By TIOL News Service
NEW DELHI, APRIL 19, 2018: THE issue at hand in this case is whether statements given u/s 153A confessing to have provided bogus accommodation entries, are sufficent evidence to uphold additions made in the hands of the entry provider. Another issue was 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 is the answer for both questions.
However, even though the Tribunal confirmed the additions made to the assessee's income, it expressed its disappointment against the AO for the rather diluted and inefficacious punishment meted out in the form of additions. It further stated that provision of such bogus entries was a massive scam, since all the concerns controlled by the assessee used the banking route to evade tax by issuing bogus bills and receiving cheques against such bills. It also noted that such entities could not have reported such massive turnovers without having the necessary means to generate such massive turnover. Thereupon, the Tribunal observed that although the Department's superfluous enquiry detected a bogus billing scam involving about Rs 700 crores, a deeper probe into the transactions could possibly uncover another scam of converting black money into white.
Facts of the case
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,
++ 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 %.
++ 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.
(See 2018-TIOL-584-ITAT-DEL)
