2016 (2) TMI 1075 - AT - Income Tax

Addition made u/s 68 - Accommodation entries - Addition made in the case of the conduit companies - Held that - We respectfully following the decision in the case of M/s Omni Farms Pvt. Ltd. (2015 (1) TMI 1119 - ITAT DELHI) delete the addition made u/s 68 wherein held that there is an order of the Settlement Commission as well as the ACIT u/s 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. Considering the logical consequences of the order of the Settlement Commission as well as of Additional CIT under Section 144A no hesitation to hold that the addition under Section 68 cannot be made in the case of the conduit companies. Therefore we delete the addition made u/s 68 in the case of all the nine companies which are admittedly conduit companies of Shri S.K. Gupta. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of unexplained deposits under Section 68 of the Income-tax Act, 1961.
2. Use of seized material and statements during the survey operation.
3. Role of the assessee as a conduit for funds transfer.
4. Application of findings from the Settlement Commission.
5. Double taxation of credits in the assessee's books.
6. Consistency with previous and subsequent years' assessments.
7. Enhancement of income by the CIT(A).
8. Relief for taxed amounts and cash deposits.

Detailed Analysis:

1. Addition of Unexplained Deposits Under Section 68:
The AO determined the total income at Rs. 2,79,57,660/- after making an addition of unexplained deposits under Section 68. The CIT(A) dismissed the assessee's appeal on this addition. However, the Tribunal found that the assessee was merely a conduit and one of the 32 companies of S.K. Gupta group. The Tribunal referenced the Settlement Commission's conclusion that the applicant was only an entry provider, and the cash deposited in the bank accounts was not the applicant's money but the beneficiaries' money.

2. Use of Seized Material and Statements During the Survey Operation:
The CIT(A) confirmed additions based on material seized from the laptop and the statement of Shri S.K. Gupta during the survey operation. The Tribunal noted that the Settlement Commission had considered the impounded documents and found overwhelming evidence that the applicant was only an entry provider.

3. Role of the Assessee as a Conduit for Funds Transfer:
The assessee argued that it was only a conduit for funds transfer, and thus, the credits in its books could not be treated as its income under Section 68. The Tribunal confirmed this, stating that the cash deposited in the bank accounts of intermediary companies was received from mediators on behalf of beneficiaries who wanted to avail accommodation entries.

4. Application of Findings from the Settlement Commission:
The Tribunal highlighted that the Settlement Commission's order had become final as it was not challenged by the revenue. The Commission found that the applicant was an entry provider, and the cash deposited in the bank accounts for issuing cheques was not the applicant's money but the beneficiaries'. The Tribunal held that the order of the Settlement Commission is binding on the Income Tax Department.

5. Double Taxation of Credits in the Assessee's Books:
The assessee contended that credits in its books were taxed in the hands of other intermediaries as well. The Tribunal agreed, noting that taxing the same transactions in the hands of conduit entities would dilute the case against the beneficiaries and lead to frivolous litigation.

6. Consistency with Previous and Subsequent Years' Assessments:
The assessee argued that in previous and subsequent years, on identical facts, the returned income was accepted after detailed scrutiny. The Tribunal found that the facts remained the same for the assessment year 2008-09 and followed the ratio of directions issued by the Additional CIT under Section 144A for earlier years.

7. Enhancement of Income by the CIT(A):
The CIT(A) enhanced the income by Rs. 77,50,000/-. The Tribunal, however, deleted the addition made under Section 68, following the decision in the case of M/s Omni Farms Pvt. Ltd. and others, which was confirmed by the Delhi High Court.

8. Relief for Taxed Amounts and Cash Deposits:
The assessee sought relief for amounts taxed twice and cash deposits. The Tribunal, considering the findings of the Settlement Commission and the directions of the Additional CIT, held that the addition under Section 68 could not be made in the case of conduit companies and deleted the additions.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the addition made under Section 68 of the Act, and held that the assessee was merely a conduit company, following the binding nature of the Settlement Commission's order and the directions issued under Section 144A. The Tribunal's decision was consistent with the findings in the cases of other group concerns and confirmed by the Delhi High Court.