Case Law Details

Case Name : M/s Bhagwati Motors Vs ITO (ITAT Chandigarh)
Appeal Number : ITA No. 1084/CHD/2008
Date of Judgement/Order : 16/10/2015
Related Assessment Year : 2002 -03

Brief of the case:

In the case of M/s Bhagwati Motors Vs. ITO Chandigarh bench of ITAT have held that Assessee merely acted as a conduit without any right in money, therefore, no addition under section 69A of the Act could be made against the assessee. Assessee took money through cheque from one company and transferred the whole amount in bank account of another company, without any commission/consideration. CIT (A) dismissed appeal filed by assessee. On further appeal ITAT deleted the additions after observing that assessee is only a conduit for transfer of money.

Facts of the case:

  • Assessee is in the trading of oil and lubricants and filed return of income at Rs. 48,990/- which was processed u/s 143(1).
  • Subsequently case was reopened u/s 148 on the basis of information received from ACIT, CC, Chandigarh.
  • ACIT, Central Circle, Chandigarh during the course of assessment proceedings in Mittal Group cases has gathered information about purchase of plot bearing at Chandigarh by M/s Sharvilla Estates Pvt. Ltd. from Smt. Era K. Ohri and her daughters.
  • The assessee has issued cheques of Rs. 39 lacs to M/s Sharvilla Estates Pvt. Ltd. but the assessee has not shown this investment in the return of income filed, therefore, it was considered to be unaccounted money of the assessee.
  • In reply to the notice assessee submitted that this amount was paid to other company through assessee as the said company is known to assessee only not to lender company.
  • AO asked evidence and in response assessee filed bank statements.
  • From the perusal of bank statements it was shown that amount was credited in the account of assessee from a different company and again it was noticed that this amount was subsequently debited into the account of another company which was also known to the assessee.
  • The amount of Rs. 39 lacs have still not been received back by the assessee firm.
  • From the perusal of assessment orders of the both the companies it was noticed that during the assessment proceedings of the respective companies, which are known to the assessee and are parties in the transaction, that cash was deposited in the account of one company by another company. They have given accommodation entry only
  • Perusal of the assessment order of the company, in whose account sum was debited, revealed that no addition has been made and it has been held by the AO that the addition on protective basis have been made in the hands of Shri Mukesh Mittal, the Founder Director of the company which also include amount of 39 Lakhs.
  • The perusal of the assessment order of founder revealed that addition of Rs. 1,07,05,000/- has been made on account of unexplained deposit in the bank account in the name of its company.
  • No other evidence was filed by assessee hence AO noted that assessee has failed to adduce evidence in support of the claim that Rs. 39 lacs and same is added to the income of assessee.

Contention of the assessee:

  • The entry of Rs. 39 lacs did not have any connection with the business at all nor did this entry have any effect on the Profit & Loss Account of the assessee firm.
  • Addition of Rs. 39 lacs has already been made by the AO in the case of M/s Morinda Overseas Industries Ltd. (the lender company) and also in the hands of Shri Mukesh Mittal in his individual capacity for same assessment year 2002-03 by the ACIT, CC, Chandigarh.
  • AO has already assessed Rs. 1,07,05,000/- in the hand of company in who issued cheque to the assessee and CIT (A) has allowed the appeal filed by assessee.
  • Further, addition has been made in the hand of founder of the lender company on protective basis, which includes amount of Rs. 39 Lacs.

Contention of the revenue:

  • The amount in which sum of Rs. 39 Lacs was credited was not shown in the books of account of the assessee.
  • Assessee has other bank accounts also and if assessee wanted to give any money through their bank account, then it would have been given through the other bank accounts maintained by the assessee which is suspicious.
  • The said account was opened by assessee just only few days before the sum credited in to account.
  • Circumstantial evidence proved that assessee firm has deposited their unaccounted cash in the bank account of a known company on different dates and got the cheque issued, deposited in their bank account and then the assessee firm issued cheques of Rs. 39 lacs to another known company.
  • The explanation of assessee was not accepted that assessee firm was merely conduit for transferring Rs. 39 lacs

Held by ITAT:

  • It is admitted fact that the protective addition of Rs.1,00,55,500/- included the amount of Rs. 39 lacs made in the hands of Mukesh Mittal, which is in question under reference before Hon’ble HC and ITAT has dismissed revenue’s appeal on this issue..
  • Therefore, once the department has taken a view that the amount in question belongs to Shri Mukesh Mittal, who is one of the Directors of M/s Sharvilla Estates Pvt. Ltd., the department should not change its stand later on holding the assessee firm to be liable for unaccounted money of Rs. 39 lacs.
  • Assessee merely acted as a conduit to transfer the money from the bank account of one company to the bank account of another company.
  • The assessee is not beneficiary of any amount in question because nothing was given to the assessee in any manner.
  • No evidence has been brought on record if assessee deposited cash in the account of M/s Morinda Overseas Industries Ltd.
  • The property in question is not purchased by the assessee.
  • The assessee firm is not owner of money in question and has been able to explain nature of transaction.
  • Assessee merely acted as a conduit without any right in money, therefore, no addition under section 69A of the Act could be made against the assessee.
  • As ground against reopening was not challenged by assessee, appeal of assessee is partly allowed.
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