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Facts
A search and seizure operation was conducted, leading to the assessment of the assessee company under Section 153C of the Act. The Assessing Officer made additions on account of unexplained credit entries in the bank account and unaccounted commission income. The assessee argued that it was a shell company used for routing funds and earning commission, which was already taxed in the hands of the actual operators.
Held
The CIT(A) deleted the addition of Rs. 2,85,37,640/- and Rs. 71,344/-. The Tribunal upheld the CIT(A)'s order, noting that the assessee company was a pass-through entity and the commission earned had already been taxed in the hands of the entry operators. The Tribunal observed that the CIT(A) had correctly identified the company as a shell concern involved in providing accommodation entries.
Key Issues
Whether the addition on account of unexplained credit entries and commission income is sustainable when the assessee is a shell company and the commission has already been taxed in the hands of the entry operators.
Sections Cited
68, 153C, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: Sh. Challa Nagendra PrasadDr. B. R. R. Kumar
ORDER Per Bench: The present appeals and Cross Objections have been filed by the Revenue and the assessee against the orders of ld. CIT(A)-29, New Delhi dated 25.11.2021. Since, the issue involved in all these appeals and Cos are similar, they were heard together and being adjudicated by a common order.
“ 1. That on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs 2,85,37,640/- made on account of undisclosed sources u/s 68 for unexplained entries in bank account ignoring the fact that assessee has failed to produce any concrete and any additional evidences in support of its contention.
That on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs. 71,344/- made on account of unaccounted commission, ignoring the fact that the assessee has failed to disclose the commission earned from providing accommodation entry.
3. That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law.”
The assessee has raised the following grounds of appeal in CO No. 181/Del/2022: “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the order passed by the learned Assessing Officer (AO) under Section 143(3) read with section 153C is without jurisdiction.
3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153C and the assessment framed under Section 153C is bad and liable to be quashed in the absence of any satisfaction being recorded by the AO of the searched person that the incriminating material belonging to the assessee was found during the course of the search.
4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the explanations and evidences brought on record by the assessee to prove the identity and creditworthiness of the lenders and genuineness of the transactions.
5. (ii) That the abovesaid addition has been confirmed ignoring the fact that the addition has been made by the AO without pointing out any defect in the evidences filed by the assessee.
3 to 212/Del/2022 CO Nos. 181 to 185/Del/2022 M/s Zed Enterprises(P) Ltd. 6. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in holding that the assessee is involved in providing and taking accommodation entries in the form of share application money or unsecured loans.”
The assessee is a Private Limited company and is engaged in the business of trading. The assessee filed return of income on 28.09.2012 declaring a total income of Rs.1,06,230/-. Thereafter, a search and seizure operation was carried out on the business & residential premises of Anand Jain and Naresh Jain group of cases on 17.12.2015. The case of the assessee company is covered under 153C of the Act, 1961 and satisfaction note were recorded by the AO of searched person on 20.03.2018 and by the AO of the assessee company on 22.03.2018.
The AO has made protective addition of entire credit entries in bank account of Rs.2,85,37,640/- treating as unexplained entries in the hands of the assessee company and also made substantive addition of Rs. 71,344/- on account of unaccounted commission income.The Assessing Officer vide show cause notice dated 10.12.2018, on basis of material seized/ impounded during search alleged that assessee company is only paper/shell company and providing accommodation entries in lieu of cash and required to explain deposits of Rs. 2,85,37,640/- in bank accounts of assessee company.
At the end ,the AO made the protective addition of entire credit entries in bank account of Rs.2,85,37,640/- treating as unexplained entries in the hands of the assessee company and
Aggrieved, the assessee filed appeal before the ld. CIT(A) who deleted the commission charged by the AO.
Aggrieved, the Revenue filed appeal before the Tribunal.
Before us, the ld. DR argued that the action of the ld. CIT(A) deleting the commission wrong on the facts as the assessee company has proved to have given accommodation entries to various people and entities.
On the other hand, the ld. AR argued that it is a fact that accommodation entries have been given by Sh. Anand Jain and Sh. Naresh Jain brothers who have floated various concern including the assessee company through which the entries have been routed through. The commission earned by these two brothers already stands adjudicated determining the total commission earned on the entries given through various entities. Hence, no separate commission can be taxed in the hands of the assessee as the commission already stands taxed in the hands of the entry operators in individual capacity.
Heard the arguments of both the parties and perused the material available on record.
We have examined the ratio of the ld. CIT(A). The ld. CIT(A) held that the AO in the assessment order has claimed to 5 to 212/Del/2022 CO Nos. 181 to 185/Del/2022 M/s Zed Enterprises(P) Ltd. have identified the names of beneficiaries and already disseminated the information to the assessing officers of the beneficiaries and hence the credits received by the appellant cannot be treated as unexplained credit in its hands since, the said transactions are mere arrangement of funds/routing of unaccounted income of the beneficiaries to whom the said funds were transferred through the bank of the appellant company in lieu of commission. The ld. CIT(A) has also made note of the beneficiaries of the entries given by the assessee company. For the sake of ready reference, a few entries and the beneficiaries are reproduced below:
Date of Receipt / Credits from Amount Payment Made Date of Amount Receipt To payment 05.04.2011 Macro IT System Pvt 1,500,000 BhagwanMandir 05.04.2011 1,500,000 Ltd Education Trust 07.04.2011 Karara Mujassme Shakuntla 15.04.2011 18,000 18,000 (India) 13.04.2011 Sai Infoweb pvt ltd 500,000 Shakuntla 15.04.2011 385,100 13.04.2011 Sai Infoweb pvt ltd Dipesh 15.04.2011 101,400 13.04.2011 Sai Infoweb pvt ltd Anil Kumar 29.04.2011 13,500 Singla 15.04.2011 Sai Infoweb pvt ltd 300,000 Dipesh 15.04.2011 300,000 15.04.2011 H.J Books Agency 341,206 Zen Tradex Pvt 15.04.2011 100,000 Ltd 15.04.2011 H.J Books Agency Reena 25.04.2011 236,500 15.04.2011 H.J Books Agency Anil Kumar 29.04.2011 4,706 Singla 28.04.2011 H.J Books Agency 1,446,701 Anil Kumar 29.04.2011 1,446,701 Singla 17.06.2011 Santosh Welfare Trust 23,767 Anil Kumar 29.04.2011 23,767 Singla 02.07.2011 Jagriti Overseas Pvt 127,726 Anil Kumar 29.04.2011 24,826 Ltd Singla 02.07.2011 Jagriti Overseas Pvt Haryana 10.08.2011 102,900 Ltd Institute of Technology SR Buildcon Pvt Ltd 3,000,000 Yuga Estate Pvt. 2,500,000 10.08.2011 10.08.2011 Ltd. 10.08.2011 SR Buildcon Pvt Ltd Haryana 10.08.2011 500,000 Institute of Technology
6 to 212/Del/2022 CO Nos. 181 to 185/Del/2022 M/s Zed Enterprises(P) Ltd. 10.08.2011 Macro IT System Pvt 300,000 Haryana 10.08.2011 300,000 Ltd Institute of Technology 11.08.2011 Sai Infoweb Pvt. Ltd. 500,000 Haryana 10.08.2011 97,100 Institute of Technology Sai Infoweb Pvt. Ltd. J.P. Art 11.08.2011 402,900 11.08.2011 H.J Books Agency 1,754,162 J.P. Art 11.08.2011 1,754,162 11.08.2011 Ganesha Investment 2,350,000 J.P. Art 11.08.2011 23,42,938 11.08.2011 Ganesha Investment Prodip Overseas 05.09.2011 7,062 25.08.2011 New India Publishing 207,942 Prodip Overseas 05.09.2011 207,942 Agency
From the above, the ld. CIT(A) held that the assessee company has received funds from various concerns as mentioned above and thereafter amounts were transferred to the above mentioned companies/concerns immediately, thus the appellant company is not beneficiary company. The ld. CIT(A) also obtained the remand report from the AO and held that the AO has verified the fund flow statement depicting the source of funds and utilization of the same for payments to beneficiaries submitted by the assessee. The ld. CIT(A) held that it was found which established that the Sh. Anand Jain and Sh. Naresh Kumar Jain were operating bank accounts in the names of various concerns/companies through which accommodation entries were being provided and the appellant company was one of such shell concerns. Further the beneficiaries of such accommodation entries were also identified and information to their respective AOs was also disseminated as mentioned in the assessment order as well as the remand report.
Having observed so, the ld. CIT(A) held that as far as charging of commission is concerned in the case of the assessee, it has been held by the AO in the assessment order
7 to 212/Del/2022 CO Nos. 181 to 185/Del/2022 M/s Zed Enterprises(P) Ltd. that Sh. Anand Jain and Sh. Naresh Jain were entry operators who were managing and controlling various shell concerns including the appellant for providing accommodation entries in lieu of commission and taking that logic there is no question of charging of commission income in the hands of the appellant company arises, since nothing has been earned by the company, being the shell concern.
Since, the commission already stands taxed in the hands of the entry operators in their individual capacity, no separate commission can be charged in the hands of the pass through/ companies floated by the entry operators. As the assessee is found to be one of such pass-through entity, we decline to interfere with the order of the ld. CIT(A) in deleting the commission charged.
Cross Objections are not pressed.
In the result, the appeals of the Revenue as well as the Cross Objections of the assessee are dismissed. Order Pronounced in the Open Court on 09/01/2024.