Income Tax Act, 1961 under fear/ coercion cannot be relied upon by the AO if it is not corroborated by documentary evidence. AO is bound to give the assessee an opportunity to controvert evidence and cross examine the evidence on which department places reliance. A failure in opportunity to cross examine can result in the order being a nullity.
Facts –
Assessee is engaged in the business of advertising agency. Assessee engages vendors to undertake the campaign service on his behalf. The work done by the vendor is verified by the client and after verification, the payment is done to the assessee, who in turn disburses the amount to the vendor as agreed between them.
Survey was conducted and statement of various employees of the assessee was taken under pressure accepting that the assessee has taken accommodation entries from bogus entities. The statement was recorded in the absence of the Managing Director. The said statement, which was recorded under pressure, was retracted.
As per the principles of natural justice, the AO has to provide the evidence to the assessee & grant opportunity of cross-examination. Secondary evidences cannot be relied on as if neither the person who prepared the documents nor the witnesses are produced. The violation of natural justice renders the assessment void.
The amount paid to vendor for work done was disallowed on the grounds that the same is simply accommodation entries from the bogus entities. Assessee proving the genuineness of the expense produced vendor bills for verification and details of the vendors like Name, address, PAN, ST registration number, company identification number. Payment made to the vendor is through a/c payee cheque.
Held –
Income earned corresponding to the expenditure alleged to be bogus is not question and hence the entire expenditure incurred which is duly supported by the income cannot be disallowed. Genuineness of the transaction has been proved by the documentary evidence. Addition restricted to the difference in the gross profit declared as compared to the average gross profit rate of earlier five years.
FULL TEXT OF THE ITAT JUDGEMENT
These are the appeals filed by the assessee against the order of CIT(A)-4, Mumbai dated 11/02/2018 for A.Y.2007-08 to 2011-12 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.
2. Common grounds have been taken by the assessee in all the years under consideration in respect of above mentioned three concerns. The grounds taken in the case of Concept Communications Ltd., in the A.Y.2007-08 reads as under:-
1. The learned Commissioner of Income Tax (Appeals) erred in not appreciating that the AO had assumed jurisdiction by issuing an invalid notice u/s. 148.
2. The learned Commissioner of Income Tax (Appeals) erred in not appreciating that the AO had erred in issuing the notice u/s. 148 inspite of the fact that there was no income chargeable to tax which had escaped assessment and while doing so he amongst others failed to appreciate that:
a. The appellant had made a true and full disclosure of all material facts necessary for the assessment;
b. The notice was issued only on the basis of the statements illegally recorded during the course of survey proceedings u/s. 133A;
c. Report of Financial Investigation Unit in the case of a third party could not form basis to believe that there was income chargeable to tax which had escaped assessment in the case of the appellant;
d. In the reasons recorded in writing for reopening of assessment, there is no mention that the notice was issued after taking approval u/s. 151 of the Act.
3. The learned Commissioner of Income Tax (Appeals) erred in disallowing the expenditure of Rs. 11,92,65,022/- inspite of the fact that the appellant has proved with evidence that the expenses were incurred wholly and exclusively for the purposes of appellants business.
3. As common grounds are involved in all the years under consideration with respect to all the three companies, all the appeals were heard together and are now disposed by this consolidated order.
4. Rival contentions have been heard and record perused. Facts in brief are that assessee is engaged in the business of advertising agency. Return for A.Y.2007-08 in the case of Concept Communication Ltd was e-filed on 8/11/2007 declaring income of Rs.5,96,75,194/-. The case was selected for scrutiny under the scrutiny norms and notices u/s. 143(2) was duly served. The A.O. framed the assessment order u/s.143(3) on 20.7.2009 assessing the total income at Rs. 5,97,35,860/-.
5. On 22/11/2011 survey Proceedings were carried out in the case of assessee Group on the basis of statement of one Mr. Jignesh Patel Statement of Mr. Parag Sanghvi, CFO of the assessee Company was recorded during the course of survey. In his reply to Question No.4 he stated that assessee Co. has taken accommodation entries from bogus Entities as named in the reply for AY 2007-2008 to 2011-12. Thereafter, statement of Shri Vivek Suchanti, Managing Director of the assessee Co. was recorded. In his reply to Question No.4 he also stated that assessee Co. has taken accommodation entries from bogus Entities and in order to buy peace of mind, to avoid protracted litigation and penal consequences as per the Income Tax Act, 1961, he offered the following as the additional income in the respective companies
