2024 (4) TMI 352 - AT - Income Tax

Accrual of income - Addition made to the income of the assessee received by the assessee from JDS and its associates, treated as own income of the assessee - HELD THAT - We fail to understand, how the funds received by the assessee from JDS can be treated as its own funds when the money trail unravelled by the Department itself clearly revealed the ultimate beneficiary to be VMS Industries. There can be no other conclusion drawn from the facts before the department but that of VMS Industries being the ultimate beneficiary of the transactions, and the assessee only being intermediary in the entire process. AO of VMS Industries and the AO SCMPL have also admitted to this fact. Even the AO of VMS Industries agreed with the same while taxing the entire share capital received in it , in its hands. Thus there appears to be clear unanimity between the AO s of all the three entities that the money brought into assessee and SCMPL was only as intermediary, with M/s VMS being the ultimate beneficiary of the same. Coming to the fact that the addition made in the hands of the VMS Industries of these funds stood deleted by the ld.CIT(A), we have been informed that the Department had gone in appeal against the order of the ld.CIT(A), but during the pendency of the appeal, the assessee settled the dispute under VSVS scheme. Therefore, no benefit can be derived from the appellate order passed in the case of VMS industries. Ignoring thus the appellate order passed in the case of M/s VMS Industries and considering the entire facts and circumstances of the case, which had been extracted from the inquiry from the Department itself, by conducting survey on all the persons concerned in the money trail including the ultimate beneficiary and intermediary i.e. the assessee and the SCMPL , the preponderance of probability is to the effect that the money introduced to the assessee-company from JDS Industries was not its own income. For this proposition, we heavily rely on the decision of Sumati Dayal 1995 (3) TMI 3 - SUPREME COURT The addition made in the present case is held to be not sustainable and is directed to be deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of invoking provisions of section 147 of the Income Tax Act.
2. Addition of Rs. 4,45,17,089/- u/s 69A of the Income Tax Act.

Summary:

Issue 1: Validity of invoking provisions of section 147 of the Income Tax Act
The assessee challenged the validity of the assessment framed u/s 147 of the Income Tax Act. However, this ground was not pressed before the Tribunal and was dismissed as not pressed.

Issue 2: Addition of Rs. 4,45,17,089/- u/s 69A of the Income Tax Act
The main contention revolved around the addition of Rs. 4,45,17,089/- received by the assessee from "JDS" and its associates, which was treated as the assessee's own income. The assessee argued that these funds were merely routed through them to the ultimate beneficiary, M/s VMS Industries, and that this fact was known to the Department.

The Tribunal noted that during the survey action conducted u/s 133A of the Act, it was revealed that the funds were part of a larger scheme where the promoters of VMS Industries introduced unaccounted money into the company through various intermediaries, including the assessee and SCMPL. The Tribunal observed that the Department had detailed knowledge of the entire money trail, which showed that the funds ultimately benefited VMS Industries.

The Tribunal highlighted that the assessment order in the case of VMS Industries clearly identified the entire cash trail, confirming that the funds moved from dummy concerns to the assessee and SCMPL before reaching VMS Industries. The Tribunal also noted the improbability of the assessee incurring huge losses on shares without claiming them in its tax return, further supporting the argument that the assessee was merely an intermediary.

Given the clear evidence and the Department's awareness of the money trail, the Tribunal concluded that the funds received by the assessee from JDS could not be treated as the assessee's own income. The addition made was held to be unsustainable and was directed to be deleted.

Conclusion:
The appeal of the assessee was partly allowed, with the addition of Rs. 4,45,17,089/- being deleted. The order was pronounced on 5th April, 2024, at Ahmedabad.