Income Tax Appellate Tribunal - Mumbai
Blend Financial Ser Pvt. Ltd., Mumbai vs Assessee on 11 July, 2011
आयकर अपीलीय अिधकरण "बी बी"
बी Ûयायपीठ मुंबई मɅ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI ौी डȣ. मुमोहन, उपाÚय¢ एवं ौी संजय अरोड़ा, लेखा सदःय के सम¢ ।
BEFORE SHRI D. MANMOHAN, V. P. AND SHRI SANJAY ARORA, A. M.
आयकर अपील सं./I.T.A. No.6814/Mum/2011
िनधा[रण वष[ / Assessment Year: 2007-08)
(िनधा[
Blend Financial Services Pvt. Ltd. Asst. CIT-8(3) OSD
C/o. R. Sanghvi & Co., 2nd FIR, Aaykar Bhavan,
104, Rizvi Chambers-2, बनाम/ Churchgate,
बनाम
Jain Mandir Marg, Bandra (W), Vs. Mumbai-400 020
Mumbai-400 050
ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAACB 6024 C
(अपीलाथȸ /Appellant) : (ू×यथȸ / Respondent)
अपीलाथȸ ओर से / Appellant by : Shri Rajesh Sanghvi
ू×यथȸ कȧ ओर से/Respondent by : Shri Pravin Varma
सुनवाई कȧ तारȣख /
: 24.01.2013
Date of Hearing
घोषणा कȧ तारȣख /
: 19.04.2013
Date of Pronouncement
आदे श / O R D E R
Per Sanjay Arora, A. M.:
This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals)-16, Mumbai ('CIT(A)' for short) dated 11.07.2011, dismissing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2007-08 vide order dated 29.12.2009.2 ITA No.6814/Mum/2011 (A.Y. 2007-08)
Blend Financial Services Pvt. Ltd. vs. Asstt. CIT
2.1 The appeal raises a single issue per its two grounds, which is reproduced as under:
"1. In the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the decision of AO in disallowing introductory Commission (of Rs.1,87,89,176=00) & Professional fees (of Rs.1,32,32,241=00) totaling Rs.3,20,21,417=00 paid by the appellant.
2. In the facts & circumstances of the case and in law, the Ld. CIT(A) has erred by not taking into consideration and appreciating the submissions, evidences, demand of cross examination & relevant case laws submitted by the appellant as decided by the Supreme Court and other courts."
2.2 The question before us, therefore, is whether the disallowance u/s.37(1) of the Act as made, and confirmed by the first appellate authority, is sustainable in law under the given facts and circumstances of the case.
The facts 3.1 The basic facts of the case stand stated in sufficient detail by both the authorities below per their respective orders. However, the matter being primary factual, it would be relevant to recount the same, albeit in brief. The assessee, a company in the business of financial consultancy and loan syndication from Financial Institutions (FIs), was during the course of the assessment proceedings for the relevant year found to have been claimed professional fees in the sum of Rs.358.30 lakhs to the following parties:
1. Comfort Infotech Limited 13,46,880 2 Nupur Management Consultants Pvt. Ltd. 16,58,912
3. Nova Corporate 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 3 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT 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 09.11.2009) the parties to be non-
existent. The assessee on being confronted with this fact, furnished account confirmations from most of them, i.e., other than parties listed at sr. no. 4 & 11 of the table. It was explained that the amount paid/allowed was in the name of the payee-company, for introducing clients, whose details were given, along with the copy of the bill/debit note vide which the charges were raised on the assessee. The charges were in pursuance to consultancy agreements, duly ratified by the Board of the assessee-company. The payment in all cases was through accounts payee cheques. In case of some, as indicated separately (as under), the payee-company had also provided services in the form of preparing feasibility reports:
- Nishal Corporate Services P. Ltd.
- Nupur Management Consultants Pvt. Ltd.
- Nova Corporate Services Pvt. Ltd.
- Olympia Sales Agency P. Ltd.
- Inorbit Advertising & Marketing Services P. Ltd.
3.2 As no evidence with regard to the rendering of services was furnished, with the assessee only adducing paper documents viz. bills/debit notes, TDS deducted thereon, payment by cheque, etc., the matter was probed further by the A.O. All the companies were found to be managed by one, Shri Sandeep Kailashchand Sitani, as front companies, list of which runs into 20 (refer pages 9 & 10 of the assessment order). They shared the same address, a single room in a residential slum area, which was in fact the residence of one, Shri Pradeep Prajapati. The matter, in fact, was being already investigated by the Department, with Shri Sandeep Sitani having been subject to search u/s.132 of the Act, and his statement recorded on oath on 24.06.2008 and 15.10.2008. It was admitted by 4 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT him that no real business was being conducted in the said companies, and that they were only issuing bills for a commission of 0.25%. The payments received were paid back to the beneficiaries after retaining commission, and in most cases through the brokers. The names and addresses of the brokers and their mobile numbers were also furnished. At times, even signed cheque books were left with the brokers/agents to facilitate the work, so that the same could be used by them at their convenience, and the tedium involved in withdrawing cash and remitting it back to the beneficiary company, saved. The directors in these companies, as Shri Pradeep Prajapati 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 bank accounts;
c) Granting accommodation (hawala) entries, i.e., by issue of cheques against cash.
The prime mover for such an elaborate exercise was, of course, economic. Besides income by way of commission, the TDS deduced by the payers was a good source of revenue (income), as the same was got refunded by filing returns disclosing nil or little income.
5 ITA No.6814/Mum/2011 (A.Y. 2007-08)Blend Financial Services Pvt. Ltd. vs. Asstt. CIT 3.3 Apart from an admission as to his activities by Shri Sandeep Sitani, and corroborative statements of Shri Dinanath Yadav and Shri Pradeep Prajapati, letter-heads of various concerns/companies as well as the returns of some of them, were found from the residence of Shri Sandeep Sitani during search, even though he held no office or position in the said companies. Following the same, the Department had in fact proceeded against the beneficiary companies. Page 13 of the assessment order lists names of 21 such companies (along with their PAN and the TDS amount involved), which, on being questioned in the matter by the Revenue, admitted that they were in no position to prove the services claimed to have been provided to them by the companies of Shri Sandeep Sitani and, in fact, 'revised' their returns of income qua the claim of expenditure in relation to the said services. Prior thereto, one Shri Hafiz Contractor, had also agreed to pay tax in respect of 'expenses' of Rs.2 crores claimed in respect of one such company, M/s. Nishal Corporate Services P. Ltd. The facts clearly prove that the said concerns were bogus firms, which were in no position to provide any services. The appraisal report by DDIT Unit-VIII (1), Mumbai, as well as the statement of Shri Sandeep Sitani and others, were shown to the assessee's counsel, Shri Rohit Agarwal, CA by the A.O., and the assessee specially called upon to produce these parties so that they could be cross examined by him. On the assessee failing to do so, the A.O. disallowed the impugned expenditure, relying for the purpose on the decisions in the case of CIT vs. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC); Ramanand Sagar vs. Dy. CIT [2002] 256 ITR 134 (Bom.); and Madathil Brothers vs. Dy. CIT [2008] 301 ITR 345 (Mad.), capsuling the basis of his decision at para 3.10 of his order.
The respective cases 3.4 In appeal, the assessee's stand was that the commission was paid to the payee companies on the advice and instruction of Shri Sandeep Sitani, a Chartered 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 6 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT 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 would not by itself imply the transactions with the assessee- company as being not real. Why, even Shri Sandeep Sitani nowhere specifically mentions the name of the assessee-company and, rather, states of having neither the copy of the bills stated to be bogus nor any incriminating document stood found or recovered from him. No evidence of cash being paid back to the assessee-company had been found. The matter could not be based on the basis of a one-sided statement by one party, whose cross examination was requested for by the assessee-company repeatedly. Several decisions were relied upon to bring home the point that a statement alone could not be the basis of an assessment. The assessee raising a specific ground (by way of an additional ground) before the ld. CIT(A) in this respect, the matter was remanded to the A.O. by him, who furnished his report dated 08.04.2011. As per the same, there was a status quo. While the assessee throughout maintained of his right of cross examination, stating of his inability to produce the deponents, the A.O. would state that the prime responsibility for substantiating its case/claims was on the assessee and, therefore, the onus to produce Shri Sandeep Sitani and others could not be thrust on the AO, who had in fact afforded several opportunities, including during the remand proceedings, to the assessee to prove the genuineness of the transactions.
7 ITA No.6814/Mum/2011 (A.Y. 2007-08)Blend Financial Services Pvt. Ltd. vs. Asstt. CIT 3.5 The ld. CIT(A), after faithfully recording the assessee's submissions before him, passed a detailed order. Drawing upon case law from the courts of England, as well as the decisions by the apex court, as in the case of McDowell and Co. Ltd. vs. CIT [1985] 154 ITR 148 (SC) and Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), the jurisprudence as to tax evasion was stated by him as in disregard of colorable devices, which are only tax avoidance measures. The A.O. had clearly brought out that the transactions served no commercial purpose. The entire documentation was nothing but an eye-wash, constructed to give a legal form to a scheme for tax advantage by way of tax rebate on one-hand and the claim of TDS on the other. The same was ab initio bogus.
Coming to the aspect of right of cross examination, he dwelled on the doctrine of 'audi alteram partem', which embodies a principle of natural justice. The same, in his view, stood adequately met in the facts and circumstances 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.
Arguments 4.1 Before us, the ld. AR was vehement in his arguments. Adverting to the assessee's submissions before the first appellate authority (PB pgs. 1 to 7), it was submitted by him 8 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT that the assessee's business model entails securing leads through references, which are then followed rigorously by the company's own personnel. These references are akin to brokers in the real estate industry, and are paid handsome cut of about 25% to 35% of the gross fees earned. This is precisely what the assessee-company had done, even as, being a company and, therefore, subject to procedures, it has maintained proper documentation and entered into Agreements. If despite this, the Revenue still chooses to disregard the same, but rely on the statement of Shri Sandeep Sitani, the assessee cannot be faulted with, particularly considering that no cross examination of the persons whose statements are being relied upon has been allowed to the assessee. The request for the same, i.e., the cross examination, is being made from the beginning. If Shri Sandeep Sitani had played fraud either on the payee-company/s or on the Revenue and/or is otherwise involved in some illegal activity, the assessee's claim for business expenditure cannot be considered as bogus on that score. This is more so as the income has been assessed by the Revenue in the hands of the payee-company, taking us through the assessment order of one such company, i.e., M/s. Nischal Corporate Services P. Ltd., for A.Y. 2006-07 dated 30.12.2008, where only a nominal expenditure of Rs. 1 lakhs and odd, against the gross income of Rs.106.02 lakhs, has been allowed (PB pg. 304). Reference was made by him during the course of hearing to pages 40 (Q. No.6), 55 (Q.No.13) of the paper-book, besides the decisions in the case of ITO vs. M. Pirai Choodi [2011] 334 ITR 262 (SC); CIT vs. Rice India Exports P. Ltd. [2010] 8 TMI 32 (Del.); and Madathil Brothers vs. Dy. CIT (supra). His attention was specifically drawn to Rule 18(6) of the Appellate Tribunal Rules, 1963, which reads as under, inasmuch as the assessee had filed a voluminous paper-book containing 362 pages, of which though only a few were referred to during the course of the arguments:
"18. Preparation of paper books, etc.
1. .........................
2. ........................
3. ........................
4. .........................
5. ........................9 ITA No.6814/Mum/2011 (A.Y. 2007-08)
Blend Financial Services Pvt. Ltd. vs. Asstt. CIT
6. Documents that are referred to and relied upon by 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 of the right person, and the mere fact of it having been assessed in the hands of a wrong person, would not make it any less liable for assessment in the hands of the right person. The matter would, therefore, be required to be factually examined. We may also clarify that there is nothing on record to support the assessee's claim in this regard, i.e., on facts. The assessment order in the case of Nischal Corporate Services Pvt. Ltd. (PB pg. 304) is for A.Y. 2006-07 and, further, the assessment order is also incomplete; the assessee having furnished only the last page (pg.
7) thereof, so that its basis is not known. In fact, surprisingly, there was no reference to any facts and figures, or the returns of the payee companies for the relevant year during hearing, or even in the orders of the authorities below, which could be relevant, as if the 10 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT tax has been paid by them on the impugned sums, it would at least meet the Revenue's charge of the claim being made in concert to avail of TDS benefit through its refund.
As regards the factual examination aforesaid, we observe, rather amusingly, that the ld. AR did not refer either to the assessment order, or to the impugned order confirming it, while arguing the assessee's case before us. We say so as it is these orders, and the findings thereby, that are being assailed by the assessee, and would therefore be required to be met and shown to be infirm. Only on the basis of the facts before the Revenue authorities as well as their findings, could the Tribunal appreciate the respective cases of the parties. Be that as it may, we proceed further, having already profiled their orders, so as to inform ourselves of the same (refer para 3.1 to 3.5 of this order), i.e., the factual matrix in the light and the background of which their decisions, including qua findings of fact, stand issued by them.
5.2 To begin with, the consultancy agreements pursuant to which the payments have been made by the assessee, were again not referred to by the ld. AR during hearing. This is not comprehensible; the same forming the fulcrum of the assessee's case; it being trite that the mere fact of 'payment' itself, or of it being by cheque, would not impart the quality of an 'expenditure' to a payment, which it must qualify as in order to be an allowable business deduction where incurred for the purposes of business. Only the same would reveal the 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 11 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT 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 the Agreements forming part of the assessee's paper-book (viz. PB/pgs. 109-110, 141-142). Thirdly, the agreements would reveal if the address of these companies is the same. In fact, toward this we find that the assessee vide its letter dated 22.12.2009 to the A.O. states of the office of the parties being locked, and that it was pursuing their whereabouts (refer pages 5, 6 of the assessment order). This clearly gives an impression that they are different parties with separate offices, i.e., even at this stage the assessee did not disclose of not knowing these parties, being only the names of various entities provided by Shri Sandeep Sitani, with whom only it was, in fact, dealing, as divulged later, and of all the companies having in fact the same address, as found on investigation by the Revenue (per the DDIT's report). Fourthly, the assessee specifies preparation of project feasibility reports in case of some companies (Nischal, Olympia, Nupur, Nova and Inorbit). The said service would be liable to service tax, of which the assessee cannot but be aware of, and which again brings us back to the Agreements, reference to which only would clarify this aspect, as the same, so as to avoid any confusion or dispute in future, would or may have been referred to therein. The Agreements, in fact, refer to a variety of services and reports, viz., advice on and preparation of financials; conduct of market surveys and preparation of reports in their respect; presentations for banks, etc. The assessee, therefore, cannot feign ignorance in the matter. The services are, as it appears, taxable. The service provider would provide it with its service tax registration number. This would also be required for the assessee to claim credit in its respect on the service tax charged by it to, or payable on the services provided to, its clients.
5.3 The Agreement/s, besides being a primary document, becomes all the more relevant as the assessee has, as between the assessing authority and the first appellate authority, modified the scope of the services for which the payments are stated to have 12 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT been made. While before the A.O., the assessee's case was of the payee-companies being required to provide services, as by way of preparation of feasibility reports, at least surely in case of some of them, that before the ld. CIT(A), as well as before us, is of the same being only for 'introducing' 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 afore- noted, 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 specified in the agreements, on the other hand, would expose it, inasmuch as the same are amenable to be substantiated with materials, which it could not. If so, the agreements are only a ruse, even as argued by the Revenue, and which inference agrees with our observation of the ld. AR inexplicably not referring to the same during hearing as well as changing the nature of the 'services' while arguing his case, and for which the payments stand made.
5.4 Further, even so, i.e., ignoring the agreements, and considering for the sake of argument the assessee's case of the payments being for 'introduction'. Clearly, there would be a defined procedure for recording the same, also clarifying as to when the same would be considered as complete, if only to remove any doubt or ambiguity in its respect. We, however, find none, nor any material or explanation in its regard stands furnished.
13 ITA No.6814/Mum/2011 (A.Y. 2007-08)Blend Financial Services Pvt. Ltd. vs. Asstt. CIT Why, the assessee does not even produce the confirmations from the clients who were introduced to it by Shri Sandeep Sitani? That, in fact, ought to have been its first reaction, even as observed during hearing, while it continues to insist on cross-examining Shri Sandeep Sitani, who is stated to have provided the services or the introduction, without producing him. The proof of the pudding lies in its eating. As such, if the clients were in fact introduced by Shri Sandeep Sitani, who is unavailable, or has - for whatever reason - chosen to state what he has, all that was required to establish the truth was to obtain confirmations from the clients to that effect. Rather, if necessary by requiring them to produce themselves before the A.O., or requesting the latter to secure their attendance and examination. In fact, even their records should bear this out, as being a professional public accountant, his 'contact' with them ought to be linked with or have its origin in professional transaction/s or relationship. They are ostensibly neutral, third parties, and have no reason to side either party, i.e., the assessee or Sh. Sitani, having in fact business relations now with the assessee as well, who is a direct service provider, as against Shri Sandeep Sitani, who was only capitalizing his contacts. The assessee does not do so.
Further, being the assessee's business model or, as stated, the regular practice of its trade, it could have even got this fact ratified or confirmed through a 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 14 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT other years as well, there would also be to others like him, to whom similar payments for introduction would have been made. Though the same would not by itself prove the genuineness of the impugned payments, but would yet exhibit the truth of the assessee's claim of the same being a feature of its trade or a part of its regular business practice. However, no such payments have been shown for any other year. Also, for the current year, we observe no such finding, i.e., with regard to any payment being made for such 'services'. No doubt, there are payments to four other companies to whom notices u/s.133(6) were sent by the A.O. However, with regard to three of them, i.e., Comfort Infotech Limited; Handy Tools Pvt. Ltd. and TPS Portfolio P. Ltd., the payments are for specific services, as mentioned at pages 3 and 5 of the assessment order, reproducing the assessee's letter dated 09/12/2009. There is no finding, nay, not even a statement by the assessee as to the nature of the services rendered, with regard to the payment to the fourth, i.e., Libord Infotech P. Ltd. Perhaps, what weighed with the A.O. in not doubting the said payment was of the same being confirmed through notice u/s.133(6) inasmuch as the same stood duly responded to.
5.5 Continuing further, the Agreements were not found during search from either the office or the residence of Shri Sandeep Sitani, who was admittedly the kingpin or the mastermind behind floating so many companies, and which should have by itself raised a doubt in the mind of any person, i.e., as to their antecedents, particularly considering that they shared the same office address. Now, this, i.e., the absence of the Agreements, is again not understandable. This is as the said Agreements constitute the sole basis on the strength of which Shri Sandeep Sitani could claim the payment from the assessee. This is more so as the only 'service' actually provided is 'introduction', which fact is not only difficult to establish, i.e., unless the meeting/s (i.e., between the parties introduced and the middleman) is documented and minutes thereof recorded, and which has not been, but by itself too tenuous a service to hinge a claim of payment for lakhs of rupees, on. As such, there is no reason for Shri Sandeep Sitani not to preserve them, i.e., if the agreements represented such a crucial document entitling him to his earnings. In fact, 15 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT surprisingly, the Agreements bear no reference to the consideration for the services. In other words, 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 represented by one person, a CA by profession, so that he enjoyed no official capacity in all these companies, and only for the purpose of 'introducing' clients, requiring thus only personal contacts, and with whom only it was admittedly dealing with, strongly suggests, if not establishes, the collusiveness of the transactions.
Further, the assessee's reply mentions of at least five companies (i.e., Nishal Corporate Services P. Ltd., Napur Management Consultants Pvt. Ltd., Nova Corporate Services Pvt. Ltd., Olympia Sales Agency P. Ltd. and Inorbit Advertising & Marketing Services P. Ltd.), which were to also prepare project feasibility reports as a part of their service agreements (refer pages 4,5 of the assessment order). This is ignoring the Agreements, which is the same in all the cases, providing for a range of services and concomitant reports, in which case our observation would apply to all the cases. Where are these reports? These reports have not been adduced at any stage, even as they have been admittedly prepared by the said service providers, as they have ostensibly complied with the terms of their contracts, only upon which they have received payment upon 16 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT raising bills there-against. Surely, Shri Sandeep Sitani or his cooperation was not required to produce these reports, which were also not found during the search from either his office or residence. Like-wise in the case of market surveys, presentations to the banks, etc. Non production thereof by the assessee, in substantiation of its claim for rendering of the services, despite being called upon repeatedly to do so, is not understood at all. In fact, their preparation would require visit/s by the staff of the said companies to the client's works/premises, to acquaint themselves first hand of its operations, besides meetings with its personnel as well as with that of the assessee-company. Not to speak of production thereof, which would entail and generate another set of incidental queries and questions, the assessee quietly, if not also surreptitiously, omits to refer to these services (reports) in its submission before the ld. CIT(A), a fact also noted earlier by us. It is apparent that the said companies had no wherewithal whatsoever to provide these services, and were only paper companies, a fact of which the assessee was only well aware.
Finally, we also note that Sh. Sitani was during 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 17 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT 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. The case law in the matter is legion, with which we may not burden this order any further in view of the law being well-settled, as well as of the reliance on the three decisions by the Revenue (refer para 3.3 of the order) being considered adequate for the purpose. 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) of the Act. That is, its impact on the gross profit is only incidental and consequential. Further, it is not the assessee's case that the impugned expenditure represents a necessary part of the cost of the services provided by it to its clients, so that the same could not have been provided without incurring the same. Could introduction have any cost? We decide accordingly.
6.2 Further thereto, we consider that the first appellate authority has, with reference to a host of case law, as under, and which as afore-noted has not been met by the ld.AR, clarified that the cross examination of Shri Sandeep Sitani, as being insisted upon by the assessee, would be to no avail:
1. Kishanlal Agarwalla vs. Collector of Land Customs AIR [1967] Cal 80;
2. Satellite Engineering Ltd. vs. Union of India & Ors. [1983] ELT 2177 (Bom.);
3. Kanungo & Co. vs. Collector of Central Excise [1983] ELT 1486 (SC);
4. Union of India & Anr. vs. Tulsiram Patel AIR [1985] SC 1416;.
5. DCW Ltd. vs. Collector of Central Excise [1990] (46) ELT 233 (Mad.);
6. Chairman, Board of Mining Examination v. Ramjee, AIR 1977 SC 965;
7. 44 STC 61 (SC) This is as 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. A disallowance u/s. 37(1), it may be noted, does not require for its validity in law, the Revenue to disprove the transaction/s under reference.
It is only if it were so, or where the statement/s forms the sole basis of the Revenue's case 18 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT in doubting or discrediting the transaction, that its reliance thereon would be subject to the assessee being afforded an opportunity to cross examine the deponent. The assessee, who relies 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 trite law that in case of irregularity of procedure, the proceedings would be restored back to the stage where the curable defect had occurred. We have already found that, rather than the assessee being allowed an opportunity to do so, it was his obligation to rebut the statement of his witness. There has been in the facts and circumstances of the case, no violation of any principle of natural justice.
The decision in the case of CIT vs. Rice India Exports P. Ltd. (supra), again would be of no assistance to the assessee. In ratio, it states that the onus of proof in revenue matters is not a static one, which is again a well-settled proposition of law, on which there is no, nor do we observe any, dispute in instant case. In our clear view, the assessee having not furnished any evidence in support of the rendering of services, the initial onus cast on it has not been discharged by it. In fact, we have listed a number of evidences which the assessee ought to or could have in support of its case, but has not. Reference in this regard be made to the decision in the case of CIT vs. Krishnaveni Ammal [1986] 158 19 ITA No.6814/Mum/2011 (A.Y. 2007-08) Blend Financial Services Pvt. Ltd. vs. Asstt. CIT ITR 826 (Mad.), wherein it stands clarified that if the best evidence which ought to be available is not furnished, an adverse inference could be drawn. On the contrary, the Revenue having gathered extensive material impugning the genuineness of the transactions, a still heavier burden of proof was cast on the assessee in the present case. We are again unable to appreciate the assessee's reliance on the decision in the case of Madathil Brothers vs. Dy. CIT (supra), relied upon by the Revenue, inasmuch as the hon'ble court has held that the law does not contemplate or require compliance of an impossible act. The purport of the said reliance is not understood, as the assessee has not stated as to what is the impossible act it has been called upon to do by the Revenue. If the production of Shri Sandeep Sitani is being referred to, we have already clarified the said person, with whom the assessee was admittedly solely dealing with, to be the assessee's witness; the two working in unison. In fact, the assessee has not even led primary materials in the form of agreements, project reports and confirmations from the clients introduced, etc. It has not shown in any manner as to how the statement of Shri Sandeep Sitani, which is corroborated by the surrounding facts and circumstances of the case, is not correct. The said reliance is, therefore, again misplaced.
7. In the result, the assessee's appeal is dismissed.
पǐरणामतः िनधा[ǐरती कȧ अपील खाǐरज कȧ जाती है ।
Order pronounced in the open court on 19th April, 2013 आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांकः 19th April, 2013 को कȧ गई ।
Sd/- Sd/-
(D. MANMOHAN) (SANJAY ARORA)
उपाÚय¢ / VICE PRESIDENT लेखा सदःय / ACCOUNTANT MEMBER
मुंबई Mumbai; ǑदनांकDated : 19.04.2013
व.िन.स./Roshani , Sr. PS
20
ITA No.6814/Mum/2011 (A.Y. 2007-08)
Blend Financial Services Pvt. Ltd. vs. Asstt. CIT
आदे श कȧ ूितिलǒप अमेǒषत/
षत Copy of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)
4. आयकर आयुƠ / CIT - concerned
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई /
DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/
ार BY ORDER,
उप/
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपीलीय अिधकरण,
अिधकरण, मुंबई / ITAT, Mumbai