Rapid Packaging Ltd.,, New Delhi vs Assessee

1. This is an appeal by the assesee company for the AY 2008-09 against the

order of Commissioner of Income Tax (Appeals)-XXXIII dated 20.03.2013 in ITA

No. 391/10-11/363 raising the following grounds appeal:

"1. Confirming addition and even venturing to make an enhancement of the income returned, without confronting any of the following material to the assessee:

a) Material seized from the laptop and otherwise during the survey operation dated 20.11.2007, upon Shri S.K. Gupta;

b) Statement of Shri S.K. Gupta;

ITA No.3576/Del /2013 2 2. Returning an incorrect finding that the details of beneficiaries to whom payments were made by the assessee were not appearing in the seized material, though this had been clearly demonstrated through bank particulars themselves.

3. Not appreciating that the assessee company was only a conduit for funds transfer and hence, the credits in the assessee's books could not have been treated as its income under section 68 of the Income-tax Act, 1961;

4. Not appreciating the complete impart of the proceedings in Shri S.K. Gupta's case, ignoring that such evidence is deemed to be correct as per Section 292(2) of the Act;

5. Not returning a cogent finding on the aspect of credits in the assessee's books also having been taxed in the hands of the other intermediaries;

6. Not accepting the findings given in the order u/s 245(D)(4) of the Act dated 22.6.2012 passed by the Hon'ble Settlement Commission in the case of Shri S.K. Gupta;

7. Ignoring that in respect of A.Y. 2004-05, the Ld. Addl CIT had issued directions u/s 144A of the Act on identical facts, to the effect that no addition was to be made in the hands of the assessee, sine it was only a conduit company;

8. Not appreciating that in the preceding as well as subsequent years, on identical facts, the returned income of the assessee has been accepted after detailed security;

9. Enhancing the income by Rs.57,06,000/- without appreciating the assessee's reply dated 14.03.2013;

10. Not allowing relied in respect of:

a) Rs.1,14,78,813/- twice added in the hands of the appellant as well as in the hands of the various other conduit companies from whom the amounts were before him.

b) Cash deposited into the bank account out of the cash available with the company;

c) Excess addition of Rs.1,387/- on account of deposit in Oriental Bank of commerce."

ITA No.3576/Del /2013 3 2. The facts of the case are that the assessee company filed the return of

income for the Assessment Year 2008-09 on 29.09.2008, declaring income of

Rs.8,062/-. After processing the return of income u/s 143(1) of the Act, the case

was selected for scrutiny by issuing notice u/s 143(2) and the assessment order

came to be passed on 27.12.2012 u/s 143(3) of the Act at the total income of

Rs.1,14,99,560/-. The disparity between returned and assessed income was on

account of addition of Rs.1,14,90,113/- found deposited in bank account namely,

South Indian Bank (C.R. Park) New Delhi bearing Account No.

0358073000002321 held in the name of the assessee company. During the course

of assessment proceeding, the Assessing Officer found an amount of

Rs.1,14,90,113/- was deposited in the Bank account of the assessee company. The

assessee company was called upon to explain the source for such cash deposits.

The assessee company had explained that it was one of the group concerns of one

Mr. S.K. Gupta. Mr. S.K. Gupta is engaged in the business of providing

accommodation entries to various persons. The modus operandi of business of Mr.

Gupta was explained as follows:-

".......Sh. S.K. Gupta operates a number of accounts in the same bank/ branch or in different branches, in the names of companies/firms/proprietary concerns and individuals. For the operation of these bank accounts, persons who are filing income tax returns are roped in. Like any other business it does require man power according to the scale of operations Except for two or three persons who are required regularly to visist banks and do other work like collection of cash etc. most of the other persons involved are on part time basis. The part time employees are called as and when required to sing documents, cheques books etc. Sh. S.K. Gupta ITA No.3576/Del /2013 4

has also roped in his own relatives for operation of various bank accounts and for filing the income tax returns. It was seen that Sh. S.K. Gupta was controlling more than 35 companies from a small office premises without sufficient infrastructure or employees to carry out meaningful business activity in so many companies. 2.1 Further, from the perusal of ledger accounts maintained in one of the laptops impounded during survey, it is noticed that a large amount of cash is deposited and cheques are issue on the same day/within few days to various parties from the accounts of the company controlled by him. As per enquiries carried out by the Investigation wing the assessee was found to have been using the bank accounts opened in different banks to route the entries through two to four accounts to give the color of genuineness to these transactions."

3. The Assessing Officer called for the specific explanation for the sources for

the cash deposited vide letters dated 1.11.2010 and 02.12.2010. In response to the

specific query, what all the assessee company submitted was that it belongs to

Group of companies owned by Mr. Gupta only commission income was earned in

consideration of providing the accommodation entries. The Assessing Officer

having found the explanation offered unsatisfactory, brought the amount to the

taxed placing reliance on the following decisions:-

i) The Hon'ble Supreme Court in the cases of Roshan Di Hatt Vs. CIT reported in (1977) 107 ITR 938 and Kale Khan Mohammad Hanif Vs. CIT reported in (1963) 50 ITR 1, held as under:

ii) Sumati Dayal Vs. CIT reported in (1995) 80 Taxman 89/214 ITR 801 held as under:-

iii) The Hon'ble Rajasthan High Court in the case of CIT Vs. R.S. Rathore (1995) 212 ITR 309

iv) The Hon'ble Patna High Court in the case of CIT Vs. Bahri Bros. Pvt. Ltd.

reported in (1985) 154 ITR 244.

ITA No.3576/Del /2013 5

4. Aggrieved by the above assessment order, an appeal was preferred before

Commissioner of Income Tax(Appeals)-XXXIII, New Delhi, who vide order dated

20.03.2013 dismissed the appeal. Before the CIT(A) it was submitted inter alia

that the assessee company is merely a conduit for providing entries to the

beneficiary against cash given by them. The cash is deposited in the various bank

accounts. And as already submitted, cheques are issued through these assessee

companies to the ultimate beneficiaries. Hence, it is respectfully prayed that no

income other than that disclosed in the Profit & Loss Account/return of income

immures to the assessee company. All the deposits in the bank account which

stands fully explained. In support of the proposition that only commission income

alone should be taxed in the hands of the assessee company reliance was placed by

Hon'ble Delhi High Court in the case of Manoj Agarwal and Special bench

decision of Mumbai Tribunal in the case Gold Star Finvest P. Ltd. V. ITO,

Mumbai in ITA No. 4625/MUM/2005. The Ld. CIT(A) after considering the

submissions had turned down the plea of assessee company by holding that

Hon'ble Settlement commission has not given any comments for credit in the

books of accounts of the assessee company, which is not changed after admission

that it as a conduit company. Therefore, is no way, the order of settlement

commission support the in applicability of section 68 in appellant's case, as the

order of Hon'ble settlement commission has only quantified same commission

income in the hands of Sh. S.K. Gupta.

ITA No.3576/Del /2013 6

5. Aggrieved by this order the present appeal was filed before us. The Ld.

Authorized Representative reiterated the same submissions as advanced before

CIT(A) and placed reliance on the decisions of coordinate Bench of this tribunal in

the case of M/s KSA Chits Pvt. Ltd. Vs. DCIT in ITA No. 4647/Del/2013 dated

20.03.2015 and in the case of M/s Omni Farms Pvt. Ltd. and Anr. Vs. DCIT in

ITA No.3477/Del/2013 dated 28.01.2015. Wherein it has been held as follows:-

"17. Thus, there is an order of the Settlement Commission as well as the Additional Commissioner of Income Tax under Section 144A holding that Shri S.K. Gupta was providing accommodation entries, he used various companies as conduit for providing the accommodation entries, cash was received through mediators from the persons who wanted to avail the accommodation entries, such cash was deposited in the bank account of the conduit companies and thereafter, cheque of the similar amount was being issued to the beneficiaries (i.e. the person who wanted to avail the accommodation entry) within a day or so. The Assessing Officer himself in the assessment order has accepted these facts. Considering the totality of these facts and the logical consequences of the order of the Settlement Commission as well as Additional CIT under Section 144A, we have no hesitation to hold that the addition under section 68 cannot be made in the case of theconduit companies. Therefore, we delete the addition made under section 68 in the case of all the nine companies, which are admittedly conduit companies of Shri S.K. Gupta."

6. On the other hand, Ld. DR had vehemently argued that addition should be

sustained as the assessee company failed to offer any plausible explanation of the

source for the cash deposited in the Bank account of the asseseee company. He

further argued that in the order of Settlement commission it was not clear whether

these deposits were also disclosed in hands of Mr. S.K. Gupta who allegedly ITA No.3576/Del /2013 7

provided the cash acting as intermediary between the assessee company and the

beneficiary of the accommodation entry. The nexus between the cash deposits and

the source of the such deposits was not proved and therefore, the addition should

be sustained.

7. We heard the rival parties. On perusal of assessment order it is clear that the

assessee failed to offer any explanation for the sources of cash deposited in the

Bank account No. 0358073000002321. It was only during the course of proceeding

before the CIT(A), explanation as stated above was filed. In our considered

opinion the explanation does not conclusively explain the source for the cash

deposits. Even the order of Hon'ble Settlement Commission in the case of Mr.

S.K. Gupta does not provide any clue about the sources for the cash deposits in the

name of the assessee company. No doubt, the order of settlement commission

attained finality and as a consequence of it the assessment proceedings in the case

of Mr. S.K. Gupta had become conclusive. But this cannot be extended to the case

of assessee company, in as much as each assessment is independent and separate.

As we understand, no entries in respect of the cash deposits were made in the

books of account maintained, if any. In such cases, provisions of Section 69 are

applicable and not the provisions of Section 68 as made out by the Assessing

Officer. The provisions of Section 69 reads as under:-

"69 Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any ITA No.3576/Del /2013 8

source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year."

7.1. A plain reading of the aforesaid provision would show that it envisages two

situations when an addition can be made on account of unexplained investments.

The first situation being, where the assessee does not offer any explanation about

the nature and source of the investment. The second situation being, where the

explanation offered by him is, in the opinion of the Assessing Officer, not

satisfactory. In the present case, there was no explanation filed before the AO

except filing the copy of the bank pass book and it was only during the course of

proceeding before the CIT(A) the assessee company tried to explain that the cash

deposits were made out of the money belong to the beneficiary to whom

accommodation entries were provided and the same explanation was reiterated

before us. In our considered opinion, this would not meet the requirement of

Section 69 of the Act. There was no material on record that Mr. S.K. Gupta who

acted as intermediary between the assessee company and the beneficiary of

accommodation entries had filed the confirmation letter stating that amount

deposited in the Bank account was provided by him. Nor, the order of the Hon'ble

Settlement Commission establishes the availability of cash with Mr. Gupta when

the cash was deposited in the bank accounts of assessee company. This issue is

essentially based on the facts. Therefore, the reliance placed by the Ld. AR on the ITA No.3576/Del /2013 9

orders of the coordinate Benches of this Tribunal in the case of M/s KSA Chits

Pvt. Ltd. Vs. DCIT in ITA No. 4647/Del/2013 dated 20.03.2015 and in the case of

M/s Omni Farms Pvt. Ltd. and Anr. Vs. DCIT in ITA No.3477/Del/2013 (Supra) is

not of any help. In another case involving identical facts, the Hon'ble coordinate

Bench in the case of Tarun Goyal & Anr. Vs. ACIT in ITA No. 4636 &

4637/Del/2012 dated 18.10.2013 had set aside the matter to the file of Assessing

Officer with the following directions:

"22. Admittedly certain assessment of Shri Tarun Goyal, the kin pin are at various stages and have not reached the Tribunal. Under these circumstances, it would not be possible to have in over all view of the matter and eliminate chain/multiple transaction, for arriving at the correct assessable amount. Thus we have no other alternative but to set aside all these appeals to the file of the AO for fresh adjudication in accordance with law.

23. The AO shall after examining the evidence submitted by the assessee, consider all the cases together and;

a) restrict the addition u/s 68 to only the peak unexplained credit in each case after elimination circular transaction.

b) To eliminate taxation of the same amount multiple times, due to the chain transactions which resulted due to layering indulged by the assessee.

c) Consider the material on record and the precedence available on the issue and determine the percentage of commission, which the assessees would have earned and bring the same to tax."

8. In the present case also we are of the opinion that the interest of justice

would be met, if the matter is restored to the file of the Assessing officer with a

direction that the Assessing Officer shall verify the disclosure made in the case of

Mr. S.K. Gupta before the Hon'ble settlement commission and whether the amount ITA No.3576/Del /2013 10

of cash deposited in the present case is covered by such disclosure. If the cash

deposited in the assessee case is covered, in the disclosure of Mr. S.K. Gupta

before settlement commission, the addition may be deleted. Hence, the appeal is

allowed for statistical purposes.

The Order pronounced in the open Court on 22 nd April, 2015.

Sd/- Sd/- (G.C. GUPTA) (INTURI RAMA RAO) Vice President Accountant Member

Dated: 22nd April, 2015. Aks/-

Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi