AI Insights
The case involves M/s Sanguine Media Limited, which appealed against the reassessment order passed by the Income Tax Officer (ITO) for the Assessment Year 2011-12. The reassessment was based on the allegation that the company was used as a conduit for providing accommodation entries by Shri Shirish C. Shah, who was involved in a scheme of routing unaccounted money through various shell companies. The Tribunal examined whether the additions made under Section 68 of the Income Tax Act were justified, considering the company was merely a conduit and did not engage in any substantive business activities. The Tribunal referenced several precedents where similar entities were not held liable for such additions, leading to the decision to partly allow the appeal.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 134028 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 2 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-01-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
C
Next Hearing Date
18-12-2022
Assessment Year
2011-2012
Appeal Filed On
01-11-2020
Judgement Text
आयकर अपीलीय अिधकरण ‘सी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा01 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम1। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.882/Chny/2020 (िनधाBरण वषB / Assessment Year: 2011-12) M/s.Sanguine Media Limited Plaza Centre, 4th floor, Suit No.349, 129 G.N.Chetty Road, Chennai-600 006. बनाम/ V s. ITO Non-Corporate Ward-20(5), Chennai. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAE C S -2 2 1 7 - C (अपीलाथ#/Appellant) : ($%थ# / Respondent) अपीलाथ# की ओरसे/ Appellant by : Shri Neeraj Mangala (C.A)-Ld. AR $%थ# की ओरसे/Respondent by : Shri S.Marudhu Pandyan (CIT) –Ld. DR सुनवाई की तारीख/Date of Hearing : 19-12-2022 घोषणा की तारीख /Date of Pronouncement : 31-01-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2011-12 arises out of order of learned Commissioner of Income Tax (Appeals)-14, Chennai [CIT(A)] dated 10-03-2020 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s 147 of the Act on 26-12-2018. The grounds taken by the assessee read as under: 1. Under the facts and circumstances of the case, reassessment order passed by the Ld.AO is illegal and bad in law. 2. Under the facts and circumstances of the case, impugned order is void ab-initio being not tenable under the law because of being unreasonable high-pitched, against the provisions of law and the principles of natural justice. ITA No.882/Chny/2020 - 2 - 3. That the reassessment order passed by Ld. AO u/s 148 of the Act is illegal and not tenable under the law because reasons recorded are not bonafide, based on borrowed information, and recorded in a mechanical manner. 4. That the reassessment order passed by Ld. AO is void-ab-initio as the assessing officer has not taken approval as required u/s 151 and CIT has given the same if any in a mechanical manner without applying his mind. 5. That the addition made under Section 68 of the Act to the income of the assessee company is not tenable under the law. 6. That the Ld. AO grossly erred in law and to the facts of the case in making addition under section 68 of the income tax act to the returned income of the appellant company despite the undisputed finding that the assessee company was merely a conduit company operated and maintained for providing accommodation entries. 7. That the Ld. AO as well as Ld. CIT(A) grossly erred in law and to the facts of the case by passing a non-speaking order and holding that the assessment and appellate orders passed In cases of group companies are unrelated and differentiable on the facts of the case. As is evident, the assessee is aggrieved by confirmation of certain addition u/s 68. The assessee has also challenged the validity of re-assessment proceedings. 2. The Registry has noted delay of 167 days in the appeal, the condonation of which has been sought by Ld. AR. Considering the fact that the time available to prefer appeal against impugned order fall within lockdown situation arising out of Covid-19 pandemic, we condone the delay and admit the appeal for adjudication on merits. Assessment Proceedings 3.1 The assessee’s return of income was scrutinized u/s 143(3) on 29.03.2014. However, pursuant to search action u/s 132 on entry operator of shell companies Shri Shirish C. Shah on 09.04.2013, the assessee’s case was reopened and notice u/s 148 was issued on 27.03.2018. This was in view of the finding that Shri Shirish C. Shah used more than 200 Companies through which he provided entries of Share Capital with huge premium and entries of Long-Term Capital Gains etc. against cash. The assessee was alleged to be one such ITA No.882/Chny/2020 - 3 - conduit entity which was used by Shri Shirish C. Shah to provide such accommodation entries. 3.2 During the course of search action, statement of assessee director Shri Kumar Raichan Madan was recorded u/s 131(1A) wherein he, inter-alia, admitted that he brought family members and employees etc. as director of various companies operated by Shri Shirish C. Shah against commission. These persons became director in companies run by Shri Shirish C. Shah. The statement of Shri Chandrank Padmashi Kamani, who was director of 5 such companies being run by Shri Shirish C. Shah, was also recorded wherein he confirmed the fact as stated by Shri Kumar Raichan Madan. Both these statements were not controverted by Shri Shirish C. Shah in his recorded statement. 3.3 It transpired that during this year, the share capital of the assessee was increased by Rs.105 Crores and accordingly, the assessee was directed to provide requisite details of share allottees. The assessee furnished list of shareholders and submitted that the share subscribers were corporate entities being controlled and managed by Shri Shirish C. Shah and the money was infused through him only and therefore, the same could not be considered as assessee’s own income. The assessee also attached copy of order passed by first appellate authority in one of the group companies being managed by Shri Shirish C. Shah wherein the similar additions were deleted. Duirng the course of hearing, directions were sought by Ld. AO from Ld. Addl. CIT who, vide letter dated 18.12.2018, stated that the assessee received funds in the form of share capital and deployed it in various assets. The onus as casted u/s 68 was not discharged by ITA No.882/Chny/2020 - 4 - the assessee. Considering the same, Ld. AO added the amount of Rs.105 Crores to the income of the assessee. Appellate proceedings 4. The assessee assailed the impugned additions by way of elaborate written submissions which have been extracted in the impugned order. The assessee, inter-alia, submitted that it was being used as a conduit entity by Shri Shirish C. Shah and therefore, no such additions could be made u/s 68 in the hands of the assessee. Reliance was placed on various decisions in support of the submission that no addition u/s 68 could be made on conduit companies. However, Ld. CIT(A) upheld the observation of Ld. AO that the assessee could not discharge the onus as casted u/s 68 i.e., to establish identity of the share subscribers, their creditworthiness and genuineness of the transactions. Accordingly, the impugned additions were confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 5. From the fact, the undisputed position that emerges is that the assessee company is found to be one of the conduit companies being operated and controlled by Shri Shirish C. Shah through name-sake directors. The statement made by assessee-director clearly confirm the fact that the assessee is merely a conduit company and do not run any business of its own. The perusal of financial statements would reveal that the assessee has actually received Share Capital of Rs.100 Crores from 27 corporate entities (placed on page nos. 45 & 46 of paper book) as follows:- ITA No.882/Chny/2020 - 5 - No. Name of Investor Entity No. of Shares 1 Shri Ganesh Spinners Ltd 54,00,000 2 Orange Mist Productions Pvt Ltd 53,50,000 3 Viaggio Entertainment Pvt Ltd 51,60,000 4 Hamraj Fashion Consultants Pvt Ltd 51,00,000 5 Acacia Tradlink Pvt Ltd 50,00,000 6 Akansha Media & Entertainment Pvt Ltd 47,40,000 7 Wellman Tradelink Pvt Ltd 47,00,000 8 Amazing Suppliers Pvt Ltd 45,00,000 9 Amrita Bhagwati Finance Pvt Ltd 43,00,000 10 Yadon Construction Pvt Ltd 41,25,000 11 Krystalklear Properties Pvt Ltd 41,25,000 12 Jayalalita Commodities Pvt Ltd 35,50,000 13 Grantview Properties Pvt Ltd 35,50,000 14 Aansal Securities Services Pvt Ltd 35,00,000 15 Adamina Traders Pvt Ltd 35,00,000 16 Adila Traders Pvt Ltd 35,00,000 17 Mahan Industries Ltd 35,00,000 18 Gazala Construction Pvt Ltd 33,50,000 19 Parkway Properties Pvt Ltd 31,25,000 20 Sonal Styles Pvt Ltd 29,25,000 21 C & K Realtors Pvt Ltd 27,50,000 22 Pavitra Mall Management Co Pvt Ltd 25,00,000 23 Shivam Mall Management Co.Pvt.Ltd 25,00,000 24 Moss Traders Pvt Ltd 25,00,000 25 Sally Real Estate Pvt Ltd 25,00,000 26 Anvita Real Estate Pvt Ltd 22,50,000 27 Nirvana Mall Management Co Pvt Ltd 20,00,000 Total 10,00,00,000 All these 27 entities have been found to be conduit entities being run by one Shri Shirish C. Shah. All these entities are found to be appearing in list of 212 conduit companies (page nos. 55 to 60 of paper book) as extracted by Ld. AO in the assessment order passed in the case of Shri Shirish C. Shah for this year which is kept on page nos.51 to 156 of the paper-book. The assessee is also one such conduit companies listed at serial no. 161 being run and controlled by Shri Shirish C. Shah. During assessment proceedings of Shri Shirish C. Shah, Ld. Assessing Officer has computed commission income against the entries routed through these entities. It has undisputedly been ITA No.882/Chny/2020 - 6 - found that Shri Shirish C. Shah has merely used these companies as conduit companies to provide bogus entries to various beneficiaries against cash. Accordingly, additions have been made in his hands for estimated commission etc. We also find that the sum so received by the assessee has further been transferred to other corporate entities and the same has been shown in the audited financial statements as ‘Loans and Advances’. The details of further advances made by the assessee have been tabulated by Ld. AR as under: - S. No. Name Amount 1 Aasu Exim Pvt. Ltd. 45,00,000 2 ADEQUATE INFRASTRUCTURE PVT. LTD. 50,00,000 3 Aditi Sweets Trading Co 50,00,000 4 Akhil Wires Pvt. Ltd. 25,00,000 5 Alpha Megastructure Pvt. Ltd. 50,00,000 6 APHANTOME IMPEX PVT. LTD. 10,00,000 7 BHUMIRAJ PROPERTIES PVT. LTD. 3,00,00,000 8 CHAKRI INDUSTRIES PVT. LTD. 65,00,000 9 Cybertech Interactive Ltd. 25,00,000 10 D V Gajanand lnfracon Pvt. Ltd. 50,00,000 11 Deep Polymers Pvt. Ltd. 2,00,00,000 12 DEVA MERCANTILE PVT. LTD. 50,00,000 13 DEVAL ENGINEERING PVT. LTD. 50,00,000 14 Devu Tools Pvt. Ltd. 50,00,000 15 DHANI COMMODITIES PVT. LTD. 25,00,000 16 DUGGEMPUDI ENTERPRISES PVT LTD. 15,00,000 17 Gajanand Infracon Pvt. Ltd. 25,00,000 18 GLAMOUR SOAPS PVT. LTD. 1,25,00,000 19 Green Vally Developers 2,00,00,000 20 Heemanshu Horns Pvt. Ltd. 1,00,00,000 21 HEER MULTITRADE PVT LTD. 1,00,00,000 22 Highstone Traading Pvt. Ltd. 10,00,000 23 INTERNATIONAL FINANCIAL SERVICES LTD. 2,00,00,000 24 JAGMOHANLAL GUPTA ESTATES PVT. LTD. 10,00,000 25 JHAVER INVESTMENT PVT LTD. 2,15,00,000 26 Jhaveri Trading Investment Pvt. Ltd. 3, 70,00,000 27 JUGDUMBEY MERCANTILE PVT. LTD. 50,00,000 28 JULIET MERCHANTS PVT LTD. 6,00,00,000 29 Macro Dealomm Pvt. Ltd. 7,50,00,000 30 Manba Finance Ltd. 25,00,000 31 Maverick Investment Solutions Pvt. Ltd. 3,65,00,000 ITA No.882/Chny/2020 - 7 - 32 Mitz lnfraproject Pvt Ltd. 1,00,00,000 33 Mjd Financial Services Pvt. Ltd. 50,00,000 34 Mooncity Vincom Pvt. Ltd. 6,50,00,000 35 Mukta Tradelink Pvt. Ltd. 4,50,00,000 36 Mystic Woodart Pvt. Ltd. 1,00,00,000 37 Neminath Trades Pvt. Ltd. 3,00,00,000 38 Nensee Construction Pvt. Ltd. 80,00,000 39 Net Biz Systems Pvt.Ltd. 1,00,00,000 40 NEWA TECHNOCITY (I) PVT. LTD. 1,00,00,000 41 Nuland Infrastructure Pvt. Ltd. 1,50,00,000 42 PARITOSH COMMERCE PVT. LTD. 5,00,00,000 43 Parsh Housing Pvt. Ltd. 30,00,000 44 Prabhat Telecom (India) Pvt. Ltd. 75,00,000 45 Pranet Mercantile Pvt. Ltd. 1,00,00,000 46Prateek Bulls & Bears Pvt. Ltd. 1,00,00,000 47PREMEIR INDUSTRIAL CORP. LTD, 1,50,00,000 48PROWESS FINANCIAL PVT. LTD. 2,50,00,000 50Rajshah Enterprises Pvt. Ltd 11,85,00,000 51RAKSHAK INFRASTRUCTURE PVT. LTD. 50,00,000 52 REAL GOLD TRADING Co. PVT. LTD. 5,75,00,00053 Reliance Commercial Company Ltd. 25,00,00054 S V SACKS PVT. LTD. 25,00,000 55 S. P. TextWorld pvt ltd 35,00,000 56 SAYONARA PROPERTIES PVT. LTD. 25,00,000 57 Shree Krishna Sai Development Corporation 20,00,000 58 Sterling Electro Enterprises Pvt. Ltd. 40,00,000 59 Subi Intermediate Pvt. Ltd. 20,00,000 60 Tanish Homes & Construction Pvt Ltd. 2,45,00,000 61 Varun Homes Pvt. Ltd. 1,00,00,000 62 ZODIAC DEVELOPERS PVT. LTD. 3,75,00,000 All the transfer entries are verifiable from the bank statements of the assessee as placed on record. The funds so transferred to other entities have merely been shown as ‘loans and advances’ in the Balance Sheet whereas no actual business has been carried out by the assessee since it is merely a conduit company which is quite discernible from the assessment order of Shri Shirish C. Shah and therefore, the funds so received by the assessee could not be held to be undisclosed income of the assessee. Rather, these transactions were circular transactions routed through the assessee to various ITA No.882/Chny/2020 - 8 - beneficiaries. The assessee is one of the paper entries to accommodate various beneficiaries. The assessee was being run by the tainted group to provide bogus accommodation entries to various beneficiaries. The cash so received by Shri Shirish C. Shah has been routed through web of these companies. 6. It is trite law that only real income is to be assessed. For the same very reason, in the case of various such entities, the co-ordinate benches of Tribunal has consistently held that the amounts so received and further advanced by such conduit companies could not be held to be their undisclosed income. Few of these decisions could be tabulated as under: - i. CIT vs. Vijay Conductors India Pvt. Ltd., 2015-TIOL-2337-HC-Del-IT ii). Omni Farms Pvt. Ltd. vs. DCIT, (2016) 46 ITR (Trib) 0505 (Delhi) iii) AGM Holdings Ltd. vs. DCIT, (2016) 46 CCH (Trib) 0200 (Delhi) iv) Nishottam Traders Pvt. Ltd. vs. ITO, ITA No. 6874/Mum/2014 v) T. C. Software Consultancy Pvt. Ltd. vs. ITO, ITA No. 6142/Mum/2016 7. In the following case laws, it has been held that only real income has to be assessed and revenue authorities are debarred from indulging in artificial assessments of the assessee: - (i) CIT vs Shoorji Vallabhdas & Co., 46 ITR 144 (SC) (1962) (ii) CIT vs Birla Gwalior (P) Ltd, 89 ITR 266 (SC) (1973) (iii) HM Kashiparekh & Co. Ltd vs CIT, 39 ITR 706 (BOM) (1960) (iv) Poona Electric Supply Co. Ltd vs CIT, 57 ITR 521 (SC) (1965) (v) CIT vs Birla Gwalior (P) Ltd, 78 ITR 788 (CAL), 1970 (vi) Sanjeev Woollen Mills vs CIT, (2005) 279 ITR 434 (SC) 8. The Mumbai Bench of Tribunal in the case of one such entities i.e., DCIT vs. M/s Empower India Ltd. (ITA Nos. 3205/Mum/2019 & ors. order dated 23.10.2019 for AY 2011-12) confirmed the first appellate order in estimating commission against such receipts. The Ld. CIT(A), while adjudicating the issue, relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Vijay Conductors ITA No.882/Chny/2020 - 9 - India (P.) Ltd. (2015-TIOL-2337-HC-Del-IT) while deleting similar additions made by Ld. AO u/s 68 of the Act. The Hon’ble Delhi High Court in the cited case of CIT vs. Vijay Conductors India (P.) Ltd. (supra) confirmed the adjudication of Tribunal as under: - 8. It is not in dispute that the Respondent Assesses are the conduit entities and not the beneficiaries. Consequently, the order of the ITAT deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity. We find that the facts in the above cases are quite identical to the facts of the present assessee. 9. Similar is the decision of Mumbai Tribunal in M/s Nishottam Traders Pvt. Ltd. vs. ITO (ITA No.6874/Mum/2014 dated 05.05.2017) wherein the bench observed that the assessee company was merely a conduit company and did not derive any real income. Thus, the order of Ld. AO passed u/s 143(3) of the Act making additions u/s 68 was set-aside for denovo assessment. The Ld. AR pointed out that no additions were made by Ld. AO in that case in consequential order passed u/s 143(3) r.w.s. 254 of the Act. This decision has subsequently been followed by another bench of Mumbai Tribunal in M/s T. C. Software Consultancy Pvt. Ltd. vs. ITO (ITA No.6142/M/2016 dated 28.11.2018) and the bench similarly held that the assessee did not derive any real income and accordingly, the matter has been restored back for de novo adjudication wherein no such additions have been made by Ld. AO in the consequential order. In the case of one more such entities i.e., M/s Acme Realty Developers Pvt. Ltd., Ld. first appellate authority, relying upon the decision of Hon’ble Delhi High Court in CIT vs. Vijay Conductors ITA No.882/Chny/2020 - 10 - India (P.) Ltd. (2015-TIOL-2337-HC-Del-IT), deleted similar additions made u/s 68 of the Act and the revenue did not prefer any further appeal against the same. Similar is the first appellate order in the case of M/s Vakratunda Ventures Pvt. Ltd. (copy placed on record) which has also not been challenged any further by the revenue. Similar view has been taken by other benches of various Tribunals, the copies of which have been placed on record. All these decision supports the case of the assessee that the funds so infused into the assessee company could not be held to be its undisclosed income u/s 68 of the Act. 10. The revenue has relied on the decision of Hon’ble High Court of Madras in the case of B. R. Petrochem (P) Ltd., (2017) 81 Taxmann.com 424 (Mad). However, upon study, we find that the facts in that case are quite different. In that case the assessee could not establish creditworthiness of the subscribers and also could not prove the genuineness of the transaction. It was noted that the detailed investigations carried out by Ld. AO established the position that the contributors to share capital were of insignificant means and their creditworthiness could not be established. The assessee also failed to establish the same. Accordingly, the additions made u/s 68 were confirmed by Tribunal. This case law is clearly distinguishable on facts since in the present case, it has undisputedly been found that the assessee is merely a conduit company being run by Sri Shirish C. Shah. The entire funds have been received by him that has been routed through web of companies to ultimate beneficiaries. For the same very reasons, the commission against all such entries has been assessed by the revenue in the hands of Shri Shirish C. Shah. ITA No.882/Chny/2020 - 11 - Therefore, the funds so infused could not be held to be undisclosed income of the present assessee. 11. Considering the facts and circumstances of the case as well as respectfully following the consistent stand of the Tribunal in the case of group concerns, the impugned additions as sustained by Ld. CIT(A) u/s 68 are not sustainable in law. We order so. The Ld. AO is directed to re-compute the income of the assessee. The Ld. AR, during the course of hearing, did not press for adjudication of legal grounds and therefore, all the legal grounds are dismissed as not pressed. 12. In the result, the appeal stand partly allowed in terms of our above order. Order pronounced on 31st January, 2023. Sd/- (MAHAVIR SINGH) उपा01 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद9 / ACCOUNTANT MEMBER चे4ई / Chennai; िदनांक / Dated : 31-01-2023 DS आदेश की Vितिलिप अ 6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A) 4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF
Other Referred Cases
CIT vs. Vijay Conductors India Pvt. Ltd., Omni Farms Pvt. Ltd. vs. DCIT, AGM Holdings Ltd. vs. DCIT, Nishottam Traders Pvt. Ltd. vs. ITO, T. C. Software Consultancy Pvt. Ltd. vs. ITO, DCIT vs. M/s Empower India Ltd., CIT vs Shoorji Vallabhdas & Co., CIT vs Birla Gwalior (P) Ltd, HM Kashiparekh & Co. Ltd vs CIT, Poona Electric Supply Co. Ltd vs CIT, Sanjeev Woollen Mills vs CIT, M/s Acme Realty Developers Pvt. Ltd., M/s Vakratunda Ventures Pvt. Ltd.
Laws Referred To
Income Tax Act
Tax Holiday Secrets for Startups
₹0
1:1 Consultation on Startup Fundraising
₹5000
1:1 Consultation on Tax Litigation
₹0
Startup Valuation Certificate
₹0
Assignment of Registered Trademark
Mehul₹500
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