M/S. ALAG SECURITIES PVT LTD,MUMBAI vs. THE CIT (A) -22, MUMBAI

This appeal is filed by M/s Alag Securities Pvt Ltd, which is claimed by assessee to be part of one of the group companies of one Accommodation entry Provider Mr. Mukesh Chokshi, for assessment year 2004-05 against the order passed by the National Faceless Appeal Centre (NFAC), Delhi (The Learned CIT (A)) dated 29/11/2021 raising following grounds of appeal:-

Brief facts of the case shows that assessee is a private limited company. As claimed by assessee, it is engaged in the business of providing accommodation entry to beneficiaries by accepting a cash and issuing cheques of lesser amount and earning commission. It belongs to Mr. Mukesh Chokshi who operates many such companies.

Assessee filed return of income declaring Nil income. Consequent to that assessment order u/s 143 (3) read with Section 153A of the act was passed on 8/12/2011 assessing the total income of the assessee at ₹ 3,679,940/–. This assessment was framed consequent to the search action carried out in Mahasagar group of cases.

As Assessee is found to be a hawala/accommodation entry provider, commission income of the assessee was assessed taking 2 % of the sum of credit

This was challenged before the learned CIT – A where the appeal of the assessee was dismissed by an order dated 31/7/2012 passed for assessment year 2004 – 05 to assessment year 2010 – 11.

The assessee preferred an appeal before the coordinate bench, as per order dated 7/7/2017 in ITA number 6049- 6055/M/2012 the issue was set- aside to the file of the learned assessing officer for giving an opportunity of hearing to the assessee.

Therefore following the directions contained in that order the learned assessing officer proceeded to pass an order.

During the course of assessment proceedings assessee was granted an opportunity of hearing. After several adjournments, directors of the assessee company Mr. Mukesh M Choksi submitted a letter dated 22/2/2018 wherein he has stated that taxable income of commission after setting off the transfer entries and reverse payments, his gross receipt comes to ₹ 77,335,956/– and his commission income should be taken @ 0.15% on the gross income. Such commission income he estimated at ₹ 116,004/–. Therefrom he claimed deduction of expenses of 50 % of expenses of ₹ 212,058/– .

The learned assessing officer considered the explanation of the assessee and questioned him on various adjustment made by him. His claim of expenses was also verified, he was also asked to substantiate the claim of the expenses, the rate of commission and the transfer entries and reverse payments.

With respect to the evidence, Assessee submitted that assessee does not have any further evidence as the income tax department during the course of search on 15/11/2009 has seized all the documents. With respect to the rate of commission, it was stated that coordinate bench has considered the rate of commission @ 0.15 %.

The learned assessing officer rejected the same stating that for adopting commission @ 2% in this year, the learned assessing officer has given enough reasons in the original assessment order and further the orders of the coordinate bench are contested before the honourable Bombay High Court. Accordingly, the commission income was estimated at 2%. With respect to the transfer entries, the claim of the assessee was rejected as assessee could not submit any evidence nor the names of the companies to whom such transfer entries are given. With respect to deduction of expenses, the learned

Assessee preferred an appeal before the National faceless appeal Centre, who disposed of the appeal of the assessee dismissing the same. Therefore, assessee aggrieved with that is in appeal before us.

Before us the assessee submitted the decision of the honourable Bombay High Court in PCIT versus Alag securities private limited in ITA number 1512 of 2017 dated 12 June 2020 wherein the appeal filed by the revenue against the order of the coordinate bench for assessment year 2003 – 04 wherein in paragraph number 21 honourable High Court held that commission income at the rate of 0.15 percent disclosed by the assessee is reasonable percentage of commission in similar type of transactions. Therefore, assessee submitted that issue is squarely covered in favour of the assessee and the commission rate is required to be adopted for this year also at 0.15%. He further submitted that in

The learned departmental representative vehemently opposed the submission of the assessee stating that assessee is part of Mr Mukesh Chokshi group as an entry provider where several companies have provided millions of Rs of accommodation entries to the large beneficiaries. Assessee is providing huge accommodation entries to the various beneficiaries by money laundering as it accepts the cash from the various beneficiaries and in turn issues cheques for converting the Black money of the parties through various layers. He further submitted that as it is apparent from the various orders submitted by the assessee, this scam is going on for the last more than a decade. He submitted that decision cited by the director of the assessee company Mr. Mukesh Chokshi himself does not apply for this year. He has not given any details of what kind of accommodation entries assessee has provided, what is the amount of commission charged by it on each of the entry and whether the beneficiaries are identified or not. It was submitted that if beneficiaries are not identified by the assessee then no benefit of application of percentage should be granted to the assessee. For

We have carefully considered the rival contention and perused the orders of the lower authorities. We have also considered the order of the honourable High Court in assessee’s own case for assessment year 2003 – 04 as well as the orders of the coordinate bench in assessee’s own case and orders of the coordinate bench in other cases. The assessee has raised several grounds of appeal.

As per ground number 2, the assessee has challenged that the orders have been passed by violating the principles of natural justice and ignoring several decisions of the coordinate benches having similar facts and circumstances. No such arguments were advanced before us. However, we find that lower authorities have considered the decisions cited before it, those are discussed, and thereafter the issue is decided. Therefore, this argument is dismissed.

As per ground number 3, the assessee has challenged that the honourable High Court has decided the issue in favour of the assessee by considering the commission rate at the rate of 0.15% of the turnover and deduction of 50% of the expenses, which has been ignored. Claim of the assessee is that these two issues are covered in favour of the assessee by the decision of the coordinate bench which has been affirmed by the honourable High Court in assessee’s own case for assessment year 2003 – 04.

Further all other tribunal decisions merely followed the earlier decisions without mentioning what type of transactions assessee has undertaken and whether the amount has been considered in assessment of beneficiaries or not.

For this year coordinate bench has set aside the issue back to the file of the learned assessing officer to give assessee an opportunity of hearing. During the course of assessment proceedings, the AO asked the assessee to justify the commission income charged by him. He stated that in the original assessment proceedings it submitted all the details and further all relevant details are now seized by the income tax department during the search and survey operations carried out on 25/11/2009. The assessee did not care to obtain the copies of such evidences, which have been taken by the income tax department. Had those been obtained by the

In the decision of the honourable High Court, it has been held that assessee used to charge 0.15% as commission and it was an admitted fact. In the present case, in absence of any information what is the commission charged by the assessee and on what type of transactions, those judicial precedents cited before us do not help the case of assessee.

As assessee has not given any details of what kind of accommodation entries he has provided i.e.

There are no similar transactions available/produced before the assessing officer as were mentioned in those orders of coordinate benches. For all earlier years for which several judicial precedents cited before us, there is a finding of similar transactions. It is lacking in this year.

Further, for determination of commission income at the rate of 2% the assessing officer has given a detailed explanation in the assessment order, none of them is rebutted by the assessee by producing any cogent evidence.

Assessee has even not care to explain that total credit appearing in all the bank accounts is ₹ 183,997,040/– which assessee has scale down as per paragraph number 2 of the order only to ₹ 125,583,003/–. Therefore, it is apparent that assessee is not willing to give the correct detail of

Further, the learned AO relying on various statements recorded and documents found in the course of search and post search operation has concluded that the appellant company was earning commission in the range of 1.5% – 3.5% on various kinds of accommodation entries provided by it. Thus, there is no instance shown by the assessee for this year that it has charged commission income only at 0.15%. Further AO found contrary evidence that the rate of commission for accommodation entries charged by the assessee is in the range of 1.5% to 3.5%. Thus ld AO on most reasonable basis adopted it @ 2 %.

In view of these facts, we do not find any infirmity in the order of the lower authorities in estimating the commission income of the assessee at reasonable rate of 2% on the credits in the bank account.

Further with respect to the expenditure claimed by the assessee, there is no evidence produced of the expenses incurred by the assessee wholly and exclusively for the purposes of the business. Further, when the net commission income of the assessee is estimated there is no question of

Even otherwise, there is no evidence available that such expenditure are recorded in the books of accounts. The assessee did not produce any evidence.

Looking to the nature of expenditure where the assessee has claimed directors remuneration of ₹ 60,500, there is no evidence that who are the directors and whether those directors are involved in providing the business of accommodation entries to the various beneficiaries are not. Assessee has also not named those directors were involved in this money laundering business carried on by the assessee.

Merely filing the table of expenditure incurred without showing any evidences that those are wholly and exclusively incurred for the purposes of the business, it cannot be allowed as deduction to the assessee.

There is nothing shown by producing the memorandum and articles of association of the company that it is engaged in business of providing accommodation entries and that is the business of the assessee, what is the relationship of these expenditure incurred with the actual business carried

It is also not shown to us that Ministry of corporate affairs allows the companies to carry on the business of accommodation entry provider, which is proudly claimed by the assessee before the lower authorities and before us. Therefore, if the assessee failed to show the business carried on by it in terms of its MOA and AOA, we do not find any reason that any expenditure should be granted as deduction to the assessee. The fact clearly proclaimed by the assessee is that it is accommodation entry provider company, even the director Mr. Mukesh Chokshi , who appeared before us also proudly claim so, could not show that MOA and AOA of the assessee provides for carrying on such business.

Thus, there is no evidence that the assessee has any expenditure incurred for the self-professed business of accommodation entry provided by assessee.

In view of the above startling facts, which were not there in the orders of the coordinate benches produced before us, the ratio laid down by those decisions cannot apply to the facts of the assessee for this assessment year.

In the result, we uphold the order of the lower authorities in not granting any deduction to the assessee of expenditure.

Ground number 7 is repetition of the above grounds, in view of our decision above, it is dismissed.

As per ground number 5 and 6 assessee has claimed that income shall be calculated at the rate of 0.15% of the net turnover after deducting the transfer entries. Before the assessing officer the assessee has stated that his total receipts is only ₹ 125,583,003/– out of which there are transfer entries of Rs 4 29,82,965/– and further there are reversed Payments and cheque return of Rs 52,64,082/–. Therefore the commission income should be computed only on ₹ 77,335,956/–. In the original assessment proceedings the total gross receipt credited in the bank account of the assessee was found at ₹ 183,997,040/–. There is no justification that how the assessee has computed the total credit in the bank account of ₹ 183,997,040/– to only ₹ 125,583,003/–. Further there is no evidence produced with respect to the transfer entries amounting to Rs 4, 29,82,965/–. It was also not shown to which entities these transfer entries have been made, who is the beneficiary and what

Accordingly, the appeal of the assessee is dismissed.

Before parting, we are astonished to note that various companies controlled by director of this company, who represented this case before us, are in the business of providing accommodation entries of hundreds of crores in each of the entities for more than a decade. In layman’s term, these entities have either fuelled huge tax evasion by the beneficiaries or creating artificial assets through money laundering and creation of Benami Properties. Damage caused by such transactions to the fabric of society is immeasurable. We cannot accept these transactions blindfolded. Audacity of the assessee can be measured when before the courts and all Government authorities i.e. Income tax Authorities it can proudly proclaim that it is engaged in the business of providing accommodation entries that too for decades and in multiple cases. Income Tax Authorities are empowered to invoke the provisions of Prohibition of Benami Property Transactions Act