19 April 2018   

Legal Wrangle | GST | Episode 71

2018-TIOL-585-ITAT-DEL + Story

ACIT Vs SCHNEIDER ELECTRIC CONZERV INDIA PVT LTD: DELHI ITAT (Dated: February 27, 2018)

Income Tax - Sections 43B(b) & 80IB.

Keywords - Claim of provision of gratuity - Interest on loan from directors - Performance bonus

A) The assessee company designs, develops and markets energy management solutions for industrial applications. The assessee had filed return for relevant AY. During the assessment proceedings, AO noticed that the assessee debited certain sum on account of interest on loan from directors and other interest charges. As assessee did not furnish details of TDS deducted thereon the amount was disallowed. On appeal before CIT (A) assessee filed various details by way of additional evidence. The CIT (A) therefore called for remand report from AO. The AO again rejected the contentions of assessee during remand proceedings. The CIT(A) partly allowed the claim of assessee. Aggrieved by the relief granted by CIT(A), revenue filed appeal before Tribunal.

B) During assessment AO made disallowance treating the provision of gratuity as unascertained liability on the ground that assessee failed to provide necessary details/explanation in respect of the same. On appeal before CIT(A) assessee filed various details by way of additional evidence. The CIT(A) therefore called for remand report from AO. In the remand proceedings assessee submitted that the amount was paid to its approved gratuity trust in support of which evidences were filed. The AO did not consider the evidences filed by assessee on the ground that the same was not filed during the original assessment proceedings. The CIT(A) noticed that the payment had already been done by the assessee to its approved gratuity trust which was reflected in the bank statement also. The facts being so the provision of gratuity was allowable u/s 43B(b) of the Act, and, therefore, this ground was allowed.

C) During assessment AO disallowed the claim of assessee for Performance Bonus paid due to non furnishing of relevant details. On appeal CIT (A) observed that as per the policy / practice followed by the assessee company, performance bonus was assessed, reviewed and approved by the separate competent authority in HR deptt. There was a scientific and systematic system to evaluate the performance and payment of performance bonus which was consistently being followed by the assessee and had been accepted by the department in its earlier assessments. Hence addition of Performance Bonus was deleted by CIT(A).

D) During assessment AO accepted the apportionment of profit on the basis of turnover and also apportionment of profit of the eligible business and non-eligible business based on the value addition at the two businesses for arriving at the profit of eligible business. Assessee by way of Cross Objection was seeking to apportion the disallowance and additions made in the same ratio to the eligible and noneligible business for computing deduction u/s 80 IB on Daman unit.

On appeal, Tribunal held that,

Whether that part of interest payment on which tax has been deducted at source as evident from additional evidence submitted no further disallowance should be made - YES : ITAT

++ CIT(A) had observed that out of Rs.24,70,245/- of interest amount, the assessee had deducted TDS of Rs.45,886/- @ 11.33% on the payment of Rs.4,04,967/-. The balance amount of Rs.20,35,342/- was suo moto disallowed by the assessee in its computation of income. Hence there remains no reason to make further disallowance in respect of Rs.4,04,967/- on which TDS was already made and Rs.20,35,342/- suo moto disallowed by the assessee itself. However, no explanation was given by the assessee for the remaining amount of Rs. 29,936/- on which TDS has not been made. Therefore disallowance of Rs.29,936/- was upheld. Under these circumstances no reason for further disallowance exist. Accordingly this ground raised by the revenue stands dismissed;

Whether provision of gratuity is not an unascertained liability and should be allowed if it is established through bank statements and confirmation letter from Trust that payment is made to approved gratuity trust - YES : ITAT

++ the assessee during the remand proceedings submitted various documents to establish the payment made to the trust during the year, which has not been controverted by AO. The CIT (A) has observed that the amount paid has been reflected in the bank statement of the trust. The account statement of the trust also reflects the amount being deposited by assessee and the confirmation provided by the trust admits to the amount being received by them. Therefore it was decided to confirm the observations of CIT (A) and the same was upheld;

Whether in absence of any details regarding extra ordinary contribution in company by employee can performance linked bonus be disallowed - YES : ITAT

++ admittedly neither AO made any reference regarding the addition in respect of performance bonus in the remand report, nor did assessee provide any order of any preceding AYs passed by any Appellate Authorities, wherein such bonus paid had been allowed. Assessee had not even explained what was the scientific method in determining the bonus payable to its employees for extraordinary performances. AR has not provided any details regarding the extra ordinary contribution by these employees in lieu of which such huge bonus has been paid amounting to Rs. 13.5 Lacs and 15 lakhs being Sh. Ashok Hattangady and Hema Hattangady respectively. Admittedly assessee in the remand proceedings has not submitted any details regarding the payments made to justify its claim. Thus no purpose would be served by setting aside this issue back to the file of AO. It was decided to confirm the addition made by AO in this regard and reverse the findings of CIT(A). Accordingly this ground raised by revenue stands allowed;

Whether for failure of assessee to submit order passed by Commissioner having direct bearing on the impugned issue of computing deduction u/s 80 IB considering apportionment of disallowance and addition can case be remanded- YES : ITAT

++ it is observed that assessee was unable to produce the order passed by Commissioner of Central Excise Bangalore which has direct bearing on the issue agitated. This Tribunal for A.Y. 2005-06 and 2006-07 has remanded the issue back to AO for fresh adjudication in accordance with law vide order dated 21.12.2011 in assessee’s own case. Respectfully following the same, it was decided to set aside the issue back to file of AO for fresh adjudication of this issue in the light of order passed by AO for A.Y. 2005-06 and 2006-07. Assessee is directed to file all necessary documents in support of the claim. Accordingly this ground is allowed for statistical purposes.

Revenue's Appeal partly allowed

 

2018-TIOL-584-ITAT-DEL + Story

VAIBHAV JAIN Vs ACIT: DELHI ITAT (Dated: April 12, 2018)

Income Tax - Sections 131, 132 & 153A

Keywords - Accomodation entry - Recording of Statements - Search & seizure - VAT

THE assessee, an individual, was assessed for the relevant AYs. On assessment, the issue of taxation of an accomodation entry provider arose, considering that bogus bills of Rs 980 crores had been provided over the relevant AYs. The assessee was aggrieved by orders passed by the CIT(A), and raised identical grounds of appeal for each of the six AYs, including - i) that the CIT(A) incorrectly held that the assessee did not furnish documentary evidence to show that infrastructure transactions between the firms were not business transactions through which accommodation entries were provided; ii) that the CIT(A) wrongly held that the assessee failed to file evidence that VAT charged @4% from beneficiaries on accommodation bills were actually refunded to the beneficiaries or deposited with the trade tax department; iii) that the CIT(A) erroneously confirmed the up scaling rate of commission from 1.5% to 2%; and iv) that the CIT(A) did not consider that while the actual rate of commission based upon seized documents, worked out to 1.26%, in fact after reducing the expenses, it worked out to 0.76%. Lastly, the assessee also challneged the various additions made to his income on account of unexplained investment, in the assessment order for all six AYs. Thus the assessee's appeal.

On hearing the matter, the Tribunal held that,

Whether statements given u/s 153A confessing to have provided bogus accommodation entries, is sufficent evidence to uphold additions made in the hands of the entry provider - YES: ITAT

++ undisputedly, the assessee is engaged in the providing accommodation entries for issuing bogus bills to beneficiaries through several entities in the name of different persons. It was found that during the financial year 2005-06, assessee has provided bogus bills of Rs. 1074085796/- to various beneficiaries and the 6% commission ( which includes 2 % commission on bogus billing and 4 % sum of VAT on it which is collected by assessee but not paid to Govt) has been determined by the AO as his income and further, the Assessing Officer allowed 0.5% towards the expenditure incurred by the assessee. Therefore, the Assessing Officer computed the income of the assessee of Rs. 64445148/- and granted expenditure deduction of Rs. 5370429/- and computed the net income at Rs. 59074719/-. While adding the sum the Assessing Officer has not granted the assessee the relief of Rs. 582642/- as income offered by the assessee. The CIT(A) reduced the addition by the above sum. During the course of assessment, proceedings the assessee was examined who repeatedly confirmed about the business. Further, some of the persons who were used as the benami of the assessee were also examined and they confirmed that they do not know anything about the accommodation entries provided by the assessee. As the case of the Revenue conclusively proves which is confessed by assessee and his father in various statements as well as statements of the other persons that assessee is providing bogus bills to beneficiaries, it is correctly held that commission income is chargeable to tax in the hands of the assessee.

++ the only dispute is with respect to rates of commission charges. It is apparent that assessee is found to be engaged in issuing bogus bills to various parties. This shows that assessee is providing various bills of purchase of material and services to various beneficiaries by charging VAT there on @ 4 % to give it semblance of reality/ genuineness. Beneficiaries claimed these expenses as deduction while computing their income and also claimed VAT as set off while filing their income tax and VAT returns. Beneficiaries in turn paid cash to the assessee over and above the Bill + VAT amount his commission too. According to seized documents, the assessee is found charging commission income from 1.50 % to 3.85 %. The seized documents indicating commission rates are for a limited period. Therefore, it is apparent that assessee has minimum commission rates of 1.50% and also maximum amount of Commission is 3.85%. Rates of commission also varies as per the period in which the bogus bills are required. Rates are generally higher in the last months of closing of the year. In view of this fact there is no infirmity in the order of the CIT(A) in confirming the addition of Rs. 58492077/- adopting rates of commission @ 2% and VAT @ 4 % totaling to 6 %.

Whether addition made to the income of a bogus entries provider merits consideration, where the provider's claim of having refunded VAT charged from the entry recipients, is not backed with any evidence showing payment of VAT so charged - YES: ITAT

++ further, the assessee has not shown any payment of VAT charged by him from the parties to whom the accommodation entries were provided, therefore the sum of 4 % VAT along with the commission of 2 % is chargeable to tax as income of the assessee. It is apparent that if assessee provides the bogus bill of Rs. 100/- then assessee charges 4% VAT thereon and receives the consideration of Rs. 104/-. The assessee is required to pay Rs. 4 to the state govt towards the VAT collected by him. During the course of search, no such evidences were found where the assessee has paid VAT to the state govt and no evidences have been produced during the assessment proceedings. Therefore, there is no infirmity in the order of the lower authorities in not allowing the credit for VAT. To justify the addition of commission income for accommodation entry @6% the Assessing Officer and CIT (A) has correctly assumed the rate of 2% commission for providing bogus purchase bills and 4% for the VAT. In view of this, the court rejects the ground of the assessee for granting deduction of VAT from his income. There is no reason to reduce the commission income from 2%. With respect to the claim of the assessee that there is an expenditure also involved in these business and therefore, the commission income is required to be computed only at 0.76% also deserves to be rejected. The assessee has not shown any proof of such expenditure and no such proof were found in search proceedings. It was also not shown that what kind of expenditure assessee was incurring and to whom he was paying such expenditure. In view of this the order of the CIT(A) is upheld in confirming the addition of Rs. 58492077/- on account of commission income on providing accommodation entries.

++ in the end before parting, the Assessing Officer should not have stopped merely at making the addition in the hands of the assessee but should have alerted this scam to various authorities. Because looking to the magnitude of the fraud, it is impossible that it can be carried out if the bankers, VAT authorities, Income Tax Officers and Auditors of those entities have exercised due care in the performance of their duties. There are several bank accounts opened which were operated by the assessee and in all those bank accounts have huge transactions carried out without any substance for a fairly long period. Certain transactions in the names of persons are also carried out as alleged by putting fake signatures. Still the cheques have been passed for transfer of money. Even a layman could have visualized looking at the operation of the bank accounts that these transactions are suspicious, fraudulent and does not relate to any business, but surprisingly bankers have failed to notice it. The VAT authorities could not also notice that bogus billing issued by the assessee of such a huge magnitude where the crores of Rupees of VAT is collected and not paid to the govt but set off is given to the beneficiaries who got the VAT benefit of the sum paid to an accommodation entry provider as well as the benefit of deduction of such expenses. There are several concerns, which are filing the return of income with the Income tax department for several years, showing huge turnover in their books, and showing miniscule profit. Such returns at least for the six years for almost 50 concerns were before Income tax Department, Tax officers might also have assessed some of them after scrutiny, but they also did not show any red flags to those returns. If those returns are not picked up for scrutiny then we do not have any doubt that such process of selection of scrutiny is faulty or the assessment made of those entity on scrutiny is merely an eyewash. It is also interesting to note that in the search operation itself the names of the real beneficiaries have also come out showing the bills etc and further some other accommodation entry providers names also given. Further this assessee is operating 37 concerns wherein, all these 37 + concerns have their bank accounts in ABN Amro Bank, Karur Vaishya Bank and many other banks. The modus operandi shows that the cheques received against the bogus bills issued by these parties were deposited in the bank account of these parties. Therefore, the revenue can reach from the instruments of payment to the real beneficiaries of these accommodation entries. Furthermore, from the bank account of these parties the cheques are issued by these bogus entities to the third parties. Therefore, from such cheques issued by these bogus entities the revenue can reach to the other conduit persons in whose bank account the money ultimately travelled before its withdrawal in cash. Therefore, it is not merely these 37 concerns only but many more parties and entities from whose bank accounts the money are withdrawn. It may also be possible that bank balances on that bank account are not converted into cash by withdrawal but may also further be used by the assessee and his group of accommodation entry providers by further providing accommodation entries to the other parties. It may also happen that cash is never paid to the parties to whom the bogus bills are issued by the mode of withdrawal of cash from those bank accounts. It may also be possible that the bank balance generated in the other parties account are used for further providing accommodation entries who need the share capital, bogus loans and other credits. The Revenue has made only part enquiry and unearthed the bogus billing scam of Rs. 650 to 700 crores on search on this assessee. However, if the enquiry is further conducted then it may possibly also show another scam of converting 'black money' into so called 'white money'.

++ it is also painful to note that all the concerns controlled by the assessee have used the banking route to evade the tax by issuing bogus bills and receiving cheques against those bills. The persons who are stated to be the owner of these entities are merely name lenders. The bankers have operated the bank account of these parties where Rs. 700 crores are credited and sent to another bank. Such transaction can be carried out only if the bankers of those parties are not vigilant and there is no surveillance on these accounts. Otherwise, it is impossible to believe that persons with no means have turnover of crores of Rupees in their bank accounts. The Assessing Officer should have also examined the bankers about the KYC norms in these accounts and the higher ups of the banking should have been alerted to report it to respective department.

Assessee's appeal Dismissed

2018-TIOL-1266-CESTAT-MAD + Story

BSNL Vs CCE: CHENNAI CESTAT (Dated: March 13, 2018)

ST - Valuation - Telecommunication Service - Notification No.2/2011-ST dt.1.3.2011 has inserted an Explanation in Rule 5, clause (1) of Service Tax (Determination of Value) Rules, 2006 in terms of which the value of taxable services in sub-clause (zzzx) of clause 105 of Section 65 namely the telecommunication services, shall be the gross amount paid by the person / PCO user to whom the telecom service is provided by the telegraph authority - since it is specifically stated that the said notification shall be effective only from 1.3.2011, the period involved in the present case being prior to 1.3.2011 , demand of differential amount of service tax alleging that entire amount collected by the PCO operator is subject to levy of service tax cannot sustain - Assessee appeal allowed and Revenue appeals dismissed: CESTAT [para 9]