Case Law Details
Buniyad Chemicals Ltd. Vs ACIT (ITAT Mumbai)
In a recent ruling on October 18, 2024, the Income Tax Appellate Tribunal (ITAT) in Mumbai addressed the appeals filed by Buniyad Chemicals Ltd. against the orders of the Commissioner of Income Tax (Appeals) pertaining to assessment years 2003-04 and 2008-09. The appeals stem from a June 26, 2011, order and focus on several grounds concerning the validity of assessments and the treatment of unexplained bank deposits.
Background of the Case
Buniyad Chemicals Ltd., managed by Mukesh Chokshi and associates, was under scrutiny following a search operation conducted on November 25, 2009. The investigation revealed that the company was allegedly involved in facilitating and providing accommodation entries to various beneficiaries. The operations reportedly involved customers depositing cash and receiving cheques for amounts slightly less than their deposits, with the difference serving as commission for the company.
In the assessments, the Assessing Officer (AO) opined that the substantial deposits in the company’s bank accounts constituted unexplained cash credits under Section 68 of the Income Tax Act. Consequently, the AO added the entire amount of these deposits to the company’s taxable income, asserting that the company failed to substantiate the source of the funds deposited.
Issues Raised in Appeals
Buniyad Chemicals Ltd. raised several key issues in its appeals, arguing against the validity of the AO’s order, particularly the reopening of assessments under Section 147, and the manner in which the additional income was calculated. The company contended:
- The CIT(A) erred in upholding the AO’s order under Section 143(3) r.w.s. 147.
- The notice under Section 148 was not issued following due process, rendering the assessment invalid.
- The burden of proof regarding the beneficiaries should not have shifted to the company when the information was in the department’s possession.
- The commission income should be assessed at 0.15% rather than the 0.37% determined by the CIT(A).
The Tribunal’s Findings
The ITAT reviewed the appeals in light of the arguments presented and existing case law. The tribunal admitted additional grounds raised by the assessee, which revolved around estimating income without accounting for certain transfer entries in the bank account and the need to allow legitimate business expenses against the estimated income.
The tribunal noted the precedent set by previous rulings, including decisions from the Supreme Court in National Thermal Power Corporation Vs. CIT and Jute Corporation of India Ltd. Vs. CIT, which emphasized that additional grounds based on existing records could be admitted without requiring new investigations.
Furthermore, the ITAT acknowledged that while the AO had initially added the total bank deposits to the taxable income, the CIT(A) had determined that a portion of these deposits could be attributed to commission earned for providing accommodation entries. This led to a re-evaluation of the appropriate commission percentage to apply.
The ITAT ultimately sided with the appellant’s argument, restricting the taxable income to 0.15% of the bank deposits, as this figure was consistent with industry norms for similar activities. The tribunal stated that given the long passage of time since the original assessments, it was more practical to limit the addition to a reasonable commission rather than remanding the case for fresh inquiries.
Conclusion and Implications
The ITAT’s ruling in Buniyad Chemicals Ltd. Vs ACIT reflects a careful consideration of both procedural and substantive tax principles. The decision not only highlights the importance of following due process in tax assessments but also reinforces the need for taxpayers to substantiate claims and maintain clear records.
For companies operating in similar sectors, this case serves as a reminder of the scrutiny associated with accommodation entries and the importance of accurate documentation. The tribunal’s decision may influence future assessments and appeals, particularly regarding the treatment of commission income and unexplained deposits.
Overall, this ruling is significant in the context of income tax assessments, as it reaffirms the principle that tax authorities must base their assessments on substantiated income figures rather than arbitrary estimates.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeals filed by the assessee arises out of order dated 26.06.2011 passed by the Ld. CIT(A)-III, Ahmedabad for Assessment Years 2003-04 and 2008-09 on following grounds of appeal:
“1. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts in passing order u/s. 250 of the Act.
2. The Ld. Commissioner of Income Tax (Appeals) has erred in law and in facts in upholding the validity of the order passed u/s. 143(3)(3) r.w.s. 147 of the Act. The Ld. Commissioner of Income-Tax (Appeals) ought to have appreciated that the assessment reopened u/s. 143 r.w.s. 147 of the Act was invalid in as much as the notice u/s. 148 of the Act was not issued in accordance with the provisions of the Act.
3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the provisions of s. 148 and s. 151 of the Act were not complied with while issuing the notice u/s. 148 of the Act.
4. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts in observing that the addition on account of unexplained deposits would be confirmed to the extent the appellant is unable to provide the list of beneficiaries before the Assessing Officer.
5. The Ld. Commissioner of Income Tax (Appeals) has erred in law and in facts in shifting the onus of bringing the beneficiaries on the appellant when the entire list was in the possession of the department.
6. The Ld. Commissioner of Income Tax (Appeals) has erred in law and in facts in determining the commission income of the appellant 0.37% of the gross amount instead of 0.15% as earned by the appellant.”
Brief facts of the case are as under:
2. The Ld. AR submitted that the assessee has raised additional ground which is based on the document already available on record, and no new facts needs to be looked into in order to adjudicate the same. The additional ground raised by the assessee reads as under:
“1. The learned Assessing Officer has erred in law and in facts in estimating the income on gross receipts without reducing the transfer entries amount in bank account from which no income is earned.
2. The learned Assessing Officer has erred in law and in facts in not allowing business expenses against the income estimated. The expenses are genuine and incurred necessarily and exclusively for the purpose of earning income.
3. The learned Assessing Officer and CIT (A) has erred in law and in facts by not allowing 50% expenses against the income earned 0.15% of bank deposits.”
2.1 The Ld. AR placed reliance on following decision in support to admit additional ground.
> National Thermal Power Corporation Vs. CIT [229 ITR 383] (SC)
> Jute Corporation of India Ltd. Vs. CIT (187 ITR 688) (SC)
> Ahmedabad Electricity Co. Ltd. Vs. CIT (199 ITR 351) (Bom)
2.2 The Ld. DR though objected to the admission of addition ground however could not controvert that the issue raised in the additional ground can be adjudicated based on the facts already available on record.
2.3 Upon perusal of the additional grounds, we find that these are directly connected with the addition made in the hands of the assessee and no new facts needs to be investigated for adjudicating the same. It is noticed that the issue raised by the assessee is an alternate plea based on various decision of this Tribunal on identical facts.
2.4 Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional grounds raised by the assessee. Respectfully following the above, we admit the additional grounds raised by assessee under consideration.
Accordingly, the additional grounds filed by assessee stand admitted.
Brief facts of the case are as under:
3. The assessee is a company, operating and managed by Mukesh Chokshi & Other Associates. A search action was carried out at the premises of Mukesh Chokshi and other group companies on 25.11.2009. During the course of search, it transpired that Shri Mukesh Chokshi and the assessee with other group companies were involved in the business of facilitating and providing accommodation entries to beneficiaries.
3.1 It was submitted that, during the course of business various customers approached the assessee for obtaining adjustment bills. The customers make deposit in cash and in turn, take cheque from the assessee for amount slightly lesser than the amount on deposit. The difference representing the commission realized by assesse. It is submitted that many times commission is paid in cash. It is also submitted that the prevalent commission on such dealing was at around 0.15%.
3.2 It was submitted that, the amount deposited in bank accounts does not belong to assessee, and therefore taxing the said deposits in the bank account of assessee also does not arise. It was also submitted that identical issue was raised in the case of Shri Mukesh Chokshi and his various corporate entities in earlier assessment years wherein the entire deposits in the bank accounts were assessed to tax. Co-ordinate Bench of this Tribunal took a view that, since these concerns are involved in providing accommodation entries, a percentage of commission should be assessed in their hands and not the entire amount. It was thus submitted before Ld. AO that, the assessee requested to consider 0.15% of credits in the bank accounts should be treated as income of assessee.
3.3 The Ld. AO after considering the submissions of the assessee was of the opinion that the assessee was involved in an activity contrary to the law wherein huge amount was deposited in the bank account of the assessee and therefore, it was incumbent upon the assessee to submit an explanation of the credit entries as per the provisions of Section 68 of the Act. The Ld. AO also opined that as the necessary criteria u/s 68 of the Act was not fulfilled. The addition was thus made in respect of entire credit entries in the bank account of the assessee as unexplained u/s 68 of the Act.
4. Aggrieved by the order of the Ld. AO, the assessee preferred appeal before the Ld. CIT(A).
4.1 Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
5. We have considered the rival contention of both sides in light of records placed before us. The Ld. CIT(A) confirmed the addition made by the Ld. AO as assessee failed to identify the beneficiaries. The Ld. CIT(A) however noted that assessee was carrying out the activity of providing accommodation entries for commission varying to 0.25% to 0.5% and from the statement recorded for the year under consideration, it was noted by the Ld. CIT(A) rate of Commission was nothing less than 0.37%.
5.1 Before us, the Ld. AR vehemently relied on the decision of Coordinate Bench of the Tribunal in similar facts like that of assessee for Assessment Year 2008-09. This Tribunal rejected the contention of the Revenue to treat the entire deposit as unexplained cash credit. This Tribunal observed that: “The theory of Assessing Officer to treat the entire deposit as unexplained cash credits, cannot be accepted in the light of assessment orders in the case of beneficiaries and also in the light of the fact that assessee is only concerned with the commission earned on providing accommodation entries. We, therefore, of the view that since the assessee itself has declared the commission on turnover at 0.15% which is more than the percentage considered to be reasonable by the Tribunal in the case of Palresha & Co and Kiran & Co (supra), the same should be accepted. We, accordingly, accept the commission declared by the assessee and set aside the order of the CIT (A) in this regard.”
5.2 The above view was taken in case of M/s Goldstar Finvest Pvt. Ltd. by Co-ordinate Bench of this Tribunal in ITA Nos. 6114 to 6120/Mum/2012 vide order dated 01.06.2016.
It is further submitted by the Ld. AR that the above decision in case of M/s Goldstar Finvest Pvt. Ltd. was subject matter of appeal before Hon’ble High Court in ITA No. 1729/2016 wherein Hon’ble High Court vide order dated 01.04.2019 on similar issue observed as under:
“4. In our opinion, the entire issue is based on facts. The estimation of the rate of commission of the Assesee would always be subject-matter of some guesswork. No precise formula could be applied.
The Tribunal having taken into consideration the relevant factors, has arrived at a certain percentage of commission that any such kind of activities could be expected to be derived from. This does not give rise to any substantial question of law.
5. The Revenue also disputes the expenditure allowed by the Tribunal on such activities. Here also, for the same reasons cited above, in our opinion, no question of law arises.
6. In the result, the Appeals are dismissed.”
3. We are conscious that unlike in case No.54/17 and connected Appeals, in the present case, the Assessing Officer had added the entire sum not limiting to the commission charged. However, CIT (A) had applied the percentage of commission deleting the rest of the additions.
4. In the result, Income Tax Appeal is dismissed.”
5.3 Considering the fact that these appeals pertains to very old Assessment Years no purpose would be served by remanding to the Ld. AO to adjudicate these issues afresh as due to the time lapse there will be lot of documents and personal verification which could not be made available.
Respectfully following view taken by Hon’ble High Court in case of M/s Goldstar Finvest Pvt. Ltd. (supra), we restrict the addition to 0.15% of the deposits made in the bank account of the assessee.
Accordingly, the additional ground No. 3 raised by the assessee is partly allowed.
Al other grounds are not adjudicated following the view taken on similar facts and circumstances by Hon’ble Bombay High Court (supra).
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 18/10/2024.
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