Homeway Marketing (P) Ltd. Vs ITO (ITAT Delhi)
The issue under consideration is whether the addition made u/s 68 for assessee helped various beneficiaries in providing accommodation entries in relation to capital and expenses is justified in law?
ITAT states that, the Assessing Officer has taken the debits, credits income expenditure, the liabilities expenses altogether added up and considered it as an escapement of income. The initial assumption of the AO that the assessee has not accounted the commission income being a conduit of the entry operator has been enlarged to the assumption to escapement of income adding up of the figures of balance sheet and P&L a/c. Such action on the part of the Assessing Officer smacks of the basic application of mind while recording the reasons. Therefore a conclusion arises as to abject non-application of mind. It is apparent that the AO did not applies own mind to the information and examine the basic material for information. The information has not been examined with reference to the facts on record with the assessing authority or with the return of income filed by the assessee. It is discernible that the AO has not applied his mind to the material received as well as to the material before him in the form of assessment records to come to a correct conclusion that the income had escaped assessment. From the reasons recorded, ITAT find that the Assessing Officer had no clarity as to what he considers as income escaped assessment whether the commission on the entries provided or the total amount of entries. Further, while calculating the assessment proceedings, the Assessing Officer made addition of the entries which the Assessing Officer himself has accepted that these entries have been provided to other companies as accommodation entries. In that case, there is an inbuilt contradiction in the action of the Assessing Officer while concluding the assessment proceeding. The AO treats that the assessee has been utilized to provide entries to other companies wherein he treated the assessee as a conduit and also he treated the assessee as the owner of this amount. The AO mentions that the assessee is helping various beneficiaries in providing accommodation entries in relation to capital and expenses. On merits, the AO has not made any primary, independent enquiry to arrive at a conclusion to tax the amount u/s 68 of the Act. In the result, the appeals of the assessees is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeals have been filed by the assessee against the order of the ld. CIT(A)-XI, New Delhi dated 29.11.2013 in ITA No. 878/Del/2014 and the order of the ld. CIT(A)-XVIII, New Delhi dated 24.12.2013 in ITA No. 1694/Del/2014.
2. Since, the issues involved in both the appeals are similar in nature except the quantum involved they are being adjudicated together.
3. At the outset, the ld. AR argued that since the addition made by the AO is not in accordance with the reasons of reopening the additions made by the Assessing Officer are liable to be quashed.
4. The ld. DR has vehemently argued that the additions made follows the reasons recorded for reopening of the case and owing to the Explanation III to Section 148 of the Income Tax Act, 1961 introduce w.e.f. 01.04.1989 by the Finance Act, 2009 empowers the Assessing Officer to make addition of any other escaped income for the assessment year which may have come to his notice during the assessment proceedings. He strongly relied on the orders of the authorities below.
5. Heard the arguments of both the parties and perused the material available on record.
6. The reasons recorded by the Assessing Officer are as under:
“The Directorate of Income Tax (Investigation), New Delhi has carried out investigation in the cases of certain group of persons who were providing accommodation entries. These enquiries were initiated to probe into some bank accounts which were used to issue cheques to entry seekers or beneficiaries against cash paid by them to the entry operators. Such a camouflaged transaction came to light during the course of Survey in the case of M/s. Gurcharan Jewellers whose proprietor Shri Ashok Kumar Chauhan had admitted to have taken cheques under the garb of gifts after giving cash to the entry operator. Probe was initiated into the accounts which were used to provide these entries. These investigations led to revealing of many more bank accounts which were being used by the entry operators for the purpose of giving accommodation entries.
2 Extensive enquiries were made, into numerous such bank accounts, the account holders, the persons operating these accounts and the persons for whom such account holders were working. These enquiries revealed inter alia the following: –
2.1 Entries were being broadly taken for two purposes:
1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc.
2. To inflate expenses in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes.
2.2 The assessees who had unaccounted money (called as entry1 takers or beneficiaries) and wanted to introduce the same in the books of accounts without paying tax, approached another person (called as entry operator) and handed over the cash (plus commission) and had taken cheques/DDs/POs. The cash was being deposited by the entry operator in a bank account either in his own name or in the name of relatives/friends or other persons hired by him, for the purpose of opening bank account. In most of these bank accounts, the introducer was the main entry operator and the cash deposit slips and other instruments were filled by him. The other persons (in whose name the A/c is opened) only used to sign the blank cheque book and hand over the same to the main entry operator. The entry operator then used to issue cheques/DDs/Pos in the name of the beneficiary from the same account (in which the cash is deposited) or another account in which funds were transferred through clearing in two or more stages. The beneficiary in turn deposited these instruments in his bank accounts and the money came to his regular books of account in the form of gift, share application money, loan etc through banking channels.
2.3 The operators gave the account holders amounts ranging from Rs 1000 to 2000 per month. These account holders were masons, plumbers, electricians, peons, drivers etc, whose earnings are not sufficient for a living. They earned normally Rs 3 to 5 thousand per month in their normal work and by working for the entry operators earned extra income of Rs 2 to 4 thousand per month. Their signatures were taken on blank gift deeds, cheque books, share application money etc. In fact these persons signed all types of papers they were asked to sign. They were made directors of companies, partners of firms and proprietor of different concerns solely for operation of these accounts. Actually, many of them were not even aware of the tax implications etc. Their only concern was with the few thousand rupees given to them by the entry operators.
3. Summing up, the report as a result of these extensive enquiries carried out by the D.I.T. (Inv.), New Delhi has assailed genuineness of transactions, whether shown by beneficiaries as inflow of Share Capital/ loan or receipt of Gifts or consideration for sale- purchase. It has also dealt a body blow to the creditworthiness of the persons/persons controlling the concerns who have given these credit entries/share capital/gifts/sale consideration as they have been seen to be men of no means.
4. In the instant case of the assessee, M/S Hopewin Admark & Consultancy Services Pvt. Ltd. the following credits have been shown in the bank account:
