Funds received through intermediary cannot be treated as recipient's income under money trail investigation The ITAT Ahmedabad held that funds received by the assessee from JDS and associates could not be treated as the assessee's own income. The tribunal found ...
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Funds received through intermediary cannot be treated as recipient's income under money trail investigation
The ITAT Ahmedabad held that funds received by the assessee from JDS and associates could not be treated as the assessee's own income. The tribunal found that money trail investigations revealed VMS Industries as the ultimate beneficiary, with the assessee serving merely as an intermediary. The AOs of all three entities unanimously agreed that funds were channeled through the assessee and SCMPL only as intermediaries. Despite VMS Industries settling the dispute under VSVS scheme, the tribunal relied on Sumati Dayal precedent and deleted the addition, ruling in favor of the assessee.
Issues Involved: 1. Validity of invoking provisions of section 147 of the Income Tax Act. 2. Addition of Rs. 4,45,17,089/- u/s 69A of the Income Tax Act.
Summary:
Issue 1: Validity of invoking provisions of section 147 of the Income Tax Act The assessee challenged the validity of the assessment framed u/s 147 of the Income Tax Act. However, this ground was not pressed before the Tribunal and was dismissed as not pressed.
Issue 2: Addition of Rs. 4,45,17,089/- u/s 69A of the Income Tax Act The main contention revolved around the addition of Rs. 4,45,17,089/- received by the assessee from "JDS" and its associates, which was treated as the assessee's own income. The assessee argued that these funds were merely routed through them to the ultimate beneficiary, M/s VMS Industries, and that this fact was known to the Department.
The Tribunal noted that during the survey action conducted u/s 133A of the Act, it was revealed that the funds were part of a larger scheme where the promoters of VMS Industries introduced unaccounted money into the company through various intermediaries, including the assessee and SCMPL. The Tribunal observed that the Department had detailed knowledge of the entire money trail, which showed that the funds ultimately benefited VMS Industries.
The Tribunal highlighted that the assessment order in the case of VMS Industries clearly identified the entire cash trail, confirming that the funds moved from dummy concerns to the assessee and SCMPL before reaching VMS Industries. The Tribunal also noted the improbability of the assessee incurring huge losses on shares without claiming them in its tax return, further supporting the argument that the assessee was merely an intermediary.
Given the clear evidence and the Department's awareness of the money trail, the Tribunal concluded that the funds received by the assessee from JDS could not be treated as the assessee's own income. The addition made was held to be unsustainable and was directed to be deleted.
Conclusion: The appeal of the assessee was partly allowed, with the addition of Rs. 4,45,17,089/- being deleted. The order was pronounced on 5th April, 2024, at Ahmedabad.
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