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Facts
The assessee disclosed nil income and was selected for scrutiny concerning investment/advances/loans and cash deposits during demonetization. Information suggested the company was involved in providing bogus accommodation entries. The Assessing Officer (AO) treated bank transactions as accommodation entries and estimated commission income.
Held
The Tribunal held that the assessee challenged the AO's jurisdiction late, and Section 124(3)(a) precluded questioning it after participation. Regarding commission, the Tribunal upheld the CIT(A)'s reduction to 3% but found the initial 5% and the assessee's claim of 1% to be unsupported by facts. The addition of Rs. 26,84,000/- for cash deposits was deleted as the CIT(A) found it explained.
Key Issues
Whether the AO had the correct jurisdiction to assess the case and the validity of the commission income addition. Also, whether cash deposits were unexplained income.
Sections Cited
143(1), 143(3), 133(6), 68, 115BBE, 124(3)(a), 142(1), 127, 69A
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Before: SHRI AMIT SHUKLA & SHRI PRABHASH SHANKARShri Neeraj Mangla,AR (Virtually appear)
O R D E R PER PRABHASH SHANKAR [A.M.] :- The above captioned appeal in ITA 4623/MUM/2023 is preferred by the assessee and ITA 4771/MUM/2023 is cross appeal 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai filed by the Revenue against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to the assessment orders passed u/s. 143(1)of the Income-tax Act, 1961 [hereinafter referred to as “Act”]for the Assessment Year [A.Y.] 2017- 18.Since the issues are interlinked and also the fact that appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity.
2. The grounds of both the appeals are as under:-
(A.Y. 2017-18) 1. That the assessment order passed by Ld. AO as well as the appellate order passed by Ld. CIT(A) are bad in law and have been passed in contravention of prevailing law as well as facts of the case, therefore liable to be annulled.
That the assessment order passed by the Ld. AO is further illegal because of being passed without having a valid jurisdiction over the case of the assessee company.
That the Ld. AO grossly erred in law and in facts of the case in making additions and Ld. CIT(A) grossly erred in upholding additions of Rs. 1,61,98,774/- to the income of the assessee company only on surmises, presumptions and conjectures.
That the Ld. AO as well as Ld. CIT(A) grossly erred in law and in facts of the case in charging commission on failed banking transactions of Rs. 1,56,70,750/-.
That the Ld. AO as well as Ld. CIT(A) grossly erred in law and in facts of the case in presuming and assessing commission income from transactions within group companies.
That the rate of commission being 3% adopted by Ld. CIT(A) in the case of assessee is excessive and unreasonable.
7. That the invoking of provisions of Sec. 68 r.w.s. 115BBE of the Act for levy of tax at higher rate on commission income is not tenable under the law.
4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai ADDITIONAL GROUNDS OF APPEAL
1. That the notice issued u/s 143(2) of the Act on 22/09/2019 being issued without complying to the CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017 and without mentioning type of scrutiny under which the case of the assessee has been selected is not valid as per provisions of Act.
2. That the assessment order dated 30/12/2019 passed u/s 143(3) of the Act is not tenable under the law because of being passed after the assessee company was struck off by Registrar of Companies on 28/07/2017.
3. That the ld. AO grossly erred in law and in facts of the case in levying higher rates of taxes as per provisions of Sec. 115BBE of the Act which were specified by Taxation Laws (Second Amendment) Act, 2016.
3. In this connection, it may be stated here at the outset that during the course of hearing before the Bench, the ld.AR did not want to press the ground nos. 1 and 2 pertaining to the issue of notice u/s 143(2) of the Act. Consequently, the additional ground no.1 and 2 stand dismissed. Further, ground no .3 is already filed in original grounds of appeal no.7 above and would be adjudicated separately.
4. Facts of the case as borne from the records show that assessee disclosed Nil income in the return filed. Its case was selected to examine the assessee for investment/ advances/loans and for verification of transaction as also the cash deposits made during the demonetization period in Bank. Enquiries were made u/s. 133(6) of the Act with Axis Bank and Corporation Bank to obtain the details of debits and credits appearing in the assessee’s bank statements. On verification of the statement, it was observed that there were substantial credits/cash deposits of Rs.47,02,14,258/- and equal debits 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai in the bank accounts maintained by the assessee, the sources and genuineness of the same were not explained satisfactorily. During the course of assessment proceedings, the AO had received information from DCIT Central Circle 2(2) Mumbai that the company had received an amount Rs. 15,92,000/- during the year from M/s. Magan Mercantile Pvt Ltd which was one of the 200 companies directed and floated by one Shri. Shirish C. Shah, who was engaged in providing bogus accommodation entries such as long term capital gain, share capital with huge share premium, turnover, loan etc. On the basis of such information and the statements of the directors of the company, the AO inferred that the bank transactions appearing in the bank accounts were accommodation entries provided by the assessee during the year under consideration. Further, the AO noted that no income was shown by the assessee from these bank transactions and no expenses had been claimed in tune with the transactions appearing in the bank accounts. Based on the above facts, the AO held that the assessee was an entry provider. During the course of assessment proceedings, no books of accounts were produced by the assessee and only Balance sheet and Profit and loss account were filed but no details of investments made were provided. Therefore, the AO estimated Rs.5,39,95,914/- (5% of Rs 107,99,18,288/-) of total debits and credits 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai as commission income of the company which was added to the total income of the assessee as unexplained income as per provisions of section 68 of the Act.
5. While ground no. 1 is general requiring no adjudication, in ground no.2, the assessee had challenged the jurisdiction of the AO for first time before the ld.CIT(A) who obtained a factual report from the AO concerned after verifying the case records. The AO submitted a report which was shared with the assessee to submit the counter comments on the AO’s report. However, till the date of passing of the order, the assessee did not submit any comments on the AO’s report. The ld.CIT(A) observed that the contention of the assessee that its case was centralized with DCIT, Central Circle was found to be factually incorrect from the PAN history communicated by the AO. Further the assessee did not furnish any comments on the AO’s report. Therefore, the ground of appeal
was dismissed by him.
6. Before us, the ld.AR has vehemently contested the decision of the ld.CIT(A) reiterating that the assessment order was liable to be dismissed on jurisdictional issue as the AO assumed incorrect jurisdiction since the case was never transferred from the DCIT, Central Circle 2(2),Mumbai where it was assessed earlier. No order u/s 127 of the Act was passed transferring its case to the AO.
4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai 6.1 Per contra the ld.DR has claimed that as per the report of the AO dated 31/12/2024 submitted at the direction of the Bench, the assessee’s PAN: AAPCS3728K fell under Range-15, Mumbai since 10/09/2012 and from time to time had been transferred within the Range. Further, the AO in the said report also observed that the assessee during the assessment proceedings, had not submitted any transfer application during the course of assessment proceedings and hence, the ground of objection raised by the assessee on the valid jurisdiction over the case was not applicable and without merits. In this regard, it was submitted that the said case was not decentralised as per the records and the system i.e. the PAN lies with ITO 15(3)(1), Mumbai since 22.09.2020. The ld. Sr. DR vehemently submitted that as per section 124(3)(a) of the Act, if the assessee had any objection regarding the jurisdiction of the AO, then the same could have been raised within one month from the date on which he was served with the notice u/s. 142(1) and 143(2) of the Act. However, in the present case, the assessee had failed to do so. The ld. Sr. DR relied on the judgment of the Hon’ble Supreme Court in the case of DCIT (Exemption) & Ors. Vs. Kalinga Institute of Industrial Technology (2023) 151 taxmann.com 434 (SC), wherein the Hon’ble Apex Court has ruled that where the assessee had participated pursuant to the notice issued 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai under Section 142(1) and had not questioned the jurisdiction of the AO, then section 124(3)(a) of the Act precludes the assessee from questioning the jurisdiction of the AO, if he does not do so within 30 days of receipt of notice under Section 142(1).
We have carefully considered all the relevant facts of the case. We find that the return filed with ITO, 15(3)(4),Mumbai, was duly processed u/s 143(1) of the Act. Due to change in incumbency, a fresh notice u/s 142(1) was issued to the assessee company on 14.12.2019. The Dy. Commissioner of Income Tax Central Circle 2(2), Mumbai, vide letter dated 24.12.2019 sent certain information. Several notices were issued to the assessee subsequently in respect of entry provider activity. 7.1 As per the report of the AO submitted before the ld.CIT(A),PAN of the assessee was first generated on 12.01.2011 and originally jurisdiction was with ITO, Ward 15(1)(3).It was transferred to the ITO, Ward 15(3)(4) non 12.12.2019 and remained with him till 22.09.2020 and more importantly during the relevant period when the assessment order was passed on 30.12.2019.It was stated by the AO that PAN was never lying with DCIT CC-2(2) Mumbai ever. The ld.CIT(A) confronted the assessee with this report which remained 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai unresponded without any reason. Therefore, he dismissed the ground challenging jurisdiction. 7.2 As stated above the PAN of the assessee had been transferred from since inception to various AOs. Nothing has been stated or not known as to whether the assessee ever challenged the respective assumption of jurisdiction. Even w.r.t. the assessment by DCIT,CC- 2(2), there is nothing brought on record to demonstrate that the assessee ever contested the transfer of PAN to him also. In such a situation, it is quite evident that the assessee consistently accepted such transfer of PAN to various jurisdictions and filed returns to the respective AOs at the relevant times. Likewise, in the present case, the assessee has itself filed return with above AO and never agitated it till the initiation of scrutiny proceedings and that too at the fag end of such proceedings on apprehending additions to the income. Moreover, the assessee does not appear to have complied with the provisions of section 124(3) of the Act since it did not question the territorial jurisdiction of the AO after it received statutory notice from him and therefore the assessee is estopped/shut-out from doing so as stipulated by sub-section (3) of sec. 124 of the Act. It is true that when a question of jurisdiction arises in the event an AO assumes jurisdiction u/s. 124 of the Act by virtue of the jurisdiction vested by 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai direction or order issued by CBDT and/or other authorities under sub- section (1) or (2) of sec. 120 of the Act, then assessee is estopped from raising an objection to the jurisdiction, after the time period prescribed under sub-section (3) of sec. 124 of the Act lapses. 7.3 However, records also reveal that the assessee had participated pursuant to the notice issued under section 142 (1) and had not questioned the jurisdiction of the AO. Section 124(3)(a) of the Act precludes the assessee from questioning the jurisdiction of the AO, if he does not do so within 30 days of receipt of notice under section 142 (1).In the judgment of “KIIT” (supra), Hon’ble Apex Court had interpreted the provisions of section 124(3)(a) and expressly clarified the assessee’s eligibility to raise a question of challenging the validity of jurisdiction of the Ld. AO, placing a bar on it, in case the assessee has not raised such issue within 30 days of receipt of notice u/s 142(1) and the assessee had participated pursuant to the said notice. Such interpretation of the law by hon’ble Supreme Court is binding on all the authorities subordinate including the tribunal and, therefore, the same shall apply while deciding the issue if falls within the scope of “KIIT”(supra) and if the assessee is unable to pass the test stipulated u/s 124(3)(a) which is explained by Hon’ble Apex Court in its subsequent order in the case of “KIIT”, granting an categorically 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai finding to put a bar on the assessee stating that if “the assessee had participated pursuant to the notice issued under section 142 (1) and had not questioned the jurisdiction of the assessing officer. Section 124(3)(a) of the Act precludes the assessee from questioning the jurisdiction of the AO, if he does not do so within 30 days of receipt of notice under section 142 (1)“, accordingly assessee would be precluded to raise a question of jurisdiction covered under the provisions of section 124(3)(a) of the Act. 7.4 Besides, the assessee did not even respond to the factual report submitted by the AO for reasons best known to it. Thus, we do not find any merit in the ground and find no infirmity in the conclusion drawn by the ld.CIT(A) and uphold the same. Accordingly ground no 2 in this regard is dismissed.
Ground no. 3 to 6 pertain to the addition made in respect of commission. According to the assessment order addition of Rs.5,39,95,914/- was made by the AO on account of commission earned on accommodation entries provided by the assessee through its bank accounts. Before the ld.CIT(A),it was submitted by the assessee that it was merely an entry provider and earned commission income therefrom. No addition u/s 68 of the Act was justified. It was also contented that the AO had worked out commission income at the rate 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai of 5% of aggregate amount of both the debits and credit as appearing in the bank accounts which is apparently incorrect. The rate adopted by the AO was also stated to be excessive and needed to be reduced to 1% as per rulings in various judicial decision relied upon in this regard. The ld.CIT(A) called for a report from the AO w.r.t. submissions made which was duly received contesting the submissions. The assessee was also requested to give counter comments which was however not given. Accordingly, the ld.CIT(A) concluded that the issue involved was justification for estimation of commission at the rate 5% as against appellant’s request to adopt the same at the rate of 1% based on the decision of Hon’ble jurisdictional ITAT Mumbai in the case of M/s. Empower India Limited Vs. DCIT, (ITA No.3646/Mum/2019). The second point was that the commission was computed by the AO on total debits and credits in the bank accounts of Rs.107,99,18,288/- whereas as per the assessment order, total credits were at Rs.53,99,59,144/- and total debits were at Rs.53,99,59,144/-. On both the above points, the AO had not submitted his comments. However, in para 4.1 of his report, the AO had mentioned that there were huge credits in the bank accounts and immediately the entire cash was withdrawn except very paltry amounts. From these facts, he concluded that only credit entries could be considered as an accommodation 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai entries and the debits i.e. cash withdrawn could not be considered as accommodation entry and hence the same could not be the basis for computation of commission earned on accommodation providing transaction. Therefore he directed the AO to adopt the figure of Rs.53,99,59,144/- as accommodation entries for computing the commission income. 8.1 Regarding the rate of commission at the rate of 5% estimated by the AO, the ld.CIT(A) observed that the AO had not discussed the basis or rationale for adopting the same at the rate 5%. On the contrary, the appellant by relying on the decision of Hon’ble jurisdictional ITAT Mumbai in the case of M/s. Empower India Limited Vs. DCIT, (supra)) had requested to compute the commission income at the rate of 1%. However, he found that the Hon’ble jurisdictional ITAT Mumbai its recent decision dated 31/08/2023 in the case of Naresh Manikchand Jain Vs. ACIT Circle 2(1), Mumbai (ITA No. 1945 & 1946/Mum/2023) had upheld the addition for commission earned on accommodation entry providing activity at the rate of 3%. Therefore, he directed the AO to estimate the commission for accommodation entries at the rate of 3% as against 5%. In view of the above discussions, the addition made by the AO was restricted to Rs. 1,61,98,774/- ( 3% of Rs.59,99,59,144/-) as against the 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai addition of Rs.5,39,95,914/- made by the AO. The assessee got relief of Rs. 3,77,97,140/-.
Before us, the ld.AR has reiterated the same contentions as made before the lower authorities. It is submitted that the rate of commission as adopted by the ld.CIT(A) may be reduced to 1% only. He has placed reliance on cases of certain group companies where the rate is taken accordingly.
We find that the ld.CIT(A) has been quite fair and reasonable in granting substantial relief to the assessee after due appreciation of all the relevant facts of the case. In the present case, the AO himself added only the commission element to the income and not the entire credits appearing in the relevant bank account. However, we notice that the assessee has been emphasising that it being an accommodation provider, rate of commission should be restricted to 1% by placing reliance on a ITAT, Mumbai decision without stating how the decision applies to the facts of the case. Moreover, the assessee is silent on the beneficiaries as nothing has been brought on record that the same were duly identified before the lower authorities. In such a situation, adoption of 3% as commission on the credit entries is a reasonable inference which cannot be faulted with. Thus, we find no infirmity in 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai the conclusion drawn by him. Accordingly, the appellate order is upheld dismissing the above grounds as non sustainable.
In ground no.7, it is claimed that invoking of provisions of section 68 r.w.s. 115BBE of the Act for levy of tax at higher rate on commission income is not tenable under the law.
In this regard the ld.AR has contented that the commission income is business income of the assessee. Therefore, it is not liable to be taxed u/s 68 of the Act. Accordingly, higher rate of tax should not be applied thereon.
We find that the addition in this case has been made on account of accommodation entries u/s 68 of the Act and the same has been partly allowed by the ld.CIT(A) by adopting a lower percentage of 3% as against 5% applied by the AO. The provisions of section 115BBE were inserted by the Finance Act, 2012, with effect from 01.04.2013. Section 115BBE taxed the unexplained credits, money, investment, expenditure, etc., which were deemed as income under section 68/69/69A/69B/69C or section 69D, at the rate of 30% (plus surcharge and cess), without allowing any deduction for any expenditure or allowance. Thereafter, the provisions of sub-section (1) of Section 115BBE were substituted by Taxation Laws (Second Amendment) Act, 2016, w.e.f. 01.04.2017 i.e. AY 2017-18. Taxation 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai Laws (Second Amendment) Act, 2016 received the assent of the President of India only on 15.12.2016.On comparison of the amended provision with the earlier provision, it is clear that the above-stated clause (a) of sub- section (1) of section 115BBE retains the essential features of the earlier provision with the difference that the rate of tax is ENHANCED from 30% to 60%. Simultaneously, section 2(9) of Chapter II of the Finance Act, 2016 was amended by inserting the Seventh proviso to provide for a levy of surcharge at the rate of twenty five per cent of tax u/s.115BBE. Thus, the rate of tax after the amendment to Section 115BBE was 77.25% [60% + 25% Surcharge + 3% Cess], as against 30%. 13.1 When an addition u/s 68 of the Act is made, taxing it at the rate prescribed u/s 155BBE of the Act was a natural corollary. It is provided in the Act itself. The AO has to tax as per provisions of section 115BBE, if addition is made u/s 68 or section 69, 69A etc. We find that it is natural consequence, if addition is made under these sections. Therefore, the argument of the assessee is not found to be acceptable. These are the special provisions dealing with the situation and the income which is the subject matter of the contention in the appeal and being the specific provisions they are preferred and override the general provisions. Once the income is as per 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai these sections, there cannot be any dispute regarding the applicability of section 155BBE of the Act. These sections 68/69/69A etc. along with section 115BBE are in the nature of complete code in itself. In this regard, it is held by Hon’ble Gujarat High Court in Fakir Mohmed Haji Hasan v. Commissioner of Income-tax [2002] 120 Taxman 11 (Gujarat)/[2001] 247 ITR 290 (Gujarat)/[2001] 165 CTR 111 (Gujarat) [10- 08-2000] that, “6.2 The opening words of section 14 ’Save as otherwise provided by this Act’ clearly leave scope for ‘deemed income’ of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary house property, profits and gains of business or profession, or capital gains, nor is it income from other sources’ because the provisions of sections 69, 69A, 69B, and 69C treat unexplained investments.” 13.2 In view of the aforesaid position of law, we do not find any merit in the grounds of appeal
of the assessee in this regard which is accordingly, dismissed.
14. (A.Y. 2017-18)
1. Whether on the fact and circumstances of the case and in law, the Ld.CIT(A) has erred in restricting the addition at the rate of 3% instead of 5% of total credits of Rs. 53,99,59,144/-by ignoring the fact that sources and nature of the credit entries was not explained at all.” 2. “Whether, on the facts and circumstances of the case and in law, the order of the CIT(A) is not bad in law in granting benefit to the assessee relying upon the case laws explicitly distinguishable from the assessee’s case.” 3. “Whether on the fact and circumstances of the case and in law, the Ld.CIT(A) has erred in not considering the finding of AO that nature and source of the cash deposit/credit of Rs. 26,84,000/- was unexplained.”
4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai 15. In respect of ground nos. 1 and 2,we have already dealt with the issue in assessee’s appeal supra in para 10 above and concluded that the action of the ld.CIT(A) is reasonable and fair in adopting commission income percentage at 3%.In this regard, the ld.DR has not been able to controvert his findings and decision and neither any substantial argument has been made nor any contrary decision has been placed on record. Moreover, in the instant case ,the AO himself has added only the commission income by admitting that the assessee was engaged in the activity of accommodation entries provider. Accordingly, ground nos. 1 and 2 are dismissed.
Ground no.3 pertain to the deletion of Rs 26,84,000/- as appearing in the bank account added u/s 69A of the Act. As per the AO, the assessee had deposited cash in both the accounts of the company with Corporation Bank and Axis Bank aggregating to Rs. 26,84,000/- .Since the assessee failed to explain the sources thereof, the purported cash deposits was treated as a ‘cash credit’ in the books of the assessee, whose nature and source was not explained satisfactorily and, therefore, deemed to be its income as envisaged in section 69A of the Act.
The ld.CIT(A) deleted the addition on the basis of his observations that during the course of appellate proceedings, the 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai assessee had claimed that the cash deposit was ultimately transferred to the beneficiaries and the said money was not unexplained money of the assessee. It further contended that the AO had already taxed commission earned from accommodation entry providing business. During the course of appellant proceedings, the report of the AO was called for in connection with the addition made for earning the commission at the rate of 5% on accommodation entry transactions. In the report, the AO submitted that accommodation entry cheques were deposited in the assessee’s bank account and immediately huge cash was withdrawn. For such transactions, the AO had already made addition of Rs.5,39,95,914/- on account of commission at the rate of 5% on providing the accommodation entries to the beneficiaries. Therefore, the ld.CIT(A) was of the opinion that the source of cash deposits of Rs.26,84,000/- got explained and the addition made by the AO of Rs.26,84,000/- was deleted. 17.1 Before us, the ld.DR has not controverted the findings of the ld.CIT(A) apart from relying on the assessment order.
We have carefully considered the above facts. The ld.CIT(A) treated the said deposits relating to the business of accommodation entry and considered the addition as unsustainable. The conclusion drawn by the ld.CIT(A) is fair, reasonable and judicious requiring no 4771/Mum/2023 A.Y. 2017-18 Suhasit Star Trading Pvt. Ltd., Mumbai interference. He duly considered the report of the AO called during the appeal proceedings. Thus, there is no infirmity in the appellate order. Accordingly, Revenue’s grounds of appeal
are dismissed.
19. In the result, the appeal of the assessee and that of the Revenue are dismissed.
Order pronounced in the open court on 09.10.2025.