Income Tax Appellate Tribunal - Mumbai
R.W Promotions P. Ltd, Mumbai vs Assessee on 20 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,MUMBAI BENCH "G",
MUMBAI
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND
SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 3969/Mum/2012 Assessment Year : 2007-08
M/s. R.W. Promotions Pvt. Ltd. Asstt. Commissioner of Income tax
M-30, Hirnen Shopping Centre -9(3)
M.G. Road, Goregaon (W) Vs. Mumbai.
Mumbai-400 062.
PAN No. AACCR 7660 J
(Appellant) (Respondent)
Appellant by : Shri Pradeep Kapasi
Respondent by : Shri V. Krishnamoorthy
Date of hearing : 20.12.2012
Date of Pronouncement : 16.01.2013
ORDER
PER RAJENDRA SINGH, AM:
This appeal by the assessee is directed against the order dated 13.3.2012 of CI(A) for the assessment year 2007-08. The disputes raised in this appeal relate to the legal validity of re-opening of the assessment under section 147 of the Income tax Act, 1961 (the Act) and merit of addition made by AO on disallowance of expenditure. The levy of interest under section 234B and 234C has also been challenged.
2. We first take up the dispute relating to legal validity of re-opening of the assessment under section 147 of the Income tax Act as this is the basic issue 2 ITA No.3969/M/12 A.Y. 07-08 having a bearing on validity of assessment itself. The facts relating to re-opening of the assessment are that the assessee for the assessment year 2007-08 had filed the return of income on 31.10.2007 declaring total income of Rs.2,18,79,871/-. The return was processed under section 143(1) of the Act. Subsequently, a search had been conducted under section 132 of the Act in case of Shri Sandeep Sitani. Shri Sitani in his statement recorded on oath under section 132(4), had admitted that he had indulged in giving accommodation bills from various companies floated by him which included M/s. Inorbit Advertising and Marketing Services Pvt. Ltd. ( M/s. Inorbit) and M/s. Nupur Management Consultancy Pvt. Ltd. (M/s. Nupur). Thereafter, the investigation wing which had conducted the search had forwarded the information / material to the AO having jurisdiction over the assessee as the assessee had entered into transactions with M/s. Inorbit and M/s. Nupur. Based on such information/material, the AO re-opened the assessment in case of the assessee for assessment year 2007-08 after recording the following reasons.
"The return of income for AY 2007-08 was filed on 31.10.2007 declaring total income at Rs.2,18,79,871/-. The same was processed u/s.143(1) of the Income tax Act, 1961. Thereafter an information was received from the office of the DDIT (Inv.) Unit VIII(1), Mumbai on 30.06.2009 that the assessee company has taken hawala entry of at least Rs.1,15,41,044/- from M/s. Inorbit Advertising and Marketing Services P. Ltd. and M/s. Nupur Management Consultancy Pvt. Ltd. during financial year 2006-07 relevant to AY 2007-08. The above information is based on the evidence gathered during the course of search and seizure action u/s. 132 of the Income tax Act, 1961 in the case of Mr. Sandeep Sitani.
Therefore, I have reason to believe that income of Rs.1,15,41,044/- has escaped assessment."3 ITA No.3969/M/12
A.Y. 07-08 2.1 Thereafter, the assessee vide letter dated 22.11.2010 submitted before the AO on 1.12.2010, raised objections against re-opening of the assessment. The assessee submitted that the statement of Shri Sandeep Sitani /Shri Dinanath Yadav / Shri Pradeep Prajapati had not mentioned any specific instance of any such entries relating to the assessee. There was no direct nexus with regard to the issue of bogus bills/ accommodation entries. It was also submitted that the statements of the above persons did not establish that M/s. Inorbit and M/s. Nupur had issued only accommodation bills. It was pointed out that the assessee had made payments through account payee cheques, had deducted TDS and confirmation from parties had been submitted to the investigation wing. Therefore, there was no reason for reopening of the assessment. The assessee placed reliance on the judgment of Hon'ble High Court of Delhi in the case of CIT vs. SFIL Stock Broking Ltd. (325 ITR 285) and the decision of the Delhi Bench of the Tribunal in the case of DCIT vs. Rainee Singh (125 TTJ 816). The assessee also submitted that assessment could not be re-opened only on the basis of information received by DDIT(Inv.). It was accordingly requested that re-assessment proceedings should be dropped. The AO, however, did not accept the objections raised. It was observed by him that Shri Sandeep Sitani who was actually responsible for carrying out activities of the companies who had issued bills had confirmed that the said companies were engaged in providing accommodation entries/bogus bills. The DDIT(Inv.) had forwarded the information clearly mentioning that the assessee had obtained 4 ITA No.3969/M/12 A.Y. 07-08 accommodation entries from M/s. Inorbit and M/s. Nupur. The information was based on the statements recorded on oath during search operations. The AO also observed that the result of obtaining accommodation entry had resulted into claiming of non-existing expenditure by the assessee and thereby deflating profits which should have been offered to tax. The assessment had been re-opened after recording reasons which had been conveyed to the assessee. The AO, therefore, rejected the objections raised by the assessee, vide letter dated 7.12.12 mentioning therein the various points made herein above and finalized the assessment under section 143(3)/147 in which additions have been made on account of accommodation entries.
2.2 The assessee challenged the order of re-opening of the assessment by AO before CIT(A) in which the points made earlier were reiterated. CIT(A) however rejected the contentions raised. It was observed by him that Shri Sandeep Sitani had admitted running the companies including M/s. Inorbit and M/s. Nupur for providing bogus accommodation entries to various business concerns. The assessee had made payments to the above two companies which did not have any facilities to render any services. CIT(A), therefore, held that re-opening of the assessment which was based on material gathered during the course of search and seizure action was legally valid and dismissed the ground raised by the assessee aggrieved by which the assessee is in appeal before the Tribunal . 5 ITA No.3969/M/12
A.Y. 07-08 2.3 Before us, the ld. AR for the assessee argued that re-opening of the assessment was bad in law on various counts. It was submitted that the AO was required to convey to the assessee the reasons actually recorded by him which had not been done. The AO had only conveyed the gist of reasons recorded and, therefore, on this ground alone, the re-assessment proceedings were required to be quashed. Reliance was placed on the decision of Mumbai Bench of the Tribunal in the case of Tata International Ltd. in ITA No.3359-3361/Mum/09. It was also argued that there was no sufficient material in the reasons recorded for formation of belief for escapement of income. The AO had re-opened the assessment simply on the basis of information received from DDIT(Inv.) without application of mind which was clear from the fact that the AO had asked for copies of statements recorded from DDIT(Inv.) vide letter dated 6.10.10 which was much after the date of issue of notice under section 148 on 4.2.2010. It was also pointed out that letter of DDIT (Inv.) dated 30.6.2009 a copy of which has been placed on record clearly showed that amount involved on account of M/s. Inorbit relating the assessment year 2007-08 was Rs.69,02,674/- and a sum of Rs.2,70,723/- related to M/s. Nupur for this assessment year . Therefore, total amount involved in the assessment year 2007-08 in relation to the two parties was Rs.71,73 lacs but the AO in the reasons recorded had mentioned the sum of Rs.1,15,41,044/-. Thus, there was no application of mind and there was also no nexus between material and formation of belief. It was also submitted that the material was in the form of statement of parties given during search which could not form basis for re-opening of the 6 ITA No.3969/M/12 A.Y. 07-08 assessment. There was, thus, no material for formation of belief regarding escapement of income and, therefore re-opening was bad in law. The ld. AR placed reliance on the following judgment in support of the case .
i) (325 ITR 285)(Del.) CIT vs. SFIL Stock Broking Ltd.;
ii) (329 ITR 110)(Del.) Sarthak Securities (P) Ltd.;
iii) 125 TTJ 816 (Del.) DCIT vs. Rainee Singh;
iv) 212 CTR 42 (Del.) CIT vs. Atul Jani;
v) 258 ITR 126 (Gau) JCIT Vs. George Wiliamson (Assam) Ltd.;
vi) 79 ITR 603 (SC) Chhugamal Rajpal vs. S. P. Chaliha and Others;
vii) 216 ITR 811 (Bom.) I.B.M. World Trade Corporation vs. IAC
viii) 18 ITR (Trib.) 363 in the case of Dr. J.Mohan and Another vs. ACIT 2.4 The ld. AR for the assessee further submitted that the assessee had furnished truly and fully all the material facts in the return of income in relation to the claim of expenditure. There was, thus, no failure on part of the assessee which had resulted into escapement of income. It was pointed out that the AO in the reasons recorded had also not mentioned any failure on the part of the assessee in disclosing truly and fully all material facts and, therefore, re-opening of the assessment was bad in law on this ground also. Reliance was placed on the judgment of Hon'ble High Court of Bombay in the case of Titanor Components Ltd. vs. ACIT (243 CTR 520). The ld. AR further submitted that the AO had passed the assessment order on 24.12.2010 soon after disposing off the objections 7 ITA No.3969/M/12 A.Y. 07-08 raised by the assessee against re-opening of the assessment vide letter dated 7.12.2010 leaving little time for the assessee for contemplating any action against the rejection order. The ld. AR referred to the judgment of Hon'ble High Court of Bombay in the case of Asian Paints (296 ITR 90) in which it has been held that the AO should wait for at least four weeks after passing rejection order against the objections raised by the assessee before passing the assessment order which had not been followed by the AO. Based on the above argument, it was urged by the ld. AR that re-opening of assessment being bad in law should be quashed. 2.5 The ld. DR appearing for the revenue on the other hand strongly defended the order of AO re-opening the assessment. It was argued that under the amended provisions, the assessment could be re-opened on the basis of any tangible material showing escapement of income. In this case, the material collected by the Investigation Wing had showed that the assessee had shown expenditure on account of bogus bills and thus had reduced the total income. There was clear nexus between material and formation of belief. The assessment could be re- opened on the basis of information/material received from the Investigation Wing. Reliance for this proposition was placed on the judgment dated 3.5.2012 of the Hon'ble Delhi High Court in the case of Aditya Khanna vs. ACIT . It was pointed out that the letter of DDIT (Inv.) dated 30.6.2009 showed that many beneficiaries had already surrendered income in relation to bills issued by those companies. 8 ITA No.3969/M/12
A.Y. 07-08 2.6 The ld. DR further argued that the AO had conveyed to the assessee the reasons as recorded and it was not correct that only gist of the reasons had been conveyed. The AO had not conveyed only the last line regarding satisfaction for escapement of income but the reasons for escapement had been conveyed as recorded. It was also submitted that though name of the assessee had not been mentioned by the parties in the statements but the assessee had claimed expenditure on account of payment to parties which were stated to be involved in issuing bogus bills. There was thus reason to believe for escapement of income. The ld. DR placed reliance on the judgment of Hon'ble High Court of Delhi in the case of Rajat Export Import India Pvt. Ltd. vs. ITO (341 ITR 135) in this regard. It was also argued that the various judgments relied upon by the ld. AR were distinguishable on facts and were not applicable to the facts of the present case. It was pointed out that sufficiency of material for re-opening of the assessment was not required. What was required was relevant material for formation of belief which was available in this case. As regards the argument relating to no failure on part of the assessee in disclosing truly and fully all material facts, the ld. DR pointed out that assessment in this case had been re- opened within four years from the end of the relevant assessment year and, therefore, this argument was not relevant. Moreover, in this case no assessment had been made under section 143(3) earlier and the case had only been processed under section 143(1). It was thus argued that the re-opening of the assessment being proper should be upheld.
9 ITA No.3969/M/12
A.Y. 07-08 2.7 We have perused the records and considered the matter carefully. The dispute raised in this ground is regarding legal validity of re-opening of the assessment under section 147 of the Act. Under the provisions of section 147 as amended w.e.f. assessment year 1989-90, an assessment can be re-opened by AO if he has reason to believe that any income chargeable to tax has escaped assessment. It is settled legal position that for re-opening of an assessment there should be a direct nexus between material available before AO and formation of reasonable belief for escapement of income. The material available should be relevant to the formation of belief for escapement of income and it is not necessary that the material should be sufficient for making the addition in the re-assessment. The assessee in this case has challenged the re-opening of the assessment on technical grounds as well as on the merit of formation of belief. 2.8 The first technical objection is that the AO had not conveyed to the assessee the reasons as recorded by him for re-opening of the assessment. It has been submitted that only the gist of reasons had been given which does not meet the requirement of law and, therefore, the re-assessment is required to be quashed. We have carefully considered the material on record. The reasons as recorded by AO before re-opening of the assessment have been reproduced in para-2 earlier. We find that reasons conveyed by the AO were the same as recorded by him in the file except the last line which related to formation of belief which had not been given. The assessee had asked for reasons for re-opening of the assessment and the 10 ITA No.3969/M/12 A.Y. 07-08 AO had given reasons as recorded by him without any change and, therefore, it can not be said that the AO had given the gist of reasons recorded. The ld. AR has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Tata International Ltd. (supra). We have gone through the said order of the Tribunal. It is clear from the said decision that in that case, the undisputed fact was that the reasons actually recorded by AO had not been furnished to the assessee despite repeated requests. Later on, the gist of reasons had been furnished which did not meet the requirement of law. Thus, in that case, the reasons as recorded by the AO were not furnished and it is under these circumstances that the re- assessment had been set aside. The case is obviously distinguishable and not relevant to the facts of the present case.
2.9 Another technical objection raised by the ld. AR is that the AO had passed the re-assessment order soon after passing the order rejecting the objections raised by the assessee against re-opening of the assessment. It has been argued that the AO should have waited for at least four weeks after rejecting the objections before passing the order as held by Hon'ble High Court of Bombay in the case of Asian Paints Ltd. (supra). Since in this case, the reassessment order had been passed on 24.12.2010 soon after rejection of the objections on 7.12.2010, it has been argued that re-assessment should be quashed. We have perused the said judgment of the Hon'ble High Court and considered the material on record. We do not find the plea of the ld. AR convincing. In case of Asian Paints Ltd. (supra), the Hon'ble 11 ITA No.3969/M/12 A.Y. 07-08 High Court on writ petition filed by the assessee had directed that, in cases, the objections against re-opening have been rejected by AO, he should not take further action within a period of four weeks so that the assessee had time to challenge the rejection order. It was not held by the Hon'ble Court that in cases where assessment order had been passed without waiting for four weeks, the same will be quashed. In that case, there were several cases in which the AO had already passed the order without waiting for four weeks and these cases had not been quashed by the Hon'ble High Court. Moreover, we also note that the assessee in this case had not raised any specific ground before CIT(A) to challenge the re-assessment order on this ground. We are, therefore, unable to accept the arguments advanced and the same are rejected.
2.10 The ld. AR for the assessee also challenged the re-opening of the assessment on the ground that the same had been re-opened without there being any failure on part of the assessee to file truly and fully all material facts necessary for the assessment. Reliance has been placed on the judgment of Hon'ble High Court of Bombay in case of Titanor Components Ltd. (supra). It has been pointed out that the reasons recorded by the AO for re-opening also did not mention any failure on part of the assessee to disclose truly and fully all material facts. We find that this argument is also devoid of any merit. In this case, the return filed by the assessee had only been processed under section 143(1) and no assessment under section 143(3) had been made. Thereafter, the AO had issued notice under section 12 ITA No.3969/M/12 A.Y. 07-08 148 re-opening the assessment which was within four years from the end of relevant assessment year. The proviso to section 147 provides that, in case, assessment has already been made under section 143(3), the same can not be re- opened after expiry of four years from the end of relevant assessment year unless there was failure on the part of the assessee to disclose truly and fully all material facts. Since in this case, no assessment had been made under section 143(3) and assessment had also been re-opened within four years from the end of relevant assessment year, the argument that there was no failure on the part of the assessee in disclosing truly and fully all material facts is not relevant. The argument raised is thus rejected.
2.11 Reverting back to the merit of re-opening, it was argued by the ld. AR that there was no sufficient material before AO for formation of belief for escapement of income and assessment had been re-opened without application of mind only on the basis of information received from DDIT(Inv.). It has accordingly been argued that re-opening of the assessment was bad in law and the same should, therefore, be quashed. Reliance has been placed on several judgments which have been listed in para 2.3 of this order earlier. The reasons recorded by the AO have been reproduced in para-2 of this order earlier. The assessment had been re-opened on the basis of information/material received from DDIT(Inv.) on 30.6.2009 as per which the assessee had taken hawala entries from M/s. Inorbit and M/s. Nupur in assessment year 2007-08 and based on such material, the AO had formed the 13 ITA No.3969/M/12 A.Y. 07-08 belief that income chargeable to tax had escaped assessment. We have, therefore, to see whether on the basis of material contained in the letter dated 30.6.2009 of DDIT(Inv.) a reasonable belief could be formed regarding escapement of income. 2.12 A copy of the said letter has been placed on record. The letter clearly mentions that a search conducted in case of Shri Sandeep Sitani showed that he had floated several companies including M/s Inorbit and M/s. Nupur who had been providing accommodation entries by issuing bogus bills to various concerns without providing any services. There is no dispute that the assessee had claimed expenditure on the basis of bills issued by M/s. Inorbit and M/s. Nupur. Therefore, in our view, based on such material one can form a reasonable belief that income chargeable to tax has escaped assessment due to bogus claim of expenditure. It is not necessary that at the time of re-opening itself, the AO should be able to make a fool-proof case for making addition. As held by the Hon'ble High Court of Delhi in the case of Rajat Export Import India Pvt. Ltd. (supra), relied upon by the ld. Departmental Representative, the AO at the stage of recording reasons for re- opening of the assessment, is not required to build a fool-proof or a fort like case for making addition to the assessee's income. The only requirement is that there should be some tangible material based on which a reasonable belief can be formed regarding escapement of income. The ld. AR also pointed out that the AO in the reasons recorded incorrectly mentioned the amount of Rs.1,15,41,044/- when the actual payment to the two parties was only Rs.63,91,122/- which shows 14 ITA No.3969/M/12 A.Y. 07-08 non-application of mind by the AO and on this ground also re-assessment should be quashed. We are unable to accept the arguments advanced. Merely because there was an error in the mentioning of quantum of escapement, re-opening could not be quashed particularly when the AO applied mind to the material which was payment based on accommodation entries which had resulted into escapement of income. It is not the case that the actual payment was below a particular limit for which proceedings can not be initiated. Admittedly, the amount involved was Rs.63,91,122/- which is quite substantial for formation of belief for escapement of income. It has also been argued that the AO had asked for copies of statements after issue of notice under section 148 which shows non-application of mind at the time of re-opening. This argument is also not convincing. The AO had re-opened the assessment on the basis of information/material contained in the letter of DDIT(Inv.) dated 31.6.2009 which in our view, was a relevant material for formation of belief for escapement of income. The copies of statements could be obtained later, which were necessary for making the re-assessment. On the facts of the case, we are satisfied that there was tangible material before AO for formation of reasonable belief for escapement of income and, therefore, re-opening of assessment is upheld.
2.13 The ld. AR for the assessee has placed reliance on several judgment which in our view are distinguishable and not applicable to the present case. In the case of CIT vs. SFIL Stock Broking (supra), the reasons recorded only contained 15 ITA No.3969/M/12 A.Y. 07-08 information from the Investigation Wing regarding bogus capital gain and direction given by DDIT(Inv.) to re-open the case under section 148. The court therefore, held that it was not discernable from the reasons recorded whether the AO applied mind for escapement of income and, therefore, re-opening was held not valid. In the present case, the AO re-opened the assessment on the basis of material received from Investigation Wing and not on the direction of DDIT (Inv.) and therefore the case is different. In case of Sarthak Securities (P) Ltd. (supra), the AO had received information from the Investigation Wing to the effect that share application money was bogus and was actually accommodation entry. The AO re-opened only on the basis of such information. The Hon'ble High Court noted that the AO was aware of the companies whose existence was not in dispute. The payment had been made by cheque. Therefore, it was held that the AO had re- opened the assessment without application of mind. The present case is different in which there was material to show that the assessee had made payments without there being any evidence of services rendered and the persons managing the companies had stated that they were issuing only accommodation bills without rendering any services. The case is obviously different. In case of DCIT vs. Rainee Singh (supra), the AO had re-opened the assessment on the basis of information received from Investigation Wing about bogus payments. In the reasons recorded, the AO mentioned that presumably the sum might have been received back in cash. It was, therefore, held that re-opening was based only on the basis of suspicion and, accordingly it was quashed as the assessment could not be re- 16 ITA No.3969/M/12
A.Y. 07-08 opened only on the basis of suspicion. In the present case as pointed out earlier, re- opening has been made on the basis of material showing that payments were based on accommodation entries without rendering any services. Similarly, in case of CIT vs. Atul Jain (supra), assessment had been re-opened on the basis of information received from Investigation Wing stating that the assessee had taken bogus entry of capital gain. No details of capital gain had been given. It was, therefore, held by Hon'ble High Court of Delhi that re-opening was based only on the basis of vague information in a mechanical manner. Accordingly it was quashed. Similar was the position in case of JCIT vs. George Wiliamson (Assam) Ltd. (supra), in which case, assessment was re-opened on the basis of information that the assessee had entered into bogus transactions and amount paid in cheque had been received back in cash. No details of amount and date were given which were returned in cash. In that case, the assessment had also been re-opened after expiry of four years from the end of the relevant assessment year and assessee had given full details at the time of original assessment and there was no failure on part of the assessee. Considering all these factors, re-opening had been quashed by the Hon'ble High Court of Guahati . The facts in this case of the assessee are obviously different.
2.14 The ld. AR has also relied on the judgment of Hon'ble Supreme Court in the case of Chhugamal Rajpal vs. S. P. Chaliha and Others (supra), which related to assessment year 1960-61 i.e. to the pre-amendment period prior to 1.4.1989. It 17 ITA No.3969/M/12 A.Y. 07-08 was noted by the Hon'ble Supreme Court that the AO in that case had only a vague feeling that loan was not genuine. It was, therefore, held that there were no proper reasons for re-opening of the assessment. The approval by CIT had also been given in a mechanical manner in that case. The case is thus different. Similarly, the judgment of Hon'ble High Court of Bombay in case of I.B.M. World Trade Corporation vs. IAC (supra), which related to assessment years 1959-60 to 1973- 74 is also distinguishable as the same related to pre-amendment period prior to 1.4.1989 when the legal position was different. In that case, the court also noted that there was no failure on part of the assessee to file truly and fully all material facts and tax on income claimed to have escaped assessment had already been paid by the assessee under section 140A. The case is obviously not applicable to the facts of the present case. The ld. AR has also relied upon the decision of Chennai Bench of the Tribunal in the case of Dr. J.Mohan and Another vs. ACIT (supra), in which case the assessment had been reopened on the basis of statement taken in survey under section 133A of the Act. It was noted by the Tribunal that the statement under section 133A which is not on oath had no evidentiary value as held by the Hon'ble High Court of Kerala in the case of Paul Mathew & Sons (263 ITR 101). It was, therefore, held that there was no proper material for re-opening of the assessment. In the present case assessment had been re-opened on the basis of statement of parties u/s. 132(4) made at the time of search which was on oath. Therefore, it has evidentiary value. The case cited is, therefore, not applicable to the present case.
18 ITA No.3969/M/12
A.Y. 07-08 2.15 In view of the foregoing discussion and for the reasons given earlier we are of the considered view that re-opening of the assessment under section 147 of the Act was legally in order and is accordingly upheld.
3. The second dispute raised by the assessee is regarding merit of disallowance of expenses on account of payments made to M/s. Inorbit and M/s. Nupur. In view of the material gathered during the course of search in case of Shri Sandeep Sitani in which Shri Sandeep Sitani had admitted that M/s. Inorbit and M/s. Nupur were merely engaged in business of providing accommodation entries, the AO asked the assessee to explain the claim of expenditure. The AO vide order sheet noting dated 1.12.2010 asked the assessee to produce copies of agreements entered with M/s. Inorbit and M/s. Nupur, documents in support of services provided by the above concerns, identification of personnel involved in rendering of services and confirmation from parties. The AO observed that the assessee vide letter dated 14.12.2010 only submitted details of expenses incurred and nature of activity carried out i.e. promotional activities. The assessee failed to produce copies of agreements and any other evidence to show that the services were rendered by the parties. The assessee tried to co-relate the details with the promotional activities but the details did not establish that the said activities were actually carried out by M/s. Inorbit and M/s. Nupur. The assessee also failed to produce confirmations of any sort from the parties.
19 ITA No.3969/M/12
A.Y. 07-08 3.1 The AO also noted that material collected during the search clearly showed that on the address at which M/s. Inorbit and M/s. Nupur were said to be located, there were 19 other companies operating from the same address, the size of which was merely 100 sq.ft. which was situated in a residential slum area. It was also found that, at the said address, one Mr. Pradeep Prajapati was residing with family and there were no table or chairs found at the premises. It was, therefore, logical to conclude that no promotional activities which involved considerable human resource could have been carried out by M/s. Inorbit and M/s. Nupur. The AO also noted that during the course of search, Shri Sandeep Sitani in reply to Ques.No.16 had clearly stated that he was doing a hawala business with all the companies and modus-opeandi was also given. The reply to Ques.No.16 given by Shri Sandeep Sitani had been reproduced by the AO in the assessment order which is as under :-
"I am doing a hawala business to all those companies. I work through agents, do not know any party directly. Agents are :
Sr.No. Name of agent Contact No. Address where normally
meet him
1. Rajendra Bhimraj 9867375588 I will give you by Friday
evening
2. Pawan Chotia 9323157676
3. Vinod Singh 9920697833
4. Vinod Diwedi 9867216527
The above 4 people are regular agents to whom I work regularly. There were agents to whom I work sometimed only. I shall give you their names and addresses and contact Nos. by Friday on 27.06.2008. The transactions are done in the following manner. After opening bank account in a particular bank a cheque book is for issued. This cheque book is signed by either one of my employees namely Mr. Pradeep Prajapati or Mr. Dina Nath Yadav and the entire bank cheque book is handed over to the agent. Many times few leaves from this cheque book are kept by the employee who signs the said cheque book with him. This is done to facilitate the agent under whose directions a particular cheque is filled up and deposited in a particular bank account. This is done to save time for the agent. Obviously such deposits are made in the banks which are more conveniently acceessable to my people rather than employees, assistants of the agents. Whenever any 20 ITA No.3969/M/12 A.Y. 07-08 cash is required to be deposited in any bank account it is sent by the agent to my man or is deposited by the agent directly sometimes I also deposit it without receiving it from him if such amount is readily available with me. This is then received back from the agent. The chances of such amount being with me are not regular but on certain occasions I may be asked by the agent to keep certain amount with me from the amounts withdrawn in cash from certain accounts. This is normally done if it is required to be deposit in a bank account, the following day. Following type of transactions are done through the bank account of these companies/firm etc. A. issue bogus purchase bill-receive cheque withdraw amount in cash normally after passing the credit of the cheques received through some other companies/firm account B. issue bogus purchase bill take cash from that party and issue him cheque. The cash received is deposited to one bank account and cheque is issued from another bank account.
C. Give bogus loans-take cash issue cheque in the manner as in 'B'."
3.2 The AO further noted that at the time of recording of the statement of Shri Sandeep Sitani, the answer given by Shri Dinanath Yadav, director of 25 companies engaged in hawala business to Ques.No.2 was brought to his notice and he confirmed that statement given by Shri Dinananth Yadav was correct. The answer given by Shri Sandeep Sitani to Ques.No.8 relating to statement of Shri Dinanath Yadav was reproduced by the AO in the assessment order which is as under :-
"I confirmed that the statement given by Shri Dina Nath Yadav is correct. In all these companies the work of issuing bogus bills is being done on commission basis. Please state where the books of accounts and copy of bill issued are lying and state the modus operandi adopted by you and rate of commission earned by you. No books of account or copy of bills is being kept by me. Normally the bills are issued by the concern party themselves suo moto in the name of companies controlled by me and if some parties desires a copy of bill then I issue either by cyber café or by printing bill or by typewriter bill. The rate of commission is also not fixed it varies from 5 pages to 20 pages per Rs.100/- if money is returned in cash and if the party wants an accommodation cheque from us by way of cheque then it contents 2 ps. Only."21 ITA No.3969/M/12
A.Y. 07-08 3.3 Considering the material found during search and statements recorded of Shri Sandeep Sitani and Shri Dinanath Yadav and the fact that the assessee could not produce any evidence of actual rendering of survices the AO concluded that M/s. Inorbit and M/s. Nupur had provided only accommodation entries and not rendered any services. The AO observed that the argument of the assessee that in the statements recorded, the name of the assessee company was not mentioned, was of no relevance, as M/s. Inorbit and M/s. Nupur could not have provided any services. The AO, therefore, disallowed the claim of expenditure of Rs.1,15,41,044/- on account of bills issued by M/s. Inorbit and M/s. Nupur and added to the total income as per details given below:-
Date of TDS Amount paid Type of services Hawala giver party payment amount 31-Mar-07 69,003 61,49,922 Sub-contractor Inorbit Advertising & marketing Services P. Ltd.
20-Feb-07 13,531 2,41,200 Professional or Nupur Management
technical services Consultancy Pvt. Ltd.
31-mar-07 69,003 51,49,922 Sub Contractor Inorbit Advertising &
Marketing Services P.
Ltd.
Total 1,15,41,044
3.4 The assessee disputed the decision of AO and submitted before CIT(A) that
the assessee had made payments for services rendered. The expenditure incurred was supported by invoices, levy of service tax and tax had been deducted at source from payments so made which was by account payee cheque. The AO had not placed on record any evidence other than statements of Shri Sandeep Sitani and others to dispute the transactions. As regards the statements, the same could not be 22 ITA No.3969/M/12 A.Y. 07-08 relied upon as the assessee was not provided opportunity to cross examine the parties. It was further submitted that Shri Sandeep Sitani had stated that they had done business through identified brokers whose address and mobile nos. were given but no enquiry had been made from the brokers. It was also submitted that merely because those parties had not disclosed transaction in their books of accounts, the transaction could not be considered as non-genuine. It was pointed out that the parties in the statements had not named the assessee. It was accordingly urged that the claim of expenditure being genuine should be allowed.
3.5 CIT(A), however, did not accept the explanation given. It was observed by him that there were no agreements entered into with the parties. The material found during the search showed that M/s. Inorbit and M/s. Nupur did not have physical or human infrastructure to render any services which supported the statements made by Shri Sandeep Sitani and Shri Dina Nath that they were providing only accommodation entries. CIT(A) further observed that mere payment by cheque, levy of service tax and deduction of TDS did not ipso-facto establish genuineness of transaction if the entity rendering services did not have any wherewithal to render any services. These entities were shell companies without any infrastructure to render any services which had been confirmed by the director of these companies Shri Dina Nath Yadav who existed only on paper.
Considering the totality of circumstances and prepondence of probabilities, CIT(A) concluded that the assessee had failed to discharge the onus of establishing 23 ITA No.3969/M/12 A.Y. 07-08 the genuineness of expenditure claimed to have been incurred on account of M/s. Inorbit and M/s. Nupur. CIT(A) accordingly confirmed the addition made by AO aggrieved by which the assessee is in appeal before the Tribunal. 3.6 Before us, the ld. AR reiterated the submissions made before the lower authorities that the assessee had made payments for services rendered by the parties. The assessee had co-related the expenditure incurred with the services rendered which was supported by bills and confirmations. The assessee had also filed an affidavits dated 1.10.2010 of Shri Pradeep Prajapati the M.D. of the two companies in which the genuineness of the transactions had been reaffirmed. These confirmations and affidavits were placed at pages 169-179 of the paper book. It was also submitted that the AO had made the additions without any examination or any further material to support the finding that the transactions were not genuine. The AO had acted only on the basis of DDIT(Inv.) and statements of third parties in respect of which the assessee had not been allowed opportunity for cross examination for which a specific request had been made by the assessee to AO vide letter dated 14.12.2010 a copy of which was placed at page-63 of the paper book. Therefore, such statements could not be used against the assessee. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of Kishinchand Chellaram vs. CIT (125 ITR 713) and the judgment of Hon'ble High Court of Calcutta in the case of CIT vs. Eastern Commercial Enterprises (210 ITR 103) . The ld. AR argued that in the statements of third 24 ITA No.3969/M/12 A.Y. 07-08 parties stating that the bills issued were bogus, name of the assessee was not mentioned and, therefore, the transactions in case of assessee which were supported by bills and confirmations could not be treated as non-genuine. It was further submitted that even if the assessee was named, the transaction could not be considered as non genuine as the same was supported by confirmations and affidavits. There was no evidence placed on record to show that the assessee had received back the money. The assessee had discharged the onus by placing necessary material before the AO and, therefore, disallowance could not be made in the absence of any further material to disprove the claim. The ld. AR placed reliance on the following decision in support of the case.
i) 90 ITR 396 (Bom.) in the case of CIT v. U.M. Shah
ii) 256 ITR 134 (Bom.) in the case of Ramanand Sagar Vs. DCIT
iii) 159 ITR 78 (SC) in the case of CIT Vs. Orissa Corporation Pvt. Ltd.
iv) 261 ITR 463 (Raj.) in the case of CIT vs. Girnar Construction Company
v) 132 ITD 60 (Bom.) in the case of Free India Assurance Services Ltd.DCIT
vi) 49 ITD 177 (Bom.) in the case of Balaji Textile Industries Pvt. Ltd. vs. 3rd ITO
vii) 42 ITD 558 (Bom.) in the case of Hertz & Waves Energy Pvt. Ltd. 3.7 It was further argued that the addition could not be made only on the basis of statements because the same was not conclusive. It was open to the assessee to prove the transactions by producing cogent material, which had been done in this 25 ITA No.3969/M/12 A.Y. 07-08 case and therefore, the addition could not be made only on the basis of confession/statements. The ld. AR placed reliance on the judgment of Hon'ble High Court of Chattisgarh in the case of ITO vs. Vijay Kumar Kesar (327 ITR
497) and the decision of the Tribunal in the case of Dr. R.L. Narang (174 Taxman
196). It was accordingly urged that the addition made should be deleted. 3.8 The ld. DR appearing for the revenue on the other hand strongly supported the orders of authorities below. It was argued that the statement of parties who were managing the affairs of the companies stated that the bills issued were only accommodation entries which had been further corroborated by the finding that those companies did not have necessary infrastructure to render any services. There was no evidence produced by the assessee for actual rendering of services. Therefore, only on the basis of bills and confirmations, claim could not be allowed. It was pointed out that based on the same statements, 53 assessees had surrendered income. It was also submitted that the statements made at the time of search had evidentiary value based on which action taken by the department was justified. The ld. DR placed reliance on the judgment of Hon'ble High Court of Allahabad in the case of Dr. S.C. Gupta vs. CIT (248 ITR 782) and on the judgment of Hon'ble High Court of Kerala in the case of V. Kunhambu and Sons (219 ITR 235). It was, therefore, pleaded that the order of CIT(A) confirming the disallowance be upheld.
26 ITA No.3969/M/12
A.Y. 07-08 3.9 We have perused the records and considered the rival contentions carefully. The dispute raised is regarding disallowance of expenses claimed to have been incurred by the assessee on account of payments made to M/s. Inorbit and M/s. Nupur. The assessee has claimed to have made payments to the above concerns for services rendered. A search had been conducted in the case of Shri Sandeep Sitani during the course of which Shri Sandeep Sitani admitted that he had floated several companies which included M/s. Inorbit and M/s. Nupur for doing hawala business and these companies were issuing only accommodation bills without rendering any services. Shri Dina Nath Yadav who was director of these companies also made the statement that all these companies were issuing bogus bills on commission basis. Based on such material the assessment had been re- opened and expenses claimed on account of payments to the two companies had been disallowed by the AO. The case of the assessee is that it had made payments for services rendered by the two companies and the assessee had co-related the expenditure incurred with services rendered which were supported by bills and confirmations of the parties. Subsequently, it was submitted that the MD of the company Shri Pradeep Prajapati had filed an affidavit dated 1.10.2010 confirming that the transactions were genuine. It has, therefore, been argued that the claim was supported by proper evidence and that the same could not be disallowed only on the basis of statements of third parties in respect of which the assessee had not been even allowed opportunity of cross examination. The ld. AR has also argued that the assessee had filed photographs of various activities rendered by the two 27 ITA No.3969/M/12 A.Y. 07-08 companies. It has also been pointed out that in the statements made, name of the assessee was never mentioned by the parties. It has accordingly been argued that disallowance of claim of expenditure on the facts of the case was not justified. Reliance has been placed on several judgments as mentioned earlier. 3.10 On careful consideration the various aspects of the matter, we are not convinced by the arguments advanced on behalf of the assessee. No doubt, it is true that no addition can be made only on the basis of third party statements unless the assessee had been allowed opportunity to cross examine the parties. It is also not in dispute that no cross examination of the parties had taken place. It has therefore been argued that the statements should not be taken into account. Reliance has been placed on the judgment of Hon'ble Supreme Court in the case of Kishanchand Chellaram (supra),. We have carefully gone through the said judgment. The issue before the Hon'ble Supreme Court was not whether the material if not confronted can never be used against the assessee. The issue was whether there was any material evidence to justify the finding of the Tribunal that the remittances by employees at Madras Branch to employees of Mumbai Branch was income of the assessee from undisclosed sources and it was held that there no such material. It would be appropriate to point out here that the material based on which addition is made if not confronted to the assessee can not be taken into account by the Hon'ble High Court and Hon'ble Supreme Court as at that stage only the question of law is required to be answered on the basis of existing 28 ITA No.3969/M/12 A.Y. 07-08 evidence. But the same will not apply to the Tribunal where the matter is still at fact finding stage and therefore for arriving at finding of fact, the Tribunal if it considered necessary can direct authorities below to confront material or to allow opportunity of cross examination if not allowed earlier and take fresh decision. However, in the present case, we do not find it necessary because it is not a case where disallowance of expenses were made only on the basis of statements of third parties. The AO had not made the additions only on the basis of statements of the parties. During the course of assessment proceedings, the AO had specifically asked the assessee to produce copy of agreements with M/s. Inorbit and M/s. Nupur, documents in support of services provided by above concerns, identification of personnel involved in rendering of services and confirmations from parties. It is a settled legal position that the burden is on the assessee to establish that the expenditure had been incurred wholly and exclusively for the purpose of business and, therefore, it was for the assessee to establish that payments had been made for the services rendered for the purpose of business of the assessee. Admittedly, the assessee had not produced any agreement with M/s. Inorbit and M/s. Nupur for rendering of any services.
3.11 The AO has also given the finding that the assessee could not file any confirmations. It has been claimed before us that the assessee had filed confirmations from the two parties copies of which have been placed at page 171 to 176 of the paper book. On careful perusal of these letters we find that these are 29 ITA No.3969/M/12 A.Y. 07-08 letters dated 19.3.2009 of the assessee written to MDs of the two companies in which the person signing on behalf of those companies had only confirmed the statement of account and had not put any date. There is no confirmation of any services rendered. Obviously these are old confirmations. No proper confirmations verifying the services rendered have been filed after the inquiries started by the AO during the course of the re-assessment proceedings. The ld. AR has also referred to the affidavit dated 1.12.2010 of Shri Pradeep Prajapati MD of the companies affirming that services had been provided and that transaction were genuine. The service provided can not be established only on the basis of affidavit whereas there is no material produced to prove the actual rendering of the services and there is material to show that the companies did not have necessary infrastructure to provide such services and the complete details of employees had not been given. The claim of rendering of services by the companies therefore can not be accepted only on the basis of an affidavit. The transaction can also not be taken as genuine only on the basis of bills or on the ground that service tax and sales tax had been paid when actual rending of the services has not been established. The AO has given a clear finding that no evidence had been produced regarding actual rendering of any services. The assessee had filed only bills which only gave the broad nature of promotional activities such as van campaign. There was no evidence produced with regard to actual carrying on of such activities. The AO had specifically asked for identification of personnel involved in rendering of services which has not been given. We find that at page 64 of the paper book the 30 ITA No.3969/M/12 A.Y. 07-08 assessee has given names of 84 employees as van staff and others but not to speak of identification, even the addresses of these employees have not been given. The ld. AR has submitted that the assessee had co-related the details with the promotional activities and had also provided photographs of such activities. But only these details are not enough. The burden is on the assessee to prove the actual rendering of the services for which payments have been made which has not been discharged by producing any relevant material. The photographs do not establish as to who had actually conducted activities and, therefore photographs can not be considered as reliable and proper evidence. Full details of employees had not been given.
3.12 We also note that based on the material found at the time of search both the AO and CIT(A) have given a categorical finding that the address at which M/s. Inorbit and M/s. Nupur were said to be located admeasured only about 100 sq.ft. in a residential area on which 19 other companies were also claimed to be operating. Further, on that address, the MD of the company i.e. Pradeep Prajapati was found to be residing with family. These findings have not been controverted by the assessee either before CIT(A) or before us. Therefore, the conclusion drawn by the authorities below that the companies did not have any infrastructure to render any services involving large number of employees can not be faulted with. The ld. AR has also argued that Shri Sandeep Sitani in the statement had given the mobile numbers of agents through whom business had been conducted 31 ITA No.3969/M/12 A.Y. 07-08 but no enquiries had been made by department. Such argument is not convincing. The burden was on the assessee to prove the rendering of actual services and it was for the assessee to filed confirmations from the agents or any other personnel in support of service rendered which has not been done. The argument that the assessee had not been named in the statements given by the parties is also not relevant because the additions had not been made only on the basis of statements. It is settled legal position that in case the assessee claims any expenditure on account of any services rendered, burden is on the assessee to prove actual rendering of the services. Even the agreement or payment made by cheque is not enough. This view is supported by the judgment of the Hon'ble Supreme Court in the case of Lachminarayan Madan Lal Vs CIT (86 ITR 439) and in the case of Lakshmiratan Cotton Mills Co. Ltd. Vs CIT (73 ITR 634).
3.13 We have also carefully gone through the various judgments relied upon by the ld. AR which in our view are distinguishable and not applicable to the facts of the present case. The judgment of Hon'ble High Court of Bombay in the case of CIT vs. U.M. Shah (supra) and the judgment of Hon'ble Supreme Court in case of CIT vs. Orissa Corporation Pvt. Ltd. (supra), related to cash credits, and, therefore not applicable to the facts of the present case which is regarding allowability of expenses for services rendered. In case of Ramanand Sagar Vs. DCIT (supra), the payments made by the assessee which was by cheque and supported by other evidences had been held as allowable. There was no issue in that case that there 32 ITA No.3969/M/12 A.Y. 07-08 were no services rendered. Similarly, in the case of CIT vs. Girnar Construction Company (supra), in which expenses had been found allowable, there was no issue that payments had been made without any services rendered. Similar was the position in case of Free India Assurance Services Ltd. (supra), in which the assessee had given full details in which no error had been pointed out by the AO and accordingly claim was allowed. In case of Balaji Textile Industries Pvt. Ltd. (supra), the issue was different. In that case, the AO had treated purchases as non- genuine. The Tribunal noted that sales had been made which could not be without purchases and accordingly claim had been allowed. The case is obviously different. The judgment of Hon'ble High Court of Chattisgarh in the case of Vijay Kumar Kesar (supra), and the decision of the Tribunal in the case of Dr. R.L. Narang (supra), relied upon by the ld. AR are also not applicable to the facts of the present case. In these cases, it had been held that addition could not be made only on the basis of statements which could not be considered as conclusive and it was open to the assessee to establish by cogent material that the statements were not true and transactions were genuine. In this case, as pointed out earlier the additions had not been made only on the basis of statements. The additions have been made on the ground that the assessee could not establish with proper evidence that payments had been made for any services rendered. In fact, the decision of the Tribunal in the case of Dr. R.L. Narang (supra), supports the case of the revenue. In that case, it was held that, in the assessment, ordinarily addition could not be made on the basis of statement of third party unless statement is corroborated by 33 ITA No.3969/M/12 A.Y. 07-08 material on record. In this case, as pointed out earlier, there is material to support the statements that no services had been rendered. The assessee also could not discharge the onus placed on it to prove the service rendered by any cogent and reliable material. These cases, therefore, do not come to the rescue of the assessee. 3.14 In view of the foregoing discussion and for the reasons given earlier, we are of the considered view that the disallowance of expenses on the facts of the case is justified. The order of CIT(A) is accordingly upheld. The addition, however, will be limited to actual claim of expenditure.
4. The third dispute is regarding levy of interest under section 234B and 234C. The ld. AR for the assessee submitted that levy of interest was only consequential. We, therefore, direct the AO to re-compute interest at the time of giving effect to this order.
5. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 16.01.2013
Sd/- Sd/-
( VIVEK VARMA ) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 16.01.2013
Jv.
34 ITA No.3969/M/12
A.Y. 07-08
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.