TMI Blog2013 (6) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... salaries, acting on his instructions. They were men of no means without any technical qualifications; rather, hardly literate. Their separate statements were also recorded independently on oath, whereat they confirmed what had been stated by Shri Sandeep Sitani, also admitting to knowing nothing about the business activities of the firms in which they were directors/proprietors. Agreeing with the finding of the Revenue of the impugned transactions as being not genuine and representing bogus claims of expenditure. Further, the assessee's reliance on a comparative chart, showing its gross profit for the year to be comparable and, rather, better than for the other years, is of no consequence inasmuch as what is being impugned is the disallowance of expenditure u/s.37(1). The impugned disallowance is not based primarily on the basis of statement of Shri Sandeep Sitani, but on a consideration of the entirety of the facts and circumstances of the case. There has been rather a complete failure on the part of the assessee to prove the transactions. In fact, the assessee has not even led primary materials in the form of agreements, project reports and confirmations from the clients in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate Services Pvt. Ltd. 27,95,797 4. Nishi Advertising Marketing Services P. Ltd. 74,73,781 5. Nishal Corporate Services P. Ltd. 47,67,660 6. Olympia Sales Agency P. Ltd. 28,80,787 7. Libord Infotech P. Ltd. 15,00,00 8. Indravarun Sales Agency P. Ltd. 21,60,620 9. Handy Tools Pvt. Ltd. 8,41,800 10. Pantaloon Apparels P. Ltd. 16,83,000 11. Silicon Valley International 71,83,360 12. TPS Portfolio P. Ltd. 1,00,000 13. Inorbit Advertising Marketing Ser.P. Ltd. 17,87,815 14. Cash 20,000 Total 3,58,30,097 Notices u/s.133(6) sent to these parties, seeking information/confirmation of the transactions therewith, came back unserved in the case of nine of them, i.e., other than those mentioned at serial numbers 1, 7, 9 12 of the foregoing table. A verification, caused through the Inspector attached to the Ward by the Assessing Officer (A.O.) at the addresses given, revealed (vide her report dated 09.11.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti and Shri Dinanath Yadav, in the case of Nischal Corporate Services Pvt. Ltd., were in fact paid employees with nominal salaries, acting on his instructions. They were men of no means without any technical qualifications; rather, hardly literate. Their separate statements were also recorded independently on oath, whereat they confirmed what had been stated by Shri Sandeep Sitani, also admitting to knowing nothing about the business activities of the firms in which they were directors/proprietors. The office and residential address of Shri Sandeep Sitani, as well as his cell number, was also supplied by them. In sum, it was gathered that Shri Sandeep Sitani was through his front companies involved in the following types of transactions: a) Issuing bogus sale bills - This was followed by receipt of cheque, withdrawing its realization proceeds, and transmitting it back to the beneficiary after retaining the commission; b) Issuing bogus purchase bills - This was followed by issue of cheque against receipt of cash. The cash though was not deposited in the same company from which the cheque was issued, but some other company/concern, and the money routed through one or more b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountant (CA) by profession. All that was relevant from the stand point of the assessee-company was that Shri Sandeep Sitani got it business through his contacts. Shri Sandeep Sitani was taken at face value, as would normally be the case when a CA represents a firm, and there was no need or occasion to meet the directors of the company personally. It was not for the assessee to see if the payees, who were duly registered companies on the records of the ROC, had filed their tax returns or service tax returns. If the plea of the payee/s was to be accepted, it would be very easy for anybody to evade tax by merely stating that he had actually not rendered any services, but provided only bogus bills for the entire income, withdrawing it in cash. In any case, the assessee had been able to procure the copy of returns in the case of some such companies. The same cannot be ignored or disregarded inasmuch as if the Revenue has itself accepted the impugned expenditure as the payee s income, it cannot say that no expenditure stands incurred by the assessee- payer. Even if it were to be assumed that the said companies were engaged in issuing bogus bills, or some other illegal work, that wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case. Several decisions by the apex court were relied upon and also quoted from by him. Cross examination would become a necessity where the assessment was based directly on the basis of an incriminating statement, but not where the material or evidence used is collateral in nature. In the present case, the genuineness of the transaction/s was doubted in the absence of the assessee furnishing any evidence to prove the same. The same status continues to obtain, even as evidence stands brought on record which militates against the version of the appellant, who rather than meeting the inference/s arising there-from and, thus, discharging the burden of proof on him, continues to rely on secondary evidences, as in the form of copies of returns filed by the payee-companies. The same are only subordinate and collateral in nature, and were being pressed only to divert the principal issue. There was, accordingly, no violation of any principle of natural justice. The transactions were confirmed by him to be bogus; the assessee having been unable to controvert the clear findings in the matter. Its appeal being disallowed thus, the assessee is in second appeal before us. Arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties during the course of arguments shall alone be treated as part of the record of the Tribunal." 4.2 The ld. DR, on the other hand, would place reliance on the orders of the authorities below. The issue, in fine, is the discharge or otherwise of the onus on the assessee to prove the claim of expenditure u/s. 37(1) of the Act. No material has been brought on record to exhibit the rendering of any services to the assessee-company. Their orders, therefore, merit being upheld. 5. We have heard the parties, and perused the material on record, as well as the case law cited. Analysis 5.1 Our first observation in the matter is that the issue before us is primarily factual, i.e., whether the assessee has, in the facts and circumstances of the case, been able to prove the transactions under reference as genuine business transactions, undertaken on commercial considerations. Our second observation in the matter is that if it is not so, the fact that the income stands assessed in the hands of the payee/s would not by itself be a ground for grant of deduction qua the said expenses as business expenditure. This is as it is trite law that income has to be assessed in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scope of the services that the payees were required to render or perform. This is also relevant from another view point, i.e., non-returning and payment of service tax. The assessee claims ignorance and, further, no responsibility for the same, implying of the service/s being specified therein being essentially liable to service tax. Now, introduction could hardly be considered as a service, much less one liable to service tax. Also, the same would reveal as to who executed the agreements for and on behalf of these companies. This becomes particularly relevant as the assessee states that it was dealing only with Shri Sandeep Sitani and does not know any other. Now, if Shri Sandeep Sitani was only representing the company/s as its CA, and held no official capacity/position therein, as being contended and even as confirmed by him, he could not possibly sign the Agreements on behalf of the said companies. Only their CEOs, directors, etc. would have signed the agreement/s for and on behalf of their respective companies. If so, the assessee's claim of having dealt with only Shri Sandeep Sitani and none other is not correct, if not false. In fact, we find it as so on the basis of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucing' clients. It becomes, therefore, imperative to in the very least see as to what the agreement/s says or states with regard to the services , which as aforenoted, were not even referred to during hearing, and which is itself inexplicable. We have in fact already observed the Agreements as specifying a range of professional services. As such, the assessee s case of the service providers being only introducers, is not borne out by the agreements entered into by it. Which version is true? Why, one may ask, did the assessee, while presenting its case, do so, i.e., radically alter the scope of the services mutually agreed to, and ostensibly availed of by it? The same may well be a ploy, as introduction', firstly, is hardly a service; at least requires no qualifications or credentials, which may be called upon to be established, even as payment on commercial grounds could well be made for the same. Two, being a physical transaction is unlikely to yield any evidence except by way of confirmation by parties being introduced. As such, it leaves no trail, which could be followed if called upon to establish the rendering of the service for which the payments stand made. The services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of ancillary or corroborative facts/incidents. The assessee has cited the example of real estate industry, in which the brokers play a major role. Though their role is not limited to merely an introduction, as the assessee claims to be the case in its trade, establishing their role or the fact that the brokers play a dominant role in the real estate industry could hardly be an issue or pose any problem. Why should it then, one may ask, be so in case of the assessee s trade? Truth, having its basis in reality, leaves its imprints on whatever it comes in contact with, so that it is not difficult to demonstrate or establish, particularly where it is a part of an established trade practice, as stated to be the case in the assessee s trade (refer para 4 of the assessee s submissions before the ld. CIT(A)/PB pg. 2). Rather, in that case, and particularly considering the assessee s stated business model, such payments would find reflection in the assessee's records and, presumably, across years. That is, not only would there be payments to the companies of Shri Sandeep Sitani for other years as well, there would also be to others like him, to whom similar payments for introduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments being not genuine, and of him being only entitled to a commission thereon, besides TDS benefits, is consistent with the fact of the agreements being not found from either the office or residence premises of Shri Sandeep Sitani, the beneficiary, and of no consideration (or the manner of computing the same) being specified therein. That is, they did not represent any genuine contracts, but only paper documents prepared to give a legal form to the transaction; even the assessee making no reference to them and arguing its case de hors the same, rather, inconsistent therewith, even as proving the genuineness of the transaction is the principal issue involved. In fact, in our view, if these payments were not collusive, all that the assessee-company was to do was to pay the impugned amount to Shri Sandeep Sitani directly, with whom alone it was dealing with, and who was a professional accountant. That is, the very fact that the payments were made per mutual agreements to a number of companies, sharing a common address, the whereabouts or the business antecedents of which the assessee knew nothing about (including their common directors signing the agreements), who were all r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search found to be a man of modest means/wealth, and not with hoards of money, as the assessee s charge of siphoning off crores of rupees would seem to suggest. Decision 6.1 In sum, the assessee-company has failed to furnish an iota of evidence qua services, (even the nature scope of which remains indeterminate), and which it is required to reasonably prove, i.e., beyond reasonable doubt, to press for a valid claim u/s.37(1). Rather, the facts and circumstances of the case, as well as its conduct the assessee not only failing to furnish the information that ought to have been available with it, but also feigning ignorance and misstating facts - which aspects we have examined in some detail - exhibit the assessee to be hand-in-glove with Shri Sandeep Sitani in executing these paper transactions. The plea of Shri Sandeep Sitani having played truant/fraud, and insisting on his cross examination is only a bogey, without any basis. We agree with the finding of the Revenue of the impugned transactions as being not genuine and representing bogus claims of expenditure. The question of deduction of the expenses thereon as allowable business expense u/s. 37(1), thus, does not arise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies on the truth of its books as a true and fair account of the transactions they bear or reflect, having been confronted with the copies of the statements u/s. 131(1) (including dated 30/6/2008 and 25/9/2008) and s.132(4) of Shri Sandeep Sitani (being the person who it was admittedly dealing with) by the Revenue, it was incumbent on it to produce Shri Sandeep Sitani, being his witness, for being cross examined by the A.O. instead. This, in fact, is precisely what the A.O. states (refer para 3.8 of the assessment order and para 6 of the remand report dated 08.04.2011 (as referred to at para 2.2.6 of the impugned order)). We are, thus, unable to see as to how the decisions relied upon (refer para 4.1 of this order), including in the case of M. Pirai Choodi (supra), being pressed by the assessee, would be of assistance to it in the facts and circumstances of the case. The said decision, carefully pursued by us, clarifies that the failure of cross examination is a procedural irregularity, so that, where warranted, the assessment would, without being set aside, be required to be restored to the A.O. for grant of opportunity to the assessee for cross examination. This conforms to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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