NARAYANLAL BHANAJI PRAJAPATI,AHMEDABAD vs. THE ACIT, CENTRAL CIRCLE-2(3), AHMEDABAD

During the course of assessment proceedings, the Assessing Officer noticed that the assessee had declared brokerage income of ₹3,00,000/- and commission income of ₹2,65,000/- aggregating to ₹5,65,000/-. The assessee was asked to furnish details regarding the nature and source of the said income along with supporting evidences. In response, the assessee submitted that the brokerage and commission income had been earned from supplying cloth and providing GST billing services on commission basis. However, the Assessing Officer observed that the assessee failed to furnish any Narayanlal Bhanaji Prajapati vs. ACIT Asst. Year –2021-22 - 3– documentary evidence such as bills, vouchers, details of parties from whom such commission or brokerage was received, delivery challans or any other corroborative material. The assessee merely produced ledger extracts showing receipt of the amounts in cash, which according to the Assessing Officer were not supported by any independent evidence. Accordingly, the Assessing Officer held that the assessee had failed to satisfactorily explain the nature and source of the credit entries of ₹5,65,000/- and therefore treated the same as unexplained cash credits under section 68 of the Act and taxed the same under section 115BBE.

The Assessing Officer further noted that during the course of the search, certain bogus invoices aggregating to ₹11,57,11,453/- were found which were related to accommodation entries provided through bogus billing. The assessee, in his statement recorded during the course of search proceedings, admitted his involvement in providing such accommodation entries and explained the modus operandi. The Assessing Officer noted that the assessee had claimed that he earned commission at the rate of 0.05%, whereas the statement of the assessee’s son indicated that the commission earned on bogus billing transactions was at the rate of 0.25%. Based on the seized material and statements recorded during search proceedings, the Assessing Officer estimated commission income at 0.25% of the total bogus billing amount and computed the commission income at ₹2,89,278/-. Since substantive addition on this account had already been made in the hands of the assessee’s son, the Assessing Officer made the addition of ₹2,89,278/- in the hands of the assessee on protective basis.

With regard to Ground No. 2 relating to the addition of ₹2,89,278/- made on protective basis, the learned CIT(Appeals) examined the seized material and the statements recorded during search proceedings. The learned CIT(Appeals) noted that the bogus invoices were found from the possession of the assessee and that the assessee had admitted his involvement in providing bogus billing accommodation entries. The learned CIT(Appeals) further observed that the son of the assessee had explained the rates of commission applicable for various accommodation entry activities and had specifically stated that commission on bogus billing was charged at the rate of 0.25%. The learned CIT(Appeals) therefore held that the estimation of commission income at the rate of 0.25% was justified. However, considering the fact that the incriminating material was found from the Narayanlal Bhanaji Prajapati vs. ACIT Asst. Year –2021-22 - 5– possession of the assessee and the assessee himself had admitted the transactions, the learned CIT(Appeals) held that the addition should be made substantively in the hands of the assessee instead of on protective basis. Accordingly, the learned CIT(Appeals) directed the Assessing Officer to treat the addition of ₹2,89,278/- as substantive addition in the hands of the assessee and delete the same from the hands of the son.

The assessee is in appeal before us against the order passed by the CIT(Appeals) dismissing the appeal of the assessee.

We have carefully considered the rival submissions and perused the material available on record including the assessment order and the order passed by the learned CIT(Appeals). The primary issue raised in the present appeal relates to the addition made on account of commission income arising from bogus billing accommodation entries and the findings recorded by the learned CIT(Appeals) in confirming the same.

From the material available on record, it is evident that the incriminating material relating to bogus invoices was found during the course of search proceedings and such invoices were found from the possession of the assessee. The assessee in his statement recorded under section 131(1A) of the Act during the course of search proceedings had clearly admitted that the invoices were bogus and that he was involved in facilitating accommodation entries in lieu of commission income. The seized documents indicated that bogus billing transactions aggregating to ₹11,57,11,453/- had been facilitated through the said accommodation entry mechanism by the assessee. The learned CIT(Appeals) has examined the seized material and the Narayanlal Bhanaji Prajapati vs. ACIT Asst. Year –2021-22 - 6– statements recorded during search proceedings in detail and has recorded a categorical finding that the incriminating material was found from the possession of the assessee and that the assessee himself had admitted the modus operandi of providing such accommodation entries.

The learned CIT(Appeals) has further noted that the son of the assessee had explained the specific rates of commission applicable for various accommodation entry transactions and had clearly stated that the rate of commission for bogus billing entries was 0.25%. The learned CIT(Appeals), after considering the seized documents and the statements recorded during search proceedings, found that the activity involved in the present case was clearly that of bogus billing accommodation entries and therefore the rate of commission of 0.25% adopted by the Assessing Officer was reasonable and justified. The learned CIT(Appeals) has also correctly observed that since the incriminating material was found from the possession of the assessee and the assessee himself had admitted the transactions, the addition ought to be made substantively in the hands of the assessee instead of on protective basis.

We find that the findings recorded by the learned CIT(Appeals) are based on a proper appreciation of the facts and evidence available on record. The assessee has not been able to bring any material before us to controvert the findings recorded by the learned CIT(Appeals). On the contrary, the material available on record including the seized documents and the statements recorded during the course of search proceedings clearly establish the involvement of the assessee in providing accommodation entries through bogus billing and earning commission income therefrom.

Further, the Hon’ble Supreme Court in the case of CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) has held that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality of the transaction and are not bound to accept the apparent as real. Similarly, the Hon’ble Supreme Court in Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) has held that the test of human probabilities can be applied to determine the genuineness of a transaction.

Applying the above principles to the facts of the present case, it is evident that the explanation offered by the assessee regarding the commission income is not supported by any documentary evidence whereas the seized material clearly establishes the involvement of the assessee in providing accommodation entries.

In view of the above discussion and considering the detailed findings recorded by the learned CIT(Appeals), we are of the considered view that there is no infirmity in the order of the learned CIT(Appeals) so as to warrant any interference by this Tribunal. The conclusions reached by the learned CIT(Appeals) are based on cogent reasoning and proper appreciation of the evidence on record.