2015 (9) TMI 1519 - HC - Income Tax

Additions made under Section 68 - Addition made in the case of the conduit companies - Held that - (AO) gave effect to the order of the Settlement Commission and determined the income of Mr. S.K. Gupta without making any addition for unexplained cash credit. During the course of assessment Proceedings of the intermediary companies including the Respondent Assessees the AO sought directions from the Additional Commissioner of Income Tax under Section 144-A. The Additional CIT passed an order in which after discussing the facts he inter alia directed that it would be in the best interest of the Revenue to tax these transactions in the hands of beneficiaries and Mr. S.K. Gupta without making any additions on this account in the hands of conduit entities . The said orders of the Settlement Commission or of the Additional CIT were binding on the AO. It is not in dispute that the Respondent Assessees are the conduit entities and not the beneficiaries. Consequently the order of the ITAT deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity. - Decided in favour of assessee.

Summary

Issues:
- Appeals by Revenue against ITAT's order on additions under Section 68 of the Income Tax Act for AY 2008-09.

Analysis:
1. The High Court addressed the appeals by the Revenue against a common order of the ITAT for AY 2008-09 concerning additions made under Section 68 of the Income Tax Act. The ITAT had directed the deletion of these additions.

2. The investigations revealed that Mr. S.K. Gupta was involved in providing accommodation entries to various parties, and the Settlement Commission confirmed him as an entry provider. The Settlement Commission's order specified that only the premium/commission received by Mr. Gupta, after reducing expenses, would be considered his additional income. The entities controlled by Mr. Gupta, including the Respondent Assessees, were used as conduits for issuing cheques to beneficiaries.

3. The AO, following the Settlement Commission's order, did not add any unexplained cash credit to Mr. Gupta's income. However, during the assessment of intermediary companies like the Respondent Assessees, the AO sought guidance from the Additional CIT under Section 144-A. The Additional CIT directed that taxing the transactions in the hands of beneficiaries and Mr. S.K. Gupta would be in the Revenue's best interest, without adding anything in the conduit entities' hands.

4. The High Court confirmed that the Respondent Assessees were conduit entities, not beneficiaries. Therefore, the ITAT's decision to delete the addition under Section 68 in their case was legally sound and not erroneous. As a result, no substantial legal question arose for consideration, leading to the dismissal of the appeals by the Revenue.

5. In conclusion, the High Court upheld the ITAT's decision regarding the additions under Section 68 of the Income Tax Act for the AY 2008-09, emphasizing that the Respondent Assessees, being conduit entities, were not liable for the additions. The judgment highlights the importance of following the Settlement Commission's orders and ensuring the correct taxation of transactions in the hands of the appropriate parties.