2012 (8) TMI 707 - AT - Income Tax

Alleged Bogus payments made for purchase of Plant & machinery addition cheques issued not being account payee cheques but only & Co. cheques encashed by two concerns other than supplier, which assessee contended to be discounting other two concern s bank account being short lived Held that - There is no dispute on the facts of purchase of P&M, and also on the issue of cheques. However there is dispute on the questions why the said three cheques were not A/c payee ones; and why the assessee, the Managing Partner issued such cheques. Therefore, role and innocence of the assessee in discharging the onus is not fully demonstrated. Also, employing the short lived bank accounts of other two concerns, whose antecedents are not verifiable have added fuel to the fire. We restore the matter to the file of the AO for re-consideration of the whole issue, after carrying due verification with a direction to obtain relevant confirmation from supplier of P&M about supply of the P&M and receipt of the agreed amount of consideration

Issues Involved:
1. Whether the addition of Rs. 25,00,000 made by the AO treating the payment by the firm M/s. SPM Telecom to M/s. Ascent Plant & Machinery as income of the assessee is justified.
2. Whether the assessee received the amount of Rs. 25,00,000.
3. Whether the transaction involving the two entities, M/s. Dhanalaxmi Corporation and M/s. Ganesh Trading Co., was genuine.
4. Whether the CIT(A) was correct in confirming the addition made by the AO.

Detailed Analysis:

1. Addition of Rs. 25,00,000 as Income of the Assessee:
The AO inferred that the cash after discounting the cheques was passed on to the assessee. The assessee argued that the supplier utilized the services of these two entities to get the cheques discounted and got his money, and hence, the amount of Rs. 25 lakhs should be allowed towards the purchase of the plant and machinery. The AO did not accept this proposition and made enquiries on the actual beneficiary of the said amount of Rs. 25 lakhs. The AO concluded that the amount had been siphoned out with the connivance and active involvement of the appellant, who is both the partner and cheque signing authority, and since the ultimate beneficiary would be the Managing Partner, the AO made an addition of Rs. 25 lakhs as "income from other sources."

2. Receipt of Rs. 25,00,000 by the Assessee:
The assessee contended that there was no material whatsoever to prove that the assessee ever received the amount. The CIT(A) did not appreciate this argument and opined that the assessee manipulated his affairs to siphon out the money in the guise of creating fictitious liability. The CIT(A) confirmed the addition made by the AO, stating that the appellant could not discharge his burden of proof with justification.

3. Genuineness of the Transaction Involving M/s. Dhanalaxmi Corporation and M/s. Ganesh Trading Co.:
The AO found that the two firms were not carrying any trade at the given address and no information was available about the proprietors. The CIT(A) noted that the identity of the two trading houses and their relationship with M/s. Ascent Plant and Machinery Pvt. Ltd. was not established. The CIT(A) also observed that the appellant did not submit any evidence to support that a possibility may arise when a third party could involve in the entire transaction and that third party would have the right to encash the cheques.

4. Confirmation of Addition by the CIT(A):
The CIT(A) confirmed the addition made by the AO, providing several reasons including the absence of the genuineness of the transaction, the appellant's failure to furnish the assessment particulars of the two trading houses, and the untraceable whereabouts of the two firms. The CIT(A) concluded that the appellant tried to create confusion to siphon off the money.

Conclusion and Directions:
The Tribunal noted that there was no dispute on the facts of the purchase of plant and machinery by the assessee's firm and the issue of cheques duly signed by the assessee. However, there was a dispute on why the said three cheques were not account payee ones and why the assessee issued such cheques. The Tribunal felt it just and proper to set aside the impugned order of the CIT(A) and restore the matter to the file of the AO for reconsideration of the whole issue, after carrying due verification. The AO was directed to obtain relevant confirmation from M/s. Ascent Plant and Machinery Ltd. about the supply of the plant and machinery and the receipt of the agreed amount of consideration of Rs. 1,38,73,600. The AO shall make necessary enquiries and verification in that regard and redecide the issue in accordance with law, after giving reasonable opportunity of hearing to the assessee.

Result:
The assessee's appeal was allowed for statistical purposes.

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