Standard Fiscal Markets Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Introduction: In a recent ruling by the Income Tax Appellate Tribunal (ITAT) Mumbai in the case of Standard Fiscal Markets Pvt. Ltd. vs DCIT, the tribunal has addressed the issue of addition under Section 68 for loans received by the taxpayer. The case involves a search conducted under Section 132 and subsequent proceedings under Section 153C of the Income Tax Act.
Facts:
A search was conducted u/s. 132 of the Act and the ledger of the assessee was found in the digital data backup seized from the premises of M/s Trimax IT Infrastructure and Services Ltd. Accordingly, proceedings u/s. 153C of the Act were initiated against the assessee. From the perusal of the return filed, the AO noted that the assessee has taken loans of Rs. 13,95,00,000/- from 3 different parties. Notice u/s. 142(1) of the Act was issued, requesting the assessee to substantiate the identity, creditworthiness of the creditor, and genuineness of the transaction. In response, the assessee furnished the names, addresses, and PAN of the aforesaid creditors. The assessee was then asked to show cause as to why the sum credited in their books should not be added u/s. 68 of the Act, as during the search conducted on Trimax IT, it was found that the aforesaid 3 creditors had received funds from Trimax IT pursuant to bogus purchase transaction. In response, the assessee submitted that the loans are genuine and made through proper banking channels. The assessee further submitted that the loans received from the aforesaid parties were invested in M/s Trimax IT and there is a possibility that in some of the cases, money was transferred from M/s Trimax IT to the parties who have given loans to the assessee for business transaction purpose. The assessee also submitted that against the unsecured loan, the assessee had issued secured compulsory convertible non-transferable debentures.
The AO held that the assessee failed to establish the creditworthiness of the lender and genuineness of the transaction. The AO also held that it would be imprudent for any businessman to advance loan without charging any interest, and also the debentures issued by the assessee have no market value. Furthermore, the Directors/CFO of the aforesaid creditors admitted that they had provided accommodation entries of bogus purchase bills to Trimax IT, and on the instructions of Trimax IT the funds were transferred to various companies including the assessee. The AO disregarded the submissions made by the assessee and made an addition of Rs. 13,95,00,000/- u/s. 68 of the Act. The CIT(A) confirmed the order of the AO. Against the addition made u/s.68, the assessee has preferred an appeal before the Hon’ble ITAT.
Held:
Before Hon’ble ITAT, it was argued by the AR that the assessee had furnished the necessary documents supporting the loan transaction. The AR submitted that the money was paid by Trimax IT to the aforesaid three creditors who after retaining their commission, transferred the balance to the assessee as a loan which was subsequently invested by the assessee into Trimax IT. To support this claim, the AR referred to the bank statements to establish that the money which originated from Trimax IT has again gone back to Trimax IT through various layers, including the assessee, as share application money. The AR also referred to the assessment order passed in the case of Trimax IT wherein an addition of Rs. 2,75,50,000/- u/s. 69C of the Act. The AR argued that since the said amount has already been taxed in the hands of Trimax IT, the same amount should not be taxed again in the hands of the assessee as it was merely a conduit entity.
The Hon’ble ITAT noted that the aforesaid creditors had provided accommodation entries to Trimax IT. The Hon’ble ITAT highlighted the fact that in the case of Trimax IT, the addition made was only Rs. 2,74,50,000/-, however, in the present case, an amount of Rs. 13,95,00,000/- was given to the assessee as loan, which was further invested by the assessee into Trimax IT. It was held that the documents supporting the assessee’s claim of being a conduit entity were not examined by any of the lower authorities, therefore, the matter was restored to the file of AO for denovo adjudication. The Hon’ble ITAT directed the AO that upon examination, if it is established that the amount actually belongs to Trimax IT and is received by the assessee through the aforesaid 3 creditors only as a conduit, then relief must be granted to the assessee since the tax is to be charged from the real beneficiary and not from the conduit party.
Conclusion: The ITAT Mumbai’s ruling emphasizes a thorough examination of the taxpayer’s claims and supporting documents. The tribunal has stressed the importance of differentiating between conduit entities and the real beneficiaries to ensure fair taxation. This case sets a precedent for similar situations where funds pass through multiple entities, highlighting the need for a meticulous review to establish the actual tax liability.
This ruling provides valuable insights into the complexities of taxation concerning conduit entities and underscores the significance of evidence and documentation in tax-related cases. Taxpayers and tax professionals should consider this ruling when navigating similar scenarios to ensure a comprehensive understanding of the implications and potential relief avenues.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
In ITA no.1469/Mum./2023, Standard Fiscal Market Pvt. Ltd. has challenged the impugned order dated 10/03/2023, for the assessment year 2016-17, while in ITA Nos.1470 and 1473/Mum./2023, Shrey Technologies Pvt. Ltd. has challenged the separate impugned orders of even date 10/03/2023, for the assessment years 2016-17 and 2017-18, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-50, Mumbai [“learned CIT(A)”].
2. Since the factual matrix giving rise to the impugned addition in all the appeals is similar, therefore these appeals were heard together and are being decided by way of this consolidated order. With the consent of the parties, the appeal in ITA No. 1469/Mum./2023 in the case of Standard Fiscal Market Pvt. Ltd. is taken up as the lead case and the decision rendered therein will be applicable mutatis mutandis to the other appeals in the present batch.
ITA No. 1469/Mum./2023
Standard Fiscal Market Pvt. Ltd. (A.Y. 2016-17)
3. In this appeal, the assessee has raised the following grounds:-
“1. On the facts and in the circumstances of the case and in law the Commissioner of Income-tax (Appeals)-50 Mumbai has erred in passing the appeal order by confirming the addition of Rs. 13,95,00,000/- u/s 68 of the income tax act 1961.
2. The learned CIT Appeal failed to appreciate that all the transactions recorded in the books of appellant are supported with, ledger, account bank statement also submitted details loan amount which is received is nothing but money transferred by the assessee to other parties and same amount again received by the assessee as a unsecured loan which is nothing but your own money.
3. CIT Appeal has not considered submission of appeallant that under IT act there is no scope for assumption and presumptions nor anything can be implied. Disallowance cannot be sustained on the basis of preponderance of probabilities, Suspicion however strong it cannot form basis of addition. Addition cannot be made merely on suspicion surmises and conjectures in the hands of the Appellant.
4. Appellant therefore pray that assessing officer may be directed to delete addition Rs.13,95,00,000/- as addition u/s 68. Even state bank of India already filed personal insolvency case against promoters of appellant.
The appellant craves leave to amend, alter or delete any of the above grounds of appeal.”
4. The only dispute raised by the assessee, in the present appeal, is against the addition of Rs.13,95,00,000, under section 68 of the Act.
5. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the search and seizure action under section 132 of the Act on M/s Trimax IT Infrastructure and Services Limited, ledger of the assessee was found in the digital data backup seized from the premises of M/s Trimax IT Infrastructure and Services Limited. Accordingly, proceedings under 153C of the Act were initiated in the case of the assessee, and notice under 153C of the Act was issued to the assessee on 14/06/2019. Pursuant to the aforesaid notice, the assessee filed its return of income on 29/06/2019, declaring a total income of Rs.4,070. From the perusal of the return filed in response to the notice issued under section 153C of the Act, it was observed that during the year under consideration the assessee has taken loans of Rs.13,95,00,000, from the following parties:-
