2015 (1) TMI 1119 - AT - Income Tax

Addition under Section 68 - Accommodation entries - Held that - There is an order of the Settlement Commission as well as the Additional Commissioner of Income Tax under Section 144A holding that Shri S.K. Gupta was providing accommodation entries, he used various companies as conduit for providing the accommodation entries, cash was received through mediators from the persons who wanted to avail the accommodation entries, such cash was deposited in the bank account of the conduit companies and thereafter, cheque of the similar amount was being issued to the beneficiaries (i.e. the person who wanted to avail the accommodation entry) within a day or so. The Assessing Officer himself in the assessment order has accepted these facts. Considering the totality of these facts and the logical consequences of the order of the Settlement Commission as well as of Additional CIT under Section 144A, we have no hesitation to hold that the addition under Section 68 cannot be made in the case of the conduit companies. Therefore, we delete the addition made under Section 68 in the case of all the nine companies, which are admittedly conduit companies of Shri S.K. Gupta. Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition under Section 68 of the Income-tax Act, 1961.
2. Role of Shri S.K. Gupta in providing accommodation entries.
3. Binding nature of the Settlement Commission's order.
4. Directions issued by the Additional Commissioner under Section 144A of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 68:
The appeals were against the confirmation of addition under Section 68 of the Income-tax Act, 1961, which pertains to unexplained cash credits. The amounts added for different companies ranged from Rs. 16,23,103 to Rs. 10,82,91,085. The primary contention was that these additions were unjustified as the companies were merely conduits used by Shri S.K. Gupta for providing accommodation entries.

2. Role of Shri S.K. Gupta in Providing Accommodation Entries:
Shri S.K. Gupta was found to be engaged in the business of providing accommodation entries through numerous proprietary concerns and companies controlled by him. A survey under Section 133A revealed that he managed various bank accounts and companies, which were used to deposit cash received from beneficiaries and issue cheques to them. The Settlement Commission, in its order dated 28th December 2010, confirmed that Shri S.K. Gupta was an entry provider, and the cash deposited in the bank accounts of intermediary companies was from the beneficiaries who wanted accommodation entries.

3. Binding Nature of the Settlement Commission's Order:
The Settlement Commission's order, which was not challenged by the Revenue, was deemed binding. The Commission concluded that Shri S.K. Gupta was only an entry provider, and the cash deposited in the intermediary companies' bank accounts was not unexplained but belonged to the beneficiaries. The Hon'ble Jurisdictional High Court in the case of Omaxe Ltd. & Anr. vs. DCIT & Anr. held that the orders of the Settlement Commission are final and conclusive, and the only recourse for the Revenue, if it believed there was suppression of facts, was to approach the Settlement Commission to declare its order as nullity.

4. Directions Issued by the Additional Commissioner under Section 144A:
The Additional Commissioner under Section 144A directed that no addition should be made in the hands of conduit entities (the companies controlled by Shri S.K. Gupta) to avoid ambiguity and dilution of the case against the beneficiaries. This direction was binding on the Assessing Officer. The Additional CIT emphasized that taxing the transactions in the hands of beneficiaries and Shri S.K. Gupta without making additions in the conduit companies would be in the best interest of revenue.

Conclusion:
The Tribunal found that the facts and findings of the Settlement Commission and the directions of the Additional CIT under Section 144A were binding and conclusive. The companies under appeal were merely conduits used by Shri S.K. Gupta for providing accommodation entries. Therefore, the addition under Section 68 in the hands of these companies was not justified. Consequently, the Tribunal deleted the additions made under Section 68 for all the nine companies involved in the appeals.

Decision:
All the appeals of the assessees were allowed, and the additions made under Section 68 were deleted.