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TMI Blog2017 (7) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be produced because the records were in the custody of CBI. FAA has comprehensively considered various facts and contention of the assessee and came to the conclusion that the addition of 10,00,523/- were made on the basis of peak credit which was wrong as the assessee has fully disclosed all the transactions in its books of account. CIT(A) also deleted the addition at the rate of 0.5% of the total sales on the ground that the assessee has fully disclosed the sales and purchases in its books of account and whatever profit or loss earned on these transactions were duly calculated and filed before the AO in the return of income. We are inclined to agree with the conclusion drawn by the CIT(A) . Accordingly , the appeal of the revenue department is dismissed. Addition u/s 68 in respect of unsecured loans from Pashupati Fabric Ltd. - HELD THAT:- The confirmation on account was also filed before the ld.CIT(A). The ld. CIT(A) has also recorded the findings of facts that the said buyer M/s Pashupati Fabric Ltd has paid up share capital of 91,21,77,200/- and therefore, the creditworthiness of the said party was not in doubt and finally deleted the addition after examining the variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were engaged into providing bogus transactions and accommodation entries. It was also reported that the assessee has entered into transactions with Radiovani Holding Pvt Ltd worth 21.02 crores for which no contracts/ details were found. Further the Joint Director of CBI stated that Arun Dalmiya and Harshad Dalmiya were Directors of M/s Watermark Financial Consultants Ltd and having its office at 1010, Makar chamber, (v) Nariman Point Mumbai-400021 and were running 20 companies from the same address. All these companies were showing business of purchase, sales and development of software whereas as a matter of fact they were not doing any business as there was no infrastructure or technical or other manpower in the said concerns. For the sake of ready reference, we reproduce profit and loss account of the company as extracted by the AO at page 3 of the assessment order which is as under : Income: Sales Miscellaneous income Closing stock of computers/software Rs. 106,64,15,000 3003 13,65,21,000 120,29,39,003 Expenditure: Purchases Administrative Expenses Selling and distribution exp Financial exp Profit/(loss) Rs. 120,31,05,000 3,95,302 1,48,920 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assess the income of the assessee he calculated peak credit on the basis of deposits and withdrawals in the bank statements which has been tabulated at pages 11 and 12 of the assessment order. The AO observed that the assessee has raised huge unsecured loans for which no confirmations were produced and finally added a sum of ₹ 10,00,503/- being peak credit on 25.10.2004 to the total income of the assessee. 5. Similarly, the AO observed that sale and purchases as shown by assessee whereas as a matter of fact there were no actual purchases or sales of material and accordingly issued show notice date 27.2.2013 to show cause as to why the percentage on sale should not be applied and added back to the total income of the assessee which was replied by the assessee by stating vide letter dated 19.3.2013 that tax to peak credits and percentage of sales were contrary to facts on records as all the transactions and banks accounts stands disclosed in the books of accounts and return of income and to assess income in this manner would amount to assessment on purely on conjuncture and surmises. The AO rejected the contention of the assessee and observed that cash component accruing from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Purchases 120,31,05,000 Administrative Expenses G 3,95,302 Selling and distribution exp H 1,48,920 Financial exp I 1,327 Preliminary expenses written off --- Total 120,36,50,549 Profitl(loss) before tax (7,11,546) 14.9 It is also seen that the above statutory accounts have been prepared and duly certified by the auditors, Mahesh Kumar Jain & Co. Chartered Accountants as per the provisions of the Companies Act, 1956. Similarly, the appellant's accounts have also been audited as per the provisions of section 44AB of the Income Tax Act, 1961. It is on the basis of above two audits carried out by the concerned Chartered Accountants that the return of income has been prepared and filed by the appellant. 14.10 So far as the issue of admission of additional evidences is concerned, it is seen that the appellant‟s premises were searched by the CBI and all the relevant documents and details were taken away by them. Accordingly, the appellant could not file these additional evidences before AO due to a reasonable cause. Hence, the conditions prescribed in Rule 46A for admission of additional evidences are satisfied. Same are therefore admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their concern Basant Marketing Pvt. Ltd and Satya Securities Ltd. acquired 5.55% shareholding in Granules India Ltd without following the norms of Securities a Exchange Board of India Act, 1992 in connivance with the promoters of the Said concern (Granules India Ltd). Also, similar acts were done by them through Basant Marketing Pvt. Ltd in respect of another two companies Welspun Corporation and HFCL in connivance with the directors of these companies . • No further enquiries have been carried out by the Income Tax Investigation Wing and the above letters of Jt. Director, CBI and Supt of Police, CBI, ACB along with the Note were forwarded by the Wing to the AO. • The AO conducted some enquiries under section 133(6) with Stads Ltd, Pashupati Fabric Ltd, Radiovani Holdings Pvt. Ltd and HFCL. The notices under section 133(6) in the cases of Stads Ltd, Pashupati Fabric Ltd and Radiovani Holdings Pvt Ltd were returned un-served, whereas the HFCL submitted the confirmation, but delivery challans, which were called for by the Aa were not submitted by HFCL The AO also conducted enquiries in respect of the employees of the appellant and the appellant submitted the list of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Income Tax Investigation Wing also did not carry out any further enquiries and simply forwarded the reports of the CBI to the AO. (vi) On his part, the AO issued notices under section 133(6) to 4 parties namely 1) Stads Ltd, 2) Pashupati Fabric Ltd, 3) Radiovani Holdings Pvt. Ltd and 4) HFCL. The notices under section 133(6) in the cases of Stads Ltd, Pashupati Fabric Ltd and Radiovani Holdings Pvt. Ltd were returned un-served, whereas the HFCL submitted the confirmation in respect of the transaction carried out by HFCL with the appellant. The AO also directed the appellant to furnish the details of the employees of the appellant and the appellant submitted the list of the names of persons employed; although their addresses were not submitted. The AO observed that the appellant has purportedly made sales/purchases worth several crores of rupees, without necessary infrastructure in terms of either staff/ premises or any technical personnel knowing software related issues. On the basis of this meagre enquiry, the AO concluded that the appellant is engaged in providing accommodation entries, without considering the fact that the appellant was merely a trader in software and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed and these are being accepted by the Department either uls 143(1) or assessed u/s 143(3) of the Act. The books of account of these companies are being maintained regularly and are registered corporate entities and are complying with the company law, R.O.C. and other authorities. Hence, these companies cannot be held to be bogus companies. (x) Yet another observation of the AO for concluding that the appellant is engaged in providing accommodation entries is on account of the allegation that the appellant could not have done genuine business without necessary infrastructure in terms of either staff/ premises. The AO found the expenses incurred by the appellant in this regard to be inadequate. In this regard, it is to be noted (as already stated above) that the appellant is only a trader. It does not manufacture any items. Hence, very large staff strength etc would not be required. The appellant contends that it has sufficient staff, office space to handle the trading activities. This contention of the appellant cannot be ignored. (xi) So far as the AO's allegation regarding VAT payment claim of the. appellant is concerned, it is seen that the challan (receipt) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assumptions and surmises. The Investigation Wing of the Income Tax Department has also not carried out any enquiries to prove that the sales and purchases of the appellant were bogus/ sham. As already stated, therefore, this is a case where both the sellers and the purchasers of the goods have confirmed the transactions and VAT has also been paid. Even during the enquiries carried out by the AO, the concerned parties have confirmed the transactions to the AO either during the assessment proceedings or during remand proceedings. 14.14 The law on this aspect is settled by various Supreme Court decisions. In the case of Sree Meenakshi Mills Limited, 31 ITR 28 (SC) the Supreme Court distinguished the meaning of the word 'Sham' vis-avis 'Benami' in following terms: Benami-Benami transaction-Vis-a-vis sham transactionWord 'benami'; is used to devote two classes of transactions which differ from each other in their legal character and incidents-In one sense it signifies a transaction where the sale is genuine but the name of real purchaser is not disclosed-This is the class of transactions which is usually termed a benami-word 'benami' is also used, perhaps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re concerned are benami. Indeed, the word "benami" does not find a place anywhere in its order. It is only in the question which the appellant framed for reference to the Court in its application under section 66(1) that it has chosen for the first time to introduce the word "benamidar". That apart, looking at the substance of the finding, the point that arose for determination before the taxing authorities was what profit the appellant had made on certain sales standing in its books in the names of the intermediaries. If the sales were true, the amount shown in the books as price received therefor would be the basis for working out the profits, and that was the stand of the appellant; but the authorities held that those sales where sham and the entries relating to the payment of price therefor fictitious. Then, they found that the concerned goods were sold by the appellant directly to its own constituents, that the price paid by them was actually received by it, and that that should be the basis for calculating its profits. Thus, the point which was actually in issue in the proceedings was a question of benami in the second sense and not in the first, and to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiary, the assessee, his share was determined and known, and it extended to the entire interest in the trust properties. It is urged that in the case of a discretionary trust the interest of the beneficiary extends not only to the actual share paid to him but to his right to be considered as a potential recipient of the net income remaining after defraying the management expenses and paying the taxes. It extends, he says, to an interest in the trust accumulation both before or after the expiry of the stipulated period when the trustees are empowered to distribute the accumulated balance as capital. The learned counsel urges that the whole deed of settlement in each case should be read and understood comprehensively and only thereupon can a true answer be returned to the question framed in the reference. Considerable emphasis has been placed on the submission that the capital value of the contingent interest in the entire property must be kept in view. I have no difficulty in accepting the submission of Dr. Gauri Shanker that for a proper understanding of a case before us we must consider the entire deed of settlement. That, however, does not lead to the conclusion which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords in Gartside v. IRC LR [1968] AC 553 where it was also observed that a mere right to be considered for distribution of the income or of the corpus of the trust fund cannot be regarded as an 'interest' since it was not capable of valuation. Dr. Gauri Shanker relies on Leedale (Inspector of Taxes) v. Lewis [1982] (3) All. ER 808. But the decision in that case turned on the particular language of the English statute, where an approximation of the value is permitted by the 'just and reasonable' clause and by the words 'as near as may be' in section 42(2) of the Finance Act. 8. It is vehemently urged by Dr. Gauri Shanker that the approach to be adopted in this case is not that which finds favour under the income-tax law, and different considerations prevail under the Act. As I am proceeding on the basis of the true construction of the deeds of settlement, I fail to see any substance in that contention. Reliance was also placed by the learned counsel for the revenue on McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC). That decision cannot advance the case of the revenue because the language of the deeds of settlement is plain and admits of no ambiguity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbiguous, the same has to be accepted as such, unless established to be false. In the case of the appellant, the falsity of the transactions has not at all been established and all the documents furnished by the appellant indicate that such transactions of sale and purchase of software had actually taken place. Even in the case of McDowell, 154 ITR 148, Hon'ble Justice Ranganath Mishra (of Supreme Court) has observed that: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." 14.17 In the case of the appellant, it has not been established that the appellant has carried out any transactions outside the framework of law and for this purpose, it has utilised colourable devices. The AO has not established that the sale and purchase transactions carried out by the appellant have in reality not taken place and the same are an exercise in nullity. In the case of Banyan and Berr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 238 (Mad), to name a few]. Hence, it cannot be held that the appellant has provided accommodation entries to third parties and the sales and purchases reflected in its accounts are bogus. 14.19 The appellant has a disclosed bank account, through which all the transactions have been carried out. The bank account is a part of the audited books of the appellant and the debit and credit entries are fully supported by bills and vouchers. Therefore, addition of peak credit of ₹ 10,00,523/- in the disclosed bank account of the appellant could not have been made and the same is totally unjustified. Similarly, when the purchases and sales of the appellant have not been proved to be bogus, the addition of of ₹ 53,32,075/- @0.5% of the turnover, termed by the AO as billing profit also could not made. The AO has not pointed out any specific defects in the appellant's audited accounts and no flaws in the accounts have been noted by the AO. These additions are therefore ordered to be deleted. 14.20 Above grounds of appeal are allowed. 15. In the result, the appeal of the Appellant is treated to be partly allowed for statistical purposes." 9. The Ld.DR vehemently submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that out of these three companies on whom the notices u/s 133(6) were not served , one M/s Stads Ltd was struck-off from the register of companies by the Registrar of Companies whereas the second company M/s Pashupati Fabric Ltd was under liquidation before commencement of re-assessment proceedings and most importantly , there was no transactions with these two companies at all during the year. Under these facts and circumstances, the ld.AR submitted that the adverse inferences based on non service of notice u/s 133(6) of the Act cannot be drawn. The ld. AR also argued that the addition was not based upon the inquiries by AO but merely on the basis of CBI/ACB report, whereas the AO being quasi-judicial authorities should not base his conclusion and decision on the findings of the any other authorities under the Act and law without carrying out its own independent investigation. The ld. AR also pointed out that there was no inquiry by the investigation wing of the revenue department and it has simply forwarded the letter received from the CBI/ACB to the AO. The ld counsel of the assessee submitted that the ld.CIT(A) also noted in para 14.12(V) at page 46 of his order that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents were found during the course of search by CBI. Lastly the ld. AR submitted that the addition of ₹ 10,00,523/- on the basis of peak credit was calculated on the basis of entries made in the bank statements which were already accounted for and disclosed in the books of accounts maintained by the assessee and therefore additions were rightly deleted by the FAA. Similarly, the assessee has filed all the necessary details qua the sales and purchases before the AO and it was not proved by the AO by bringing any cogent material on record except the report of the CBI which was prepared on the basis of the report of the Chartered Accountant and therefore to make addition at the rate of 0.5% of the total turnover of ₹ 53,32,075/- without proving purchase and sales to be bogus was wrong as the assessee has already declared sales and purchases and shown the earning from the said transactions in the books of accounts and thus, the ld.AR heavily supported he order of FAA and prayed before the bench that the same should be upheld. 11. We have heard the rival submissions and perused the relevant material placed before us including the orders of authorities below and case l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the revenue department is dismissed. I.T.A.No.4400 to 4403/Mum/2014(AYs:2006-07 to 2009-10) 12. Grounds of appeal no.1 and 2 raised by the revenue in all these appeals are same as has been in assessment year 2005-06 which has been dismissed as not pressed. Accordingly, grounds of appeal no.1 and 2 are dismissed in these appeals as well. 13. Grounds of appeal No.3 in ITA No.4400/Mum/2014 (AY-2006-07), Ground No.4 in ITA No.4401/Mum/2014 (AY-2007-08), Ground no.3 in ITA No.4402/Mum/2014 (AY-2008-09) and Ground no.4 in ITA No.4403/Mum/2014(AY-2009-10) are identical to that of Ground no.4 of assessment year 2005-06 . Since, we have already decided the issue in favour of the assessee in assessment year 2005-06 and our findings of the assessment year 2005-06 would, mutatis mutandis, apply to the common grounds involved in these years. Accordingly, grounds raised by the revenue in all these appeals are dismissed. 14. Grounds of appeal No.3 in ITA No.4401/Mum/2014 (AY-2007-08) and ITA No.4402/Mum/2014 (AY-2008-09) are identical to that of Ground no.3 of assessment year 2005-06. Since, we have already decided the issue by dismissing the appeal of the revenue by upholding the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties and perused the relevant material placed before us. We find that the assessee has received advance of ₹ 35 lakhs against the sale of software from Pashupati Fabric Ltd which was wrongly taken by the AO as unsecured loans. The ld. CIT(A) has recorded the findings of facts that the said amount was received as advance against the supply of software which was sold and supplied on 8.5.2006. The confirmation on account was also filed before the ld.CIT(A). The ld. CIT(A) has also recorded the findings of facts that the said buyer M/s Pashupati Fabric Ltd has paid up share capital of ₹ 91,21,77,200/- and therefore, the creditworthiness of the said party was not in doubt and finally deleted the addition after examining the various documents in the paper book which proved the transaction to be genuine and the advances was adjusted in the subsequent years and thus deleted the addition. In our opinion, the order of the ld.CIT(A) on this point is very reasoned order which call for no interference on our part as the FAA has allowed the appeal of the assessee by observing that the addition by the AO was made on the wrong understanding of facts that unsecured loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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