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Judgment
PER MANISH AGARWAL, A.M.:
These three [03] appeals are filed by the Revenue against the common order of ld. Commissioner of Income Tax (Appeals)-29, New Delhi [“Ld. CIT(A)”], all dated 16.10.2019 arising out of different assessment orders, all dated 26.12.2018 passed u/s 153C/144 of the Income Tax Act, 1961 (“the Act”) for Assessment Years 2012-13 to 2014-15 respectively.
Before us, both the parties have stated that the facts involved in all these captioned appeals are common, therefore, they are taken together and decided by a common order.
First we take the Revenue’s appeal for Assessment Year 2012-13 in ITA No. 9643/De/2018.
ITA No. 9643/De/2019 [Assessment Year 2012-13]
Brief facts of the case are that the assessee company filed its return of income u/s 139(1) of the Act on 26.09.2012, declaring total income of INR 5,883/-. A search and seizure action u/s 132 of the Act was carried out in Anand Kumar Jain and Naresh Kumar Jain (Jain Group) on 17.12.2015 and various loose papers and documents were found and seized. It was found that Shri Anand Kumar Jain and Naresh Kumar Jain were engaged in providing accommodation entries to various beneficiaries through various dummy/paper companies and one of the companies used for the purpose was the assessee company which was managed and controlled by Jain Brothers. AO thus, initiated the assessment proceedings u/s 153C of the Act in the case of assessee and held the total credits in the bank accounts of the assessee of INR 2,22,96,490/- as unexplained and made the addition u/s 68 of the Act for the same on protective basis and further observed that the substantive addition be made in the hands of the Jain brother who used the assessee as a conduit for providing accommodation entries. Further, addition of INR 55,741/0 on account of unaccounted commission income @ 0.25% for providing such accommodation entries on substantive basis. Accordingly, total income of the assessee company was assessed at INR 2,23,58,114/-.
Against the said order, assessee filed an appeal before ld. CIT(A) who vide impugned order dated 16.10.2019, has deleted the addition made on protective basis towards the credit entries in bank account u/s 68 of the Act by holding that the assessee was used as conduit where the beneficiaries had provided unaccounted funds which were routed through the assessee company by Shri Anand Kumar Jain and Naresh Kumar Jain (Jain Group) and ultimately funds were transferred to the beneficiaries. Ld. CIT(A) further observed that since the original funds were not provided by the assessee company, therefore, no addition could be made on protective basis and further observed that commission was actually received by Jain Brothers thus, no addition is required to be made for the same in the hands of assessee company.
Aggrieved by the order of ld. CIT(A), Revenue is in appeal before the Tribunal by taking various grounds of appeal mentioned in the appeal memo.
Ground of appeal No.1 raised by the Revenue is with respect to the deletion of protective addition of INR 2,22,96,490/- and Ground of appeal No.2 of the Revenue is with respect to the deletion of addition of INR 55,741/-made on account of unaccounted commission @ 0.25% of total unexplained credit entries in the bank account.
As both the Grounds of appeal raised by the Revenue are inter-lined with each other therefore, both are decided together.
Before us, ld. CIT DR for the Revenue vehemently supported the order of the AO and submits that the material was found during the course of search in the case of Jain Brothers that the assessee was engaged in providing accommodation entries to various beneficiaries in lieu of cash and therefore, the AO had made the addition of the entire credits in the bank account as unexplained credits u/s 68 of the Act on protective basis. Ld.CIT DR filed a gist of written submissions which is reproduced as under:-
- “Supreme Court in Gopal Shri Scrips Pvt. Ltd. and Delhi High Court in Ravinder Kumar Aggarwal. The liability of the Company does not cease on being struck-off owing to provisions of Companies Act and Income Tax Act Provisions.
- The notion that upon dissolution or liquidation or being struck-off the liabilities of a company ceases is archaic and no longer Good Law in view of
- Trust- fund-theory- Fiduciary Follow Provisions
- Tort- Civil- Wrong- liabilities against Director, Member and Company can be pursued post dissolution
- Fraud-
- Avoidance, Preference Transactions
- The Department therefore has the locus-standi to file the appeal and continue the proceedings.
- The CIT(A) on page 5, whilst referring to fund-flow statements, receipt and payment statements, does not engage in a finding of fact as regards whether payments made to is a " beneficiary" or "a mere conduit itself is a further chain..." and vide Para 6.4 the finding of the CIT(A) is" The appellant company is not a beneficiary company..."
- This cannot be construed to mean beneficiaries are identified no specific beneficiary has been named for the fund-flow receipts and payments.
- Without identifying beneficiaries, without any admission by Naresh Jain or Anand Jain, as to the entries in fund flow or conduit being a fact of their accommodation-entries operation, the CIT(A) is perverse in deleting commission- income. Even otherwise if any entry has been extended to any beneficiary itself, and not as a part of a conduit or further link in the chain, commission would have accrued to the assessee. Such a finding is perverse for the CIT(A) does not pierce the corporate-veil.
- Vide Delhi High Court In JRD Stock- Brokers Pvt. Ltd. even an entry provider is not absolved of his obligation to provide an explanation as to credits- The CIT(A) is perverse in Para 6.3 in his finding-"Accordingly the credits received by the appellant cannot be treated as unexplained credits in its hands since the said transaction are mere routing of funds.
- The CIT(A) is against the law- Allahabad High Court- Jagmohanram-Ram Chandra- and Bhaiyalal Shyam Behari and Delhi High Court-JRD Stock Brokers Pvt. Ltd.- D.K. Garg.
- Delhi High Court judgment in the case of, D.K. Garg, ITA 115/2005 Accommodation entry providers
- Para 13- "where the assessee is unable to explain the source of such credit in his account- i.e. by demonstrating the identity of the provider of the credit, the creditworthiness of such entity and the genuineness of the transaction- the credit entry is treated as unexplained and the income is treated under section 68 of the Act as the income of the assessee..."
- The concept of Beneficiary identified, commission income accrued as accommodation entry provides and no addition on account of unexplained credits is applicable when "He, in fact makes no bones of the fact that he either owned or floated as paper companies only for that purpose. He also does not dispute the fact that he has not been able to explain the source of all the deposits in his account or the ultimate-destination of all the outgo from his accounts..."
- 'Para 19'- The legal position in respect of an accommodation entry provider seeking the benefit of 'peak credit' appears to have been totally overlooked by the ITAT in the present case. Indeed, if the Assessee as a self-confessed accommodation entry provider wanted to avail the benefit of the 'peak credit', he had to make a clean breast of all the facts within his knowledge concerning the credit entries in the accounts. He has to explain with sufficient detail the source of all the deposits in his accounts as well as the corresponding destination of all payments from the accounts. The Assessee should be able to show that money has been transferred through banking channels from the bank account of creditors to the bank account of the Assessee, the identity of the creditors and that the money paid from the accounts of the Assessee has returned to the bank accounts of the creditors.
- Para 20 "Each of the sources of credits and the corresponding destination of payments to be identified- for a finding on source of accommodation entry. No such finding emanates from the CIT(A) order.
Allahabad High Court Judgment in the case of Bhaiyalal Shyam Behari vs Commissioner Of Income-Tax on 19 January, 2005 Equivalent citations: (2006) 202 CTR All 515, 2005 276 ITR 38 All Para 4:-
4.During the assessment year in question certain amount of cash credits standing in the names of various persons were added in the income of the applicant by invoking the provision of Section 68 of the Act. Before the Tribunal the alternative plea was taken by the applicant that in the event deposit/cash credits are treated to be unexplained then only peak credit is to be added. The submission has been negatived by the Tribunal in the following words:
"13.Let us suppose that in the account of 'A', there was shown a deposit of Rs. 10,000 on April 1, 1978, and in the account of 'B' there was a deposit of Rs. 10,000 on December 1, 1978. The assessee has not established the genuineness of these two deposits. Now according to the assessee in case there was a withdrawal of Rs. 10,000 in the account of 'A' prior to the deposit of Rs. 10,000 in the account of 'B' then no separate addition should be resorted to on account of unexplained deposit in the account of 'B'. According to the assessee, it should be presumed that the deposit in the account of 'B' was made out of the funds which were available to the assessee after the withdrawal of the amount from the account of 'A'. We cannot subscribe to this point of view. According to us, if the assessee is not able to prove the genuineness of the deposit in the account of 'B', a separate addition in respect of that will be required to be made. As per the provisions of Section 68, where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory, the sum so credited is to be charged to income-tax as the income of the assessee. Hence, it is for the assessee to establish the source of the deposit in the account of 'B'. If the assessee admits that the alleged deposit in the account of 'A' was not genuine and, in fact, it was the assessee's own money which had been introduced in the books in the garb of a loan from 'A' and hence when this amount was available to the assessee for being introduced as a fresh deposit in the account of 'B' then it may be possible to accept the contention of the assessee. But in case the assessee all along maintains that the various loans are genuine then we fail to understand as to how the assessee can put forward the claim that separate additions for the unexplained cash credit in different accounts should not be made. When the assessee himself does not contend that the deposit made in the account of 'B' is out of prior withdrawal made in the account of 'A', how does the assessee expect the Department to subscribe to this point of view. We hence reject this contention of the assessee."
Para 6:-The applicant submitted that as the amount of cash credit has been treated to tax by invoking the provisions of Section 68 of the Act and the said amount have been treated as income from the unexplained source, the applicant was entitled to take up a plea of addition of the aforesaid peak credit as the entire deposits have been treated to be income of the applicant. The contention is wholly misconceived. For adjudicating upon the plea of peak credit the factual foundation has to be laid by the assessee. He has to own all cash credit entries in the books of account and only thereafter the question of peak credit can be raised. As in the present case the amount of cash credits were standing in the names of different persons which all along the applicant had been claiming to be genuine deposit, withdrawal/payment of the amount to different set of persons during the previous years would not at all entitle the applicant to claim benefit of peak credit.
Supreme Court Judgment in the case of Ajay Kumar Radheyshyam Goenka vs. Tourism Finance Corporation of India in Criminal Appeal No. 170,171 & 172 of 2023 on 15th March, 2023 As Promoter and Managing Director of M/s Rainbow Pipes Ltd.
"Para 18: Company in dissolution-1BC- However, liability of Managing Director and in the context of Section 138, Negotiable Instruments Act Post- dissolution claims and liabilities
- Further, Civil Liabilities as per provisions of Companies Act, Income Tax Act, Law and equity
- Trust Fund Theory
- Tort civil Wrong (Restoration to Register of a dissolved company)
- Fraud
- Avoidance and preference employed in insolvency and liquidation proceedings.
Madras High court in SBI vs TRO (WP No.5857 of 2018) and Supreme Court in Sanjay Aggarwal vs Sales Tax officer 156 Taxmann. Com 108 Wherein charges created post intimation of assessment proceedings pending and culminating in demand would be void as against the demand so created- regardless of treatment as operational dues, Income Tax dues would have priority over subsequent charged secured creditors (treated as void).”
On the other hand, Ld.AR for the assessee drew our attention to the orders of Shri Anand Kumar Jain and Shri Naresh Kumar Jain wherein Co-ordinate Bench of the Tribunal has held that these two persons were engaged in providing accommodation entries through various companies including the assessee and in their cases the Co-ordinate Bench has confirmed the addition to the extent of 0.47% as commission on the transactions carried out by them through various companies including the assessee. Ld.AR submits that once it is established that the entire transactions were actually carried out by Shri Anand Kumar Jain and Shri Naresh Kumar Jain and additions have been made on account of commission earned by them therefore, the AO has rightly deleted the addition. She further drew our attention to para 9 of the order of Co-ordinate Bench in ITA No.1318 to 1324/Del/2019 & 2889 to 2894/Del/2019 dated 28.04.2023 wherein list of companies managed and controlled was reproduced and assessee is in Item No.7 and total turnover of the credit entries routed through the assessee by Shri Anand Kumar Jain on which commission was upheld therefore, ld. AR submits that ld. CIT(A) has rightly deleted the addition. She prayed accordingly.
Heard the contentions of both parties at length and perused the material available on record. It is an admitted fact that assessee company was managed and controlled by Jain Brothers and used as conduit for providing accommodation entries of loan and bogus share capitals to various beneficiaries where the funds were credited in the bank account of the assessee from other companies managed and controlled by Jain Brothers and were transferred to the respective beneficiaries/ other companies.
Once it is established that funds credited in the bank account of the assessee were managed and controlled by Jain Borothers, there is no reason for making addition of such credits in the hands of the assessee u/s 68 of the Act. Ld. CIT(A) had appreciated these facts and deleted the additions by making following observation as contained in para 6.4 of the order which reads as under:-
6.4.“From the above transactions, it is noticed that the appellant company has received funds from various concerns as mentioned above and thereafter amounts were transferred to the above mentioned companies/concerns immediately, the appellant company is not beneficiary company. The above arrangement of funds is nothing but part of modus operandi of the accommodation entry provider to introduce the unaccounted funds of the beneficiaries in their respective bank accounts. Further, the AO also in the assessment order has observed that the appellant company was a conduit company operated by Sh. Naresh Jain and Anand Jain to provide accommodation entries to various beneficiaries and said beneficiaries have already been identified. Accordingly, when the beneficiaries were identified, the addition in such cases can at best be that of commission earned on such accommodation entries. But as far as charging of commission is concerned, it has been held in the case of Sh. Anand Jain and Sh. Naresh Jain that they were entry operators who were managing and controlling various shell concerns including the appellant for providing accommodation entries in lieu of commission. Accordingly, taking that logic there is no question of charging of commission income in the hands of the appellant company, since nothing has been earned by the company in this regard. Therefore, I am of the view that no further addition can be made in the hands of appellant company under the facts as discussed above.”
Further, it is also a matter of fact that the Co-ordinate Bench of Tribunal has already held that all such transactions are managed and controlled by Shri Anand Kumar Jain who has been benefitted as commission and the assessee company was managed and controlled by Shri Anand Kumar Jain for providing accommodation entries. Therefore, the income, if any, in the shape if commission etc. accrued/received on such accommodation entries was of Shri Anand Kumar Jain and not of the assessee company. The Co-ordinate Bench of Tribunal in the case of Shri Anand Kumar Jain vide its order dated 28.04.2023 in ITA No.1318 to 1324/Del/2019 & 2889 to 2894/Del/2019 (supra) has already made the addition of commission @ 0.47% on the entire transactions carried out by him of accommodation entries which inter alia include the transactions through assessee company also. Therefore, there is no reason for making further addition in the hands of the assessee company. Ld. CIT(A) has deleted the addition by making following observation in para 7.1 of the order:-
7.1.“In this regard, it has already been held in para 6.4(supra) that as far as charging of commission is concerned, it has been held in the case of Sh. Anand Jain and Sh. Naresh Jain that they were entry operators who were managing and controlling various shell concerns including the appellant for providing accommodation entries in lieu of commission. Accordingly, taking that logic there is no question of charging of commission income in the hands of the appellant company, since nothing has been earned by the company in this regard. Having held that these two persons were operating these companies including the appellant, I am of the view that no further addition on account of commission is warranted in the hands of appellant company under the facts as discussed above. Therefore, the addition made on account of commission of Rs. 55,741/-is directed to be deleted.”
Before us, Revenue has failed to controvert the findings of ld. CIT(A) by placing on record any contrary material and on the other hand, assessee has been able to demonstrate that the entire transactions in the bank accounts were managed and controlled by Shri Anand Kumar Jain in whose case, addition has been made on account of commission for such accommodation entry on substantive basis. Therefore, we find no error in the order of ld. CIT(A) in deleting the additions made. Accordingly, Ground of appeal Nos. 1 & 2 raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
ITA Nos. 9644 & 9645/DEL/2019 [Assessment Years: 2013-14 to 2014-15]
Herein above, we have dismissed the appeal of the Revenue in ITA No.9643/Del/2019 for Assessment Year 2012-13 and confirmed the deletion of additions made by ld. CIT(A) on protective basis towards the credit entries in the bank account and commission on accommodation entry. Facts are identical in these years also and before us both the parties have fairly admitted that facts are identical thus, by following the aforesaid observations made in ITA No. 9643/Del/2019 for AY 2012-13 which are Mutatis Mutandis applicable to the facts of these captioned two [02] appeals also, filed by the Revenue, we hold that the ld. CIT(A) has rightly deleted the additions made by AO on protective basis for the credit entries appearing in the bank account of the assessee u/s 68 of the Act and further the addition of alleged commission income on the accommodation entries routed through the assessee. Accordingly, all the Grounds of appeal raised by the Revenue in these two [02] captioned appeals are dismissed.
In the result, both appeals of the Revenue are dismissed.
In the final result, all three [03] captioned appeals of the Revenue in ITA Nos. 9643 to 9645/Del/2019 for Assessment Years 2012-13 to 2014-15 respectively, are dismissed.