The Ahmedabad bench of Income Tax Appellate Tribunal ( ITAT ) has deleted the addition of Rs. 4.45 crore under Section 69, of Income Tax Act, 1961 ruling that money introduced from JDS Industries is not deemed the taxpayer’s own income.
Brief facts leading to the case are that a survey action under section 133A of the Act was undertaken in the case of M/s VMS Industries, Ahmedabad on 10.12.2010. Two months later and consequent to that, a survey was also conducted in the case of the assessee and in the case of M/s Soft ouch Cosmetic Marketing P. Ltd. Bhavnagar (“SCMPL”) on 01.2.2011 in the office premises.
During the course of the investigation it was revealed that the assessee had received an amount of Rs.4, 45, 17,089/- from the bank account of M/s.J.D. Steel and its associate firms (“JDS”) during the impugned year, and the transactions thereof were not reflected in the return of income. The case of the assessee was reopened by issuing notice under section 148 of the Act on 19.3.2012.
Thereafter assessment was framed under section 147 of the Act, treating the amount received by the assessee of Rs.4,45,17,089/-, from the bank accounts of “JDS” and its associates, as own funds of the assessee, allegedly brought into its books as and in the guise of unsecured loans received from other parties. The same was accordingly added to the income of the assessee. The assessee filed an appeal before the CIT(A) challenging the validity of the assessment framed under section 147 of the Income Tax Act, as also the merits of the addition made. All the grounds raised by the assessee were dismissed and the addition was confirmed by the CIT(A).
Mr. B.R. Popat representing the assessee contended that the addition was totally unjustified, because, the AO was aware of the fact that these funds were only being routed through the assessee to the ultimate beneficiary i.e. M/s.VMS industries, Ahmedabad, and this fact had been pointed out to the CIT(A) during the appellate proceedings, and demonstrated by filing various evidences in this regard; that despite the assessee demonstrating through circumstantial evidences that the assesse was only a conduit of all the funds which actually belonged to the VMS Industries, which was very much in the knowledge of the Department, as was evident from the information collected by the Department during the survey conducted on M/s.VMS Industries and “SCMPL” and consequential action taken by the Department in their hands, the CIT(A) ignored all the submissions made by the assessee, and went on to confirm the addition in the hands of the assessee, treating its own income.
The two member bench of the tribunal comprising Siddhartha Nautiyal ( Judicial member ) and Annapurna Gupta ( Accountant member) failed 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. The 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.
Further, 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 the Apex court in the case of Sumati Dayal vs. CIT.
ITAT concluded that the addition made in the present case was held to be not sustainable and is directed to be deleted. Accordingly appeal of the assessee was allowed.
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