Case Law Details
New Edge Shares & Securities Pvt. Ltd. Vs ITO (ITAT Delhi)
In a recent ruling ITAT Delhi partly allowed the appeal of the assessee and modified the order passed by the AO is modified to restrict the unaccounted income by applying 0.3% of the total credits received during the year.
Assessee being a Private Limited Company, was engaged in the business of trading of shares of listed and unlisted companies on commission basis. The assessee did not file return of income for Assessment Year 2011- 12 as name of the assessee has been struck off from record of Registrar of Company w.e.f 13.03.20 12. In a search & seizure operation, AO of the assessee was intimated that the assessee is one of the beneficiaries who has taken accommodation entries of an amount of INR 98,20,055/- from the entities of the above searched persons. Reassessment proceedings were initiated after issuing notice u/s 148 dt. 26.03.2018. Finally, assessement was completed ex-parte at Rs. 1,41, 50,800/- by making following additions (i) Rs. 98,20,000/- u/s 68 and (ii) Rs.43,30,800/- estimating the business income @8% on the basis of credit submission in the bank account.
On appeal before CIT (A) additions were confirmed.
Before ITAT assessee raised various grounds challenging the assessment on legal aspect non-service of notice u/s 148 and completing assessment without complying with legal requirements of the provisions of section 147/148/151 of the IT Act. It was also submitted that the reason recorded clearly shows that the searched persons have been found in the business of providing accommodation entries to various beneficiaries through cheques/DD/RTGS/NEFT In lieu of cash through various dummy and paper companies controlled by them. The reason recorded are based on correct facts as in such cases, no cash is received from the appellant company but the cash is received from beneficiary to whom from the help of appellant, the accommodation entry lends up in the accounts of beneficiaries. It is a case where the transaction is done on some nominal commission and there is no justification to treat the amount to the extent of Rs.98,20,000/- as credits which are required to be explained. It is therefore a case where funds get transmitted to other entities as soon as these are provided to assessee and it will be fair and reasonable that a nominal income by way of commission be assessed in the hands of appellant. He argued that, as assessee is merely a pass-through entity and engaged in assistance of with the providing accommodation entries hence best option is to estimate income of such transactions by taking nominal income by way of facilitation commission income which in AY 2012-13 has been taken on 0.3 % on credit entries by AO himself. He further argued that he is ready to withdraw other legal grounds of appeal if assessment be modified to income argued above.
ITAT observed that in case of identical facts for AY 2012-13, AO applied 0.3 % on the credit received as commission income while making assessment for AY 2012-13. Having regard to the similarity of the facts situation, the first appellate order is consequently, set aside and the additions made by the AO is modified to restrict the unaccounted income by applying 0.3% of the total credits received during the year.
FULL TEXT OF THE ORDER OF ITAT DELHI
The instant appeal has been filed at the instance of the assessee seeking to assail the First Appellate order dated 15.02.2024 passed by the Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre, Delhi [“Ld.CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] against arising 26.12.2018 passed u/s 14 4/147 of the Act, 2011-12.
2. The grounds of appeal raised by the assessee read as under:
1. “On facts and in the circumstances of the case, the Ld CIT( erred in law in upholding the impugned reassessment proceedings ignoring the fact that the jurisdictional notice u/s 148 was never served upon the appellant in compliance of sec 282A rwr 127 of IT rules 1962 and therefore, such proceedings without service of notice u/s 148 is valid in law and void-ab-initio.
2. On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact as the that impugned assessment is invalid and without jurisdiction said assessment is completed without complying with legal requirements of the provisions of section 147/148/151 of the Income Tax Act therefore such assessment is void ab initio and liable to be quashed.
3. The Ld CIT(A) has erred both on facts and in law in confirming the addition of Rs.98,20,000/- u/s 68 of IT Act and addition of Rs.43,30,800/- under the head business income ignoring the submission and explanation made during appeal proceedings and also the stand taken by the department on the identical facts in succeeding assessment year i.e. AY 2012-13.”
3. Briefly stated the assessee company is a Private Limited Company and was engaged in the business of trading of shares of listed and unlisted companies on commission basis. The assessee did not file return of income for Assessment Year 2011- 12 is stated to 12 in question. The name of the assessee be . On the struck off from record of Registrar of Company w.e.f 13.03.20 12 discovered in the course basis of certain adverse information of search and seizure operation on 17.12.20 15 on individuals namely Shri Anand Kumar of the Jain and Shri Naresh Kumar Jain (Jain Brothers), the Investigation Wing Income tax Department found that above individuals were engaged in the activities of providing accommodation entries to various beneficiaries through cheques, demand draft (“DD”) , RTGS, NEFT in lieu of cash through paper and dummy companies floated and controlled by him. The Assessing Officer (“AO”) of the assessee was accordingly, intimated that the assessee is one of the beneficiaries who has taken accommodation entries of an amount of INR 98,20,055/- from the entities of the above searched persons. Based on the information , proceedings u/s 147/148 of the Act was initiated by issuance of notice dated 26.0 3.20 18 u/s 148 of the Act. The assessment was completed ex-parte u/s 144/147 of the Act wherein income was assessed at INR 1,41,50,800/- by making following additions:-
* Addition of INR 98,20,000/-u/s 68 of I.T Act on the basis of thereason recorded on reopening of assessment.
* Addition of INR 43,30,800/- estimating the business income @8% on the basis of credit submissions in the bank account.
4. Aggrieved The the assessee preferred appeal before the Ld.CIT(A). of INR 98,20,000/- Ld.CIT(A) also confirmed the additions u/s 68 of the Act and also confirmed additions of INR 43,30,800/- under the head ‘business income’.
5. Further aggrieved the assessee preferred appeal before the Tribunal.
6. The assessee raises several legal grounds and in the same vain submitted that the assessee has very strong case on merits also. On merits, the submissions on behalf of the assessee read as under:-
“From the reason recorded, it can be noticed that Ld AO found that assessee has accepted credits of Rs. 98,20,055/- fro m entities belonging to Sh Naresh Jain and Sh Anand Jain. The copy of bank statement of appellant was obtained by the Ld AO u/s 131(1) of IT Act through summon dt: 18.10.2018 (PB 5) issued to M/s Kotak Mahindra Bank. From the bank statement so obtained (PB 6- 12), the assessing officer found that there are other credit entries in the bank statement aggregating Rs.5,41,35,000/-.
The Ld AO treated the credit entries of Rs.98,20,000/- , the amount for s 68 of IT which action of reopening was taken as unexplained credits u/ Act and for the credits noticed during assessment proceedings, the Ld AO treated the same as business receipts and completed the assessment by estimating the net profit ratio of 8% on the above aggregate receipts to the. extent of Rs. 5,41,35,000/
The appellant seeks to draw your kind attention to the peculiar facts of the case which have not been correctly appreciated by the Ld AO while passing the impugned order of assessment. The reason recorded clearly shows that the searched persons have been found in the business of providing accommodation entries to various beneficiaries through cheques/DD/RTGS/NEFT In lieu of cash through various dummy and paper companies controlled by them. Kindly refer to para B(1) of reason -p recorded (PB 17) and in subara 3(vii) there is mention of seizure of documents and electronic data where material pertaining to shell companies were found and those companies were used as conduit to provide accommodation entries to various beneficiaries and those companies actually belonging to Jain Brothers and their associates. Kindly refer to sub- para x of above para 3. The fact of shell companies used for-providing accommodation entries was reiterated in subpara XVIII of the above para where there is clear mention that such shell companies floated and controlled by those Jain Brothers. From these facts, it may be appreciated that there were two categories of entities involved in the activities of accommodation entries. In the first category are the companies which are beneficiaries of the accommodation entries provided by the Jain brothers and such companies are under obligation to discharge burden u/s 68 qua the credits accepted from Jain brothers. But there is second category of companies which are used as conduit for providing accommodation entries by multilayering of transactions. Such companies are simply engaged in providing accommodation entries either intra group or to the beneficiaries from the funds transferred by the group companies of Jain Brothers.
The appellant was in the category of shell companies controlled and managed by Jain group falling in the second category. During the year under consideration, the total credits obtained by the appellant company from Jain group entities is Rs.6,39,55,000/out of which Rs.6,39,50,000/- , were given to various entities who were either ultimate beneficiaries or – the layer in the multilayering process adopted in the accommodation business. A complete chart how the amount received Rs.6,39,55,000/ was transferred to other entities is reproduced hereunder:
Chart of inflow of funds in the bank account and corresponding out flow to other entities
It is therefore, a case where the department while initiating reassessment proceedings and also completing the reassessment proceedings has failed to take into account, the status of the company being a conduit company used by the Jain brothers for routing the accommodation entries to other beneficiaries. From these facts, the reason recorded are based on correct facts as in such cases, no cash is received from the appellant company but the cash is received from beneficiary to whom from the help of appellant, the accommodation entry lends up in the accounts of beneficiaries. It is a case where the transaction is done on some nominal commission and there is no justification to treat the amount to the extent of Rs.98,20,000/- as credits which are required to be explained. It is therefore a case where funds get transmitted to other entities as soon as these are provided to assessee and it will be fair and reasonable that a nominal income by way of commission be assessed in the hands of appellant.
The department itself in the impugned order partly accepts the above argument while estimating the income of appellant on the balance credit of Rs.5,41,35,000/- by taking income at the rate of 8%. The adoption of net profit ratio of 8% is contrary to the net profit ratio of 0.3% accepted in the assessment of appellant in succeeding assessment year i.e. AY 2012 Copy of assessment order is placed in paper book at page 3-4.”
7. The Ld. Counsel for the assessee thus, submitted that it is fact on record that the assessee is merely a pass through entity and engaged in assistance of with the providing accommodation entries. The only option available Department is to estimate income of such transactions by taking nominal – 13 income by way of facilitation commission which in Assessment Year 2012 has been taken on 0.3% by the AO himself. Therefore, the Department, at best, -. can adopt 0.3% on entire credits amount of INR 6,39,55,000/-.
8. Counsel for the assessee also pointed out that the assessment order is also marred from the vice of lack of jurisdiction u/s 147 r.w.s. 148 of the Act as per Ground Nos. 1 & 2 of its appeal. However, if the additions on merits are restricted to 0.3% in line with the assessment order of succeeding Assessment Year 2012-13, in that event he is ready to withdraw Ground Nos. 1 & 2 of its appeal to save time from protracted litigation.
9. The Ld. Sr. DR for the Revenue relied upon the actions taken by thelower authorities.
10. We carefully considered the rival submissions. It is the case of the assessee that total credit entries in the bank accounts of the struck off company stood at INR 6,39,55,000/- which wholly represents credits obtained , INR such credits received from Jain Group 6,39,50,000/- were given to various entities who were either ultimate entity in the multiple layering process adopted inapparently, auconduit company used by the Jain Bros. for roting the accommodation entries identical facts, the AO has applied 0.3% on the credits received from Jain Group as commission income vide assessment order dated 10.12.20 19 passed u/s 143(3) of the Act relevant to Assessment Year 2012 Year 20 12-13 was thus, assessed at INR 4, 16,10,00,000/- received in that year.
11. Having regard to the similarity of facts situation, there appears to be a force in the plea of the assessee for assessment of income @ 0.3% of the credits received from Jain Group. The first appellate order is consequently, set aside and the additions made by the AO is modified to restrict the unaccounted year.
12. Ground No.3 of the assessee’s appeal is thus, partly allowed.
13. Ground Nos. 1 & 2 of the assessee’s appeal are dismissed as withdrawn.
14. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 14th November, 2024.
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