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Facts
The assessee's return, initially processed under Section 143(1), was reopened under Section 147/148 after information revealed undisclosed bank accounts used for providing accommodation entries. The Ld. AO made an addition of ₹35,41,517/- under Section 68 for unexplained cash credit, based on the peak deposit in a single day, which was confirmed by the Ld. CIT(A).
Held
The Tribunal found the assessee provided accommodation entries through commodity trading and rejected the AO's peak credit method as unreasonable. It directed the AO to re-calculate the addition by applying a 0.2% commission on the total deposits in the undisclosed bank accounts for both assessment years. This resulted in a reduced addition for A.Y. 2010-11 and A.Y. 2011-12, with the balance deleted.
Key Issues
Whether the addition under Section 68 for unexplained cash credit in undisclosed bank accounts was justified, and what is the appropriate method for estimating income from providing accommodation entries in commodity trading.
Sections Cited
68, 143(1), 147, 148
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
The common issue raised in the grounds nos.1,2 & 3 are against the confirmation of addition of ₹35,41,517/- by the ld. CIT (A) as made by the ld. AO on account of unexplained cash credit u/s 68 of the Income-tax Act, 1961 (the Act) in respect of undisclosed bank account while the issue raised in ground no.4 is without prejudice ground and is against the order of ld. CIT (A) not restricting the addition to the
The facts in brief are that the assessee filed the return of income on 08.10.2010, declaring total income at ₹1,22,035/-, which was duly processed u/s 143(1) of the Act. Thereafter the ld. AO received information from DDIT (Investigation), Unit 2(3) Kolkata that STR in respect of account no.147119 with standard chartered bank, NS road branch and account no.024193 with Kotak Mahindra bank, Dalhousie Branch were having cash deposits inward local transfers from certain parties and thereafter, subsequent transfer to other beneficiaries and these accounts were not disclosed by the assessee. Accordingly, the case of the assessee was reopened u/s 147 r.ws. 148 of the Act by issuing notice on 31.01.2013. In compliance the assessee stated vide letter dated 25.02.2013, that the return filed on 08.10.2010, may kindly treated as return filed in compliance to the notice issued u/s 148 of the Act. Thereafter, the statutory notices were issued along with questionnaires which were replied by the assessee’s counsel from time to time. It was submitted before the ld. AO that the assessee is engaged in trading in commodities and accordingly produced the books of account along with bank statements and other evidences which were examined by the ld. AO. The ld. AO on examination of the books of accounts and other evidences in the form of contract notes, bank statements observed that there were deposits in undisclosed bank account in account no.147119 with standard chartered bank NS road Branch which aggregated to Rs. 1,49,29,027, whereas in account no.024913, Kotak Mahindra Bank, Dalhousie Branch, the total deposits were Rs. 50,000/-. The ld. AO noted that the deposits were in the form of cash as well as cheque deposits and accordingly, the assessee was asked to explain the same failing which why same
In the appellate proceedings, the ld. CIT (A) confirmed the order of the ld. AO after taking into account the submission of the assessee by observing as under:-
“4. I have carefully examined the assessment order, the grounds of appeal and the written submission of the appellant in the case. From the assessment order and as admitted by the appellant, the appellant was involved in a dubious business of Jama-Kharch and acting as an intermediary in providing bogus commodity trading profits to many beneficiaries who were willing to convert their undisclosed cash into disclosed cheques by showing bogus intra-day commodity profits. It is also a fact on record that the appellant had not disclosed the impugned bank accounts to the department. Accordingly, the assessing officer on enquiry, issued a show cause notice to the appellant as to why the entire deposits in the bank accounts should not be treated as undisclosed cash credit under section 68 of the Income Tax Act. Inresponse to the same the appellant having explained with the modus operandi of its business of giving accommodation entries to those assessee who wants to convert their undisclosed cash into bogus profit in their books offered before the assessing officer the peak of credits on the closing balance of the day to be assessed as undisclosed income. Accordingly, the assessing officer proceeded to assess the peak deposits or peak credit of the undisclosed bank accounts in a single day transaction on 26/03/2010 amounting to Rs.35,41,517 as undisclosed cash credit under section 68 of the Income Tax Act.
5. The appellant before this authority argued that on providing the above accommodation entries to the beneficiaries the appellant earned a commission at the rate of 0.20 per Rs.100 of the cheque issued and the deposits made in the undisclosed bank accounts do not represent its income they are merely transfer of cash belonging to the beneficiaries to their bank accounts through assessee’s bank account in the form of bogus intra-day profit provided to them by the assessee.
ITA No.1976/KOL/2024 for A.Y. 2011-12
The issue raised in this appeal is similar as decided by in A.Y. 2010-11, wherein we have directed the ld. AO to make an addition at the rate of 0.2% on the total deposits in the undisclosed bank accounts. Accordingly, our decision in the above ITA would apply mutatis mutandis to this appeal in as well. Accordingly we set aside the order of ld.
In the result, both the appeals of the assesseeare partly allowed.
Order pronounced in the open court on 15.01.2025.