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TMI Blog2018 (10) TMI 1970X X X X Extracts X X X X X X X X Extracts X X X X ..... umar Garg and found to have deposited huge amount of cash in his bank accounts. For AY 2004-05 and 2005-06 , Rs. 13,48,58,000/- and Rs. 29,32,85,755/- respectively are such deposits. The ld AO made the addition on protective basis in the hands of the assessee and substantive basis in the hands of Mr. Sanjay Kumar Garg. Even in the hands of Mr. sanjay Kumar Garg the addition was made of commission income @ 1 % of the accommodation amount. The ld CIT (A) deleted the addition on the ground that as the commission in the hands of Mr. Sanjaykumar Garg stood already confirmed, the addition of the amount deposited could not be taxed in the hands of the assessee. This shows that the amount of cash deposited in the bank accounts were neither taxed in the hands of the assessee and nor in the hands of Mr. Sanjay Kumar Garg but only 1% of the whole amount of accommodation entries in the form of commission is taxed in the hands of Mr. Sanjay Kumar Garg. 03. Survey u/s 133A of The Income Tax Act, 1961 was conducted on 12/7/2004 in case of business entities connected with Shri Sanjay Kumar Garg. During the course of survey, Shri Sanjay Kumar Garg was found to be carrying on activity of providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various accounts of the fictitious concerns which were floated by him. The amounts were utilized for payment against sale of damaged good grains shown as having been made to these concerns by the food grain merchants. These bogus concerns of Shri Sanjay Kumar Garg were merely name lenders and he was compensated for providing these cross entries of showing bogus sales of damaged food grains and payment made by cheques/demand Drafts. The secret enquiries revealed that the damaged food grain was sold in the open market and the billing & payment aspect done through entry operators and accommodation entries from Shri Sanjay Kumar Garg. Accordingly, a survey u/s 133A was conducted on the business premises of Shri Sanjay Kumar Garg on 12.07.2004 which revealed that Shri Sanjay Kumar Garg was carrying on activity of providing entries to various food grain merchants on a mass scale through bogus concerns and dubious entities created by him. The modus operandi followed was that cash was received from such food grain merchants which was deposited in the bank accounts of such bogus concerns and dubious individuals against which cheques/ pay orders/ demand drafts were issued in the favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red accountant who has given Audited P&L A/c, balance sheet and Audit report) which was recorded before the assessee, that he does not have any of the books of account of any of the concern of the assessee or other firms of assessee, the assessee stated that he has already destroyed accounts up to FYs 2002-03 and thereafter the accounts of subsequent period have not been prepared till date. 10. He admitted having given two cheques of Rs.50 Lakhs to M/s Mahesh Agro (P) Ltd. having office in Naya Bazar on 29-06- 2004 and 01-07-2004 and one cheque of 1,00,00,000 to M/s LMJ International having office in New Delhi on 29-06-2004. It has been further admitted that these cheques have been given to these firms against the purchase bills and the same (Cheques) have been given after taking cash from them. In reality no purchases made from these parties. 11. It has admitted that cash is brought by his own man namely Shri Ram, Hira, Hari Ram. Parmed. The cheques are given to Shri Mahavir Garg of Mahesh Agro, Shri Vijay Modi of LMJ and Shri Ramesh Kumar of Anand Ankit. 12. It has been admitted having given entries to M/s Shashi Traders, M/s Saraswati Trading Co Scree Hanuman Enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer noted that that bank account number 1000028825 being operated in the name of M/S Suraj enterprises with state Bank of Bikaner and Jaipur, Karol Baug branch, Delhi , cash to the tune of Rs. 1 34858000/- has been deposited during the financial year 2003 - 04. The assessing officer extracted the date -wise chart of the deposit of the cash in the Suraj enterprises' bank account and asked the assessee to explain the nature entries of these cash deposits. None appeared on behalf of the assessee in response to such notices. Therefore, the learned assessing officer passed an assessment order Observing the reasons for the addition in para number 5 and 6 of his assessment order as under:- "5. But on the date and time of hearing, none attended nor any written submission was filed. Since no compliance has been made by the assessee, the undersigned is left with no option but to make best judgement assessment, exparte of u/s 144 of I T Act 1961, on the basis of information available on record. Besic1es, the information contained in the return of income, following information is also available on record to the decide the case i. Statement of Sh. Sanjay Kumar Garg recorded on 12.07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and audit report in Form No 3 CB and Form No 3 CD is not reliable and is not supported with any documentary evidences. Hence the book version of the assessee assessee is liable to be rejected by- taking recourse to provisions of Section 145 (3) of IT Act, 1961." 06. Therefore, in view of the information available with the revenue in the form of statement of Mr. Sanjay Kumar Garg recorded at the time of survey u/s 133A, in his case, followed by the local enquiries and elaborate discussion by the learned assessing officer , learned assessing officer held that cash deposit of Rs. 13,48,58,000/- is treated unexplained income of the asessee as the assessee failed to adduce any evidences regarding the nature and source of cash entries in his bank account. According to him, it is required to be treated as unexplained income from undisclosed sources. The learned assessing officer further noted that in view of the fact that Mr. Sanjay Kumar Garg, being the actual entry operator the above income shall be considered in the hands of Sanjay Kumar Garg on substantive basis and, therefore, on protective basis in the hands of the assessee. Consequently the addition of Rs. 13,48,58,000/- was tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concern and allow to use of his bank account through blank signed cheques. 9. Looking into these facts and circumstances, the assessee has earned Income by way of providing accommodation entries. It is held that the assessee has earned at the rate of 0.5% of the total turnover declared to Sales Tax Department and the same is worked out as under Total Turnover as per Sales Tax Order : Rs. 25,89,24,9 1 67- Accommodation Charges @ 0.5% as discussed above : Rs 12,94,6257-" 08. Consequently the assessment order u/s 144 read with section 147 and 148 of The Income Tax Act was passed on 24/12/2007 determining the total income of the assessee at 13 6220 6929/- against the returned income of Rs. 74 304/-. 09. The assessee aggrieved with the order of the learned AO preferred appeal before the learned CIT (A) - 16, New Delhi who passed an order on 31/3/2015. He deleted the above addition of Rs. 1 34858, 000 on account of cash deposit and Rs. 12,94,625/- on account of the commission income holding that in the case of Shri Sanjay Kumar Garg , the coordinate bench has decided the issue wherein it was held that the amount deposited in the account of dummy concern was to be treated as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Vikas Kumar, Suraj Enterprises, M/s. Baba Kishore Enterprises and M/s. Mahadev Enterprises. Before the Id. CIT (A) the assessee vehemently objected that he had no nexus whatsoever with these bank accounts which were owned and operated by independent persons. They were assessed separately and were genuine concerns. Hence, the amount deposited in the bank accounts of above concerns could not be related in any manner to the assessee. On consideration of the contention of the assessee, Id. CIT (A) observed that an un-disputed fact was that Shri Sanjay Kumar Garg was carrying the business of providing accommodation entries to the needy business persons and collecting commission from them. The requirement of those business persons were many-fold. Hence, it was not possible to help them in the name of only one entity. With this purpose, the assessee floated various concerns in the names of close relatives and friends and carried on the business of entry' provider. The evidences found in the course of survey in the form of bank pay-in slips and cheques lent support to the belief that the assessee was in-charge of entire business of accommodation bills. Further some of the persons in whos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Baba Kishore Enterprises Rs. 15,90,15,160 M/s. Mahadev Enterprises Rs. 38,20,96,201 He estimated the commission income of Rs. 1,38,45,714 by applying 1 per cent rate on turnover of Rs. 38,20,96,201. The contention of the assessee that 50 per cent of commission income should be allowed as deduction as paid to the sister concerns was rejected on the ground that no evidence to this extent was led by the assessee and the bank accounts of all the dummy concerns were controlled and operated by the assessee himself. The Id. CIT (A), however, held that the assessee should be given the benefit to the extent of commission income disclosed by these concerns in their return of income. 46.2 Thus in assessment year 2005-06 Ld. CIT(A) estimated commission income from direct business of entry operations carried out in the names of M/s. Garg Sales Corporation and M/s. Rahul Enterprises at Rs. 30,83,34 and from business carried in dummy concerns at Rs. 1.38.45.714 totaling to Rs. 1,69,28,748. 47. Before us, the Id. AR of the assessee submitted that that assessee is engaged in the business of food grains at commission basis. He relied on the turnover declared to sales tax Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the amount deposited in the account of dummy concerns cannot be treated as income of the assessee. Therefore, the Id. CIT (A), in our considered opinion, is justified in treating the cash deposited in various bank accounts controlled and operated by the assessee as the turnover of the accommodation entry business and commission income has to be estimated thereon. 49. The next issue arises for estimation of commission income. In the statement the assessee at the time of survey under section I33A had stated that he charged 25p as commission for providing accommodation entries and out of that 25p he paid I Op to others in whose name bank accounts were maintained and 5p was spent on expenses incurred in relation such business and hence, net commission earned was 10p i.e. 0.10 per cent. The Id. CIT (A) had taken the commission at 1 per cent as against 1.75 per cent applied by the Assessing Officer for which no evidence during the course of survey was found. The Id. CIT (A) has also noted that there was no clear standard rate of commission for accommodation activities. According to him the people who are engaged in this type of business would not charge less than 1 per cent on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d passed on commission of lOp to the persons in whose names dummy concerns were floated. However, in the business of entry provider certain expenditure has to be incurred which has been stated to be 5p during the course of survey. Therefore, credit of 5p out of 25p received as commission has to be allowed. Therefore, the Assessing Officer is directed to estimate commission income by applying 0.2 per cent net commission on turnover determined by the Ld. CIT (A) for both the assessment years as against I per cent taken by him. " Having gone through the order of the Hon'ble ITAT, the relevant portion of which is reproduced above, I am of the considered view that no case survived against the appellant. In such circumstances I strongly feel that the ends of justice would be met by following the orders of the final fact finding body i.e. Hon'ble ITAT, New Delhi in the case of the connected person SKG, whose case had a direct bearing on the addition made in the appellant's own case. The Hon'ble ITAT sustained the entire additions made in the hands of SKG on substantive basis for the purpose of working out the commission income by reason of the above order. Under such circumstances the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if he accepted the assessee's contention, the department would lose revenue and would also have no remedy, to have the matter rectified is also incorrect. Section 35E confers adequate powers on the department in this regard. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under section 35E(l) or (2) to keep the interests of the department alive. If the officers' view is the correct one, it will no doubt be finally upheld and the revenue will get the duty, though after some delay which such procedure would entail. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear as the sky that the objection of the AO expressed before me during the hearing with him on 26/03/2015 that the order of the Hon'ble ITAT may not J6e followed is not sustainable in the eye of law. The subordinate appellate bodies are required to follow the decision of the higher bodies irrespective of the fact that their decisions are contested before any High Court. Aside from the above, it is deemed meet to add at this stage that in income tax appeal evidence on any matter that has happened up to the time of the actual hearing of the appeal may be received, provided such matter has relevancy to the assessment year to which the assessment or reassessment under appeal relates (Minister of National Revenue V Pawluk - 1955 CTC 369, Kullick Nixon & Co. Vs CIT 1967 66 1TR 714 SC) The principle upon which the above doctrine rests is that when a party prefers an appeal, the assessment proceedings are kept alive for decision by the superior authorities. Therefore, it cannot be said that after the AO completes an assessment, the assessment proceedings come to an end and are dead. (Kamakshya Narain Singh (Raja Bahadur) Vs CIT 1947, 15 ITR 311 (FC). A hearing before the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, Mr. SKG. Not prepared to be pinned down by the dik-tat of the AO, I proceed to put the lid on the case for the time being as per the principles of judicial discipline. Relevant it is to add that a subordinate authority cannot dictate, as was mechanically done here as to how or in what manner or in whose favour I should exercise my power when certainty was available and known in the instant case in the form of concrete findings of fact of the Hon'ble Tribunal, in the appellant's substantive case. Therefore, I have no hesitation in allowing subject to the outcome of future litigations the grounds of appeal 3 & 4 of the appellant despite the reservation of the AO expressed during the hearing held with him on 26.03.2015, which is a recorded fact." 10. Therefore, the learned assessing officer, aggrieved by the order of the learned CIT - A, has preferred an appeal before us contesting the deletion of both the above additions made by him. 11. The learned CIT - DR vehemently supported the order of the learned assessing officer and assailed the order of the ld CIT A) on following counts a. Cash deposited by the assessee in bank account of M/s Suraj enterprises has not been ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accommodation entry operation of Mr. Sanjay Kumar Garg. He therefore stated that original addition has been made by the learned AO in the hands of the assessee on protective basis and in the hands of Mr. Sanjay Kumar Garg on substantive basis, and now as the coordinate bench has already decided the issue in the hands of Mr. Sanjay Kumar Garg, by charging accommodation entry commission of 0.2% in his hands, there is no scope for any addition in the hands of the assessee. He further relied on the decision of the coordinate bench in case of Mr. Prashant Agarwal wherein the coordinate bench has decided the identical issue with respect to the addition of commission as well as the penalty. He submitted a copy of the decision which is reported at 2017 (11) TMI 803 - ITAT, Delhi. He further submitted the copy of the decision in case of Mr. Sanjay Kumar Garg for A.Y. 2000 - 012 2005 - 06 dated 28/01/2010 to show that amount has been added in the hence of Mr. Sanjay Kumar Garg for working out the commission income. In view of this, he submitted that there is no error in the order of the learned CIT - A, and further, the issue is squarely covered in favour of the assessee by the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts deposited in the bank account of the assessee , with the amount shown in the hands of Mr. Sanjay, Garg as amount deposited in Suraj enterprise. If the amount deposited is reconciled, with the amount of deposited in the hands of Mr. Sanjay Kumar Garg for the respective years then no addition is required to be made in the hands of the assessee. In case if it is found that the amount deposited in the bank account of the assessee is much more than the amount shown by Mr. Sanjay Kumar Garg as amount deposited in bank account of M/s Suraj enterprise for working out his commission income, then it is apparent that no addition is made in the hands of Mr. Sanjay Kumar Garg on that gross receipts. Therefore to that extent the learned assessing officer is directed to make an addition in the hands of the assessee on substantive basis. However at the time of making the addition the learned AO will only take the amount of commission at the rate of 0.2% net commission as held in the case of Mr. Sanjay Kumar Garg by the coordinate bench. Accordingly, the issue with respect to deposit of cash in the bank account of M/s Suraj enterprises of the proprietor concern of the assessee is decided accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als is filed appeal before us. 19. It is the contention of the learned departmental representative that in the present case the assessee is found to be an accommodation entry provider and has deposited huge cash in his bank account as well as issued various bills in the form of accommodation entries. The income has been taxed in the hands of the assessee based on those accommodation entries and therefore the assessee has camouflaged fictitious credits in his books of accounts as sales. He therefore submitted that the learned assessing officer has held that that assessee has concealed income of the assessee and therefore penalty has been levied. He further submitted that the learned Commissioner of income tax has deleted the penalty for both the years as the quantum addition is already deleted without verifying the fact. He therefore submitted that the order passed by the learned Commissioner appeals deserves to be set aside. 20. The learned authorized representative vehemently stated that when the addition itself has been deleted by the Commissioner appeals and when the assessing officer himself has made the addition on 'protective basis' there cannot be any penalty in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncealment where the income is charged to tax on protective basis. Though protective assessment is not specifically provided, the Supreme Court in Lalji Haridas v. ITO [1961] 43 ITR 387 had held that such assessment is not barred. This was followed in Bhatia Motor Stores v. CIT [2007] 288 ITR 31 (MP). However now the issue is whether the penalty in the case of protective addition can be levied under section 271 (1) (c) of the act or not. Identical issue has been considered by the Hon'ble Gujarat High Court in case of 49 taxmann.com 539 in case of Bhailal Manilal Patel V CIT where it has been held as under:- "5.6 Under the circumstances, unless and until the substantive assessment is made and final assessment order is passed in case of the assessee adding the income in the hands of the assessee, even the initiation of the penalty proceedings are not permissible. There cannot be any initiation of the penalty proceedings with respect to the protective assessment order. The aforesaid is supported by the decision of this Court in the case of Bankim J. Shah (Supra). In the said case also penalty was sought to be levied under Section 271(1) of the Act on the protective assessment and to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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