2015 (3) TMI 881 - AT - Income Tax

Tribunal cancels disputed tax addition under Section 68 based on Settlement Commission's findings.

The Tribunal allowed the appeal, canceling the impugned order and deleting the disputed addition of Rs. 2,48,65,600/- under Section 68 of the Income-tax ... Unexplained credits received - deposits in appellant's bank accounts received from various intermediaries operated by Sh. SK Gupta to provide accommodation entries to various beneficiaries against cash received from them - CIT(A) confirming the addition made u/s 68 - Held that:- 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 of Additional CIT under Section 144A, we have 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 under Section 68 in the case of all the nine companies, which are admittedly conduit companies of Shri S.K. Gupta. See M/s Omni Farms Pvt. Ltd. & Anr. vs. DCIT [2015 (1) TMI 1119 - ITAT DELHI] - Decided in favour of assessee. Issues Involved:1. Legality and factual correctness of the CIT(A)'s order dated 20.03.2013.2. Justification of the addition of Rs. 2,48,65,600/- under Section 68 of the Income-tax Act, 1961.3. Consideration of the appellant company as a conduit for providing bogus capital.4. Ignorance of the list of beneficiaries and relevant legal principles by the CIT(A).5. Double taxation of the same amount.6. Validity of the enhancement notice issued under Section 251(2).7. Non-acceptance of the Settlement Commission's findings and directions.8. Additional grounds related to double taxation.Detailed Analysis:1. Legality and Factual Correctness of the CIT(A)'s Order:The appellant challenged the CIT(A)'s order dated 20.03.2013, claiming it was 'bad in law and on facts.' The Tribunal examined the records and found that the issues in dispute had already been favorably decided for the assessee in a similar case, M/s Omni Farms Pvt. Ltd. vs. DCIT.2. Addition of Rs. 2,48,65,600/- under Section 68:The CIT(A) confirmed the addition of Rs. 2,48,65,600/- made under Section 68, representing deposits in the appellant's bank accounts. The appellant argued that these deposits were from intermediaries operated by Shri S.K. Gupta to provide accommodation entries against cash received. The Tribunal noted that the same issue was previously decided in favor of the assessee, where it was established that the cash deposits were not unexplained cash credits but were sourced from the beneficiaries seeking accommodation entries.3. Appellant Company as a Conduit:The appellant company was one of 32 conduit companies operated by Shri S.K. Gupta. The Tribunal referred to the findings of the Settlement Commission, which confirmed that Shri S.K. Gupta used various companies to provide accommodation entries. The Tribunal concluded that the appellant was merely an intermediary, and the cash deposited was from beneficiaries, not unexplained cash credits.4. Ignorance of the List of Beneficiaries and Legal Principles:The appellant contended that the CIT(A) ignored the list of beneficiaries found in the seized records and failed to appreciate legal principles regarding double taxation. The Tribunal agreed, noting that the Settlement Commission's findings and the Additional CIT's directions supported the appellant's position.5. Double Taxation:The appellant argued that the same amount was taxed twice-once in the hands of the appellant and again in the hands of the beneficiaries. The Tribunal found merit in this argument, emphasizing that income should not be taxed doubly unless the nature of the income changes.6. Enhancement Notice under Section 251(2):The CIT(A) issued an enhancement notice under Section 251(2) and directed the AO to enhance income by Rs. 3,49,450/-. The appellant's reply to the enhancement notice was not considered. The Tribunal found this action unjustified, especially given the favorable decision in similar cases.7. Non-Acceptance of Settlement Commission's Findings:The CIT(A) did not accept the Settlement Commission's findings in the case of Shri S.K. Gupta, which directed that no addition should be made in the hands of conduit companies. The Tribunal emphasized that the Settlement Commission's order was binding and final, as upheld by the Hon'ble Jurisdictional High Court.8. Additional Grounds Related to Double Taxation:The appellant raised additional grounds regarding the double addition of Rs. 2,41,57,800/- and cash deposits. The Tribunal reiterated that the Settlement Commission's findings and the Additional CIT's directions were binding, and any addition in the hands of conduit companies would dilute the case against the beneficiaries.Conclusion:The Tribunal allowed the appeal, canceling the impugned order and deleting the disputed addition. The Tribunal's decision was based on the binding nature of the Settlement Commission's findings and the Additional CIT's directions, which established that the appellant was merely a conduit for accommodation entries, and the cash deposits were from beneficiaries.Order Pronounced:The appeal of the Assessee was allowed, and the order was pronounced in the Open Court on 20/03/2015.