Case Law Details

Case Name : Standard Fiscal Markets Pvt. Ltd. Vs. DCIT (ITAT Mumbai)
Appeal Number : ITA No. 1469/Mum/2023
Date of Judgement/Order : 03/11/2023
Related Assessment Year : 2016-17

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:-

Name of Company

PAN Adress of Company Amount
PS IT Infrastructure and Services Ltd. AAACP6501C 602, 6TH Floor, Shival Plaza, Near Marol Industrial Estate, Marol, Andheri (East), Mumbai 400 059 7,50,00,000
Topwell Infotech Pvt. Ltd. AAECT7701J 76, Vijay Block, Laxmi Nagar, Delhi 1,95,00,000
Unisys Software & Holding Industries Ltd. AABCC1191Q 105, Sagar Shopping Centre, JP Road, Andheri (W), Mumbai 400 058 4,50,00,000

6. Vide notice issued under section 142(1) of the Act, the assessee was asked to furnish the name, address, and PAN of each creditor, copy of loan confirmations, Income Tax return of each creditor, financials of said creditors, interest rate and amount paid on said loan during the year under consideration to prove the identity of creditors, genuineness of transaction and creditworthiness of said creditors. In response thereto, the assessee filed a submission only providing the names, addresses, and PAN of creditors. Again notice under section 142(1) of the Act was issued requesting the assessee to file the copy of loan confirmations, Income Tax return of each creditor, and audited financials of said creditors. Since the assessee had not filed any loan confirmation and financial statements of creditors to establish the creditworthiness of the lender, the assessee was asked to show cause as to why the sum of Rs.13,95,00,000, credited in the books of accounts be not added under section 68 of the Act, as during the course of search and seizure action on M/s Trimax IT Infrastructure and Services Limited it was found that the aforesaid creditors had received funds from M/s Trimax IT Infrastructure and Services Limited pursuant to the bogus purchase transaction without delivery of goods. In response thereto, the assessee submitted that the loans taken from aforesaid parties are genuine and the transactions are through banking channels only. It was further submitted that the loans received from the aforesaid parties were invested in M/s Trimax IT Infrastructure and Services Limited and there is a possibility that in some of the cases, money was transferred from M/s Trimax IT Infrastructure and Services Limited to the parties who have given loan to the assessee for business transaction purpose. The assessee further submitted that against the unsecured loan, the assessee has issued secured compulsory convertible non-transferable debentures of Rs. 1 lakh each which are convertible after 10 years from the date of issue.

7. The Assessing Officer (“AO”) vide order dated 13/12/2019 passed under section 153C read with section 143(3) of the Act did not agree with the submissions of the assessee and held that the assessee has not filed a single paper to establish the creditworthiness of the lenders and genuineness of the transaction. The AO further held that no prudent businessman would keep such a huge amount without interest and the debentures issued by the assessee have no market value. The AO also referred to the statement of the Director of M/s Topwell Infotech Pvt. Ltd., recorded during the survey action under section 133A, wherein he admitted that M/s Topwell Infotech Pvt. Ltd. and other companies managed by him had provided accommodation entries of bogus purchase bills to M/s Trimax IT Infrastructure and Services Limited at a commission of 0.25% and it was further admitted that on instruction of M/s Trimax IT Infrastructure and Services Limited funds were transferred to various companies including the assessee, as noted on page no. 10-11 of the assessment order. The AO further found that M/s PS IT Infrastructure & Services Ltd and M/s Unisys Software & Holding Industries Ltd are entities controlled by Mr. Jagdish Purohit, who is a well-known entry operator of Calcutta, providing accommodation entries to various parties. The AO also referred to the statement recorded during the survey under section 133A of the Act on CFO of M/s PS IT Infrastructure & Services Ltd, wherein the aforesaid facts were admitted. The AO also noted that during the search and seizure action under section 132 on M/s Trimax IT Infrastructure and Services Limited the aforesaid statements were confronted with the AGM Accounts and Finance of M/s Trimax IT Infrastructure and Services Limited, wherein he confirmed that he was in contact with the aforesaid persons who statements were recorded during survey under section 133A as per the instructions of the Director of M/s Trimax IT Infrastructure and Services Limited and transferred the money to the bank account of the aforesaid creditors and told the money to be further transferred to companies, including the assessee, at a commission of 0.5% to facilitate these transactions. Since the assessee failed to prove the identity and creditworthiness of the creditors and the genuineness of the transaction, the AO made the addition of Rs.13,95,00,000, as unexplained cash credit under section 68 of the Act.

8. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.

9. We have considered the submissions of both sides and perused the material available on record. It is undisputed that during the year under consideration, the assessee received loans from three parties, namely M/s Topwell Infotech Pvt. Ltd., M/s PS IT Infrastructure & Services Ltd, and M/s Unisys Software & Holding Industries Ltd. As per the assessee, the said loan amount was further invested in M/s Trimax IT Infrastructure and Services Limited by buying the shares of the said entity. It is further the claim of the assessee that in lieu of the said loan, the assessee has issued secured compulsory convertible non-transferable debentures of Rs.1 lakh each which are convertible after 10 years from the date of issue. In the hearing, the learned Authorised Representative (“learned AR”) referred to the confirmation of accounts of the loan from the aforesaid entities. The learned AR also refer to the various documents forming part of the paper book from page no. 71­217 of the aforesaid entities to support the claim of identity and creditworthiness of the creditor and genuineness of the transaction, such as IT acknowledgement, audited annual accounts, ledger account, and bank statements. The learned AR further admitted that the aforesaid three creditors are regular vendors who used to supply goods to M/s Trimax IT Infrastructure and Services Limited. However, these vendors have also provided accommodation entry of bogus purchases to M/s Trimax IT Infrastructure and Services Limited, which fact was found during the search and seizure action under section 132 of the Act on M/s Trimax IT Infrastructure and Services Limited. The learned AR by referring to the assessment order dated 30/12/2019 passed under section 153A read with section 143(3) of the Act in the case of M/s Trimax IT Infrastructure and Services Limited submitted that the aforesaid three creditors were found to have provided accommodation entry of bogus billing to M/s Trimax IT Infrastructure and Services Limited and addition of Rs.2,75,50,000, was made under section 69C of the Act. The learned AR submitted that the money was paid by M/s Trimax IT Infrastructure and Services Limited to the aforesaid three creditors who after retaining their commission had transferred the balance to the assessee as a loan which was subsequently invested by the assessee in M/s Trimax IT Infrastructure and Services Limited. In this regard, the learned AR referred to page no. 218 of the paper book no. 2 in order to describe the entire trail of transaction. The learned AR also referred to various documents including the bank statements forming part of paper book no. 2 to support the aforesaid claim that the money which originated from M/s Trimax IT Infrastructure and Services Limited has again gone back to M/s Trimax IT Infrastructure and Services Limited through various layers, including the assessee, as share application money. It was further submitted that since the said amount has already been taxed in the hands of M/s Trimax IT Infrastructure and Services Limited, the same amount should not be again taxed in the hands of the assessee as it was a mere conduit entity. For better understanding, the trail of transactions as submitted on page no. 218 of paper book no. 2 is reproduced as under:-

Trimax IT Infrastructure and Services Limited

10. From the perusal of all the aforesaid documents forming part of the paper book and the assessment order dated 30/12/2019 for the assessment year 2016-17 in M/s Trimax IT Infrastructure and Services Limited, we find that the aforesaid three creditors, i.e. M/s Topwell Infotech Pvt. Ltd., M/s PS IT Infrastructure & Services Ltd, and M/s Unisys Software & Holding Industries Ltd, were found to have provided accommodation entry of bogus purchases to /s Trimax IT Infrastructure and Services Limited. We also find that in a statement recorded during the survey as noted on page no. 25 of the aforesaid assessment order it was also admitted that on the direction of M/s Trimax IT Infrastructure and Services Limited, the money was transferred to various entities including the assessee. Accordingly, the addition of Rs. 2,74,50,000, was made as bogus purchases under section 69C of the Act vide the aforesaid assessment order. In the present case, it is the plea of the assessee that since the very same money has been routed through the aforesaid three creditors and has gone back to M/s Trimax IT Infrastructure and Services Limited as a share application money and has already been added in the hands of M/s Trimax IT Infrastructure and Services Limited, the same addition cannot be made in the hands of the assessee being a conduit company. However, it is also evident from the record that the amount of purchases that was held to be bogus under section 69C of the Act in M/s Trimax IT Infrastructure and Services Limited is only Rs.2,74,50,000, however, in the present case only an amount of Rs.13,95,00,000, was given to the assessee as loan, which was further invested by the assessee in M/s Trimax IT Infrastructure and Services Limited. We find that the documents now submitted in support of the submission that it is merely a conduit entity were not examined by any of the lower authorities. Therefore, in view of the facts and circumstances as noted above, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication after examining the documents as furnished by the assessee. The AO is further directed to examine the trail of each transaction from its origin to its ultimate destination. We further direct that upon thorough examination of each penny if it is found that the amount actually belongs to M/s Trimax IT Infrastructure and Services Limited and is received by the assessee through the aforesaid three creditors only as a conduit, which was ultimately transferred to M/s Trimax IT Infrastructure and Services Limited, then relief be granted to the assessee since tax is to be charged from the real beneficiary and not from the conduit party. The AO shall be at liberty to seek any other information from the assessee for complete adjudication of this issue. The assessee shall also be at liberty to furnish any under document/evidence in support of its claim before the AO. Accordingly, with the above directions this issue is remanded to the file of AO. As a result, grounds no. 1 to 4 raised in assessee’s appeal are allowed for statistical purposes.

11. In the result, the appeal by the assessee is allowed for statistical purposes.

ITA Nos. 1470 and 1473/Mum./2023

Shrey Technologies Pvt. Ltd. (A.Ys. 2016-17 and 2017-18)

12. In the appeal for the assessment year 2016-17, 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 of addition of Rs. Rs.20,04,00,000/- u/s 68 of the income tax act 1961.

2. The Learned CIT Appeal has not considered that, that the learned assessing officer has not considered all the relevant required documents submitted during assessment proceeding by the authorized representative of appellant.

3. 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 that 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.

4. The appellant submit 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 suspicion surmises and conjectures in the hands of the be made merely on

5. Appellant therefore pray that assessing officer may be directed to delete addition and disallowances of Rs. 20,04,00,000/- 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.”

13. While, in the appeal for the assessment year 2017-18, 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 of addition of Rs.13,54,00,000/- u/s 68 of the income tax Act.

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 of expense and 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. The appellant submit 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 and disallowances of Rs.13,54,00,000/- 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.”

14. In both appeals, the grievance of the assessee is limited to addition made under section 68 of the Act. During the hearing, both sides placed reliance upon their arguments raised in the aforesaid appeal in ITA No. 1469/Mum./2023. In these appeals also the assessee claims that it acted merely as a conduit company and the money actually belongs to M/s Trimax IT Infrastructure and Services Limited which through various layers, including the assessee, was ultimately transferred to M/s Trimax IT Infrastructure and Services Limited. In these appeals also the assessee referred to the separate assessment orders of even date 30/12/2019 passed in the case of M/s Trimax IT Infrastructure and Services Limited for the assessment years 2016-17 and 2017-18. The assessee also furnished the trail of transactions forming part of the paper book on pages 268 and pages 260 for the assessment years 2016­17 and 2017-18 respectively. Since in these appeals similar addition arising out of a similar factual basis is arising, which has been considered in ITA No.1469/Mum./2023, therefore our findings/conclusions as rendered therein shall apply mutatis mutandis. Accordingly, the issue arising in both appeals is restored to the file of AO with similar directions as rendered in ITA No.1469/Mum./2023. As a result, grounds raised in both appeals are allowed for statistical purposes.

15. In the result, both appeals by the assessee are allowed for statistical purposes.

16. To sum up, all the appeals are allowed for statistical purposes. Order pronounced in the open Court on 03/11/2023

Download Judgment/Order

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Location: Panvel, Maharashtra, India
Member Since: 21 Nov 2023 | Total Posts: 1

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