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Facts
A search conducted in the case of Shri Naresh Manakchand Jain led to the discovery of incriminating documents related to the assessee, alleging accommodation entries of Rs.1,92,98,840/- from Shri Nakoda Vitta (I) Pvt. Ltd. The Assessing Officer made an addition of this gross amount under Section 68 of the Income-tax Act, which was confirmed by the CIT(A).
Held
The Tribunal noted the assessee's contention that it operated as a conduit company and only commission income should be added, citing a precedent from AY 2017-18 where the department accepted a 1% commission. However, the financial statements for the current year did not clearly show commission income. Therefore, the matter was remitted back to the Assessing Officer.
Key Issues
Whether the entire amount of accommodation entries can be added under Section 68, or only commission income earned as a conduit company should be assessed, and if so, at what rate.
Sections Cited
68, 143(3)
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Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A)-48, Mumbai, vide order no. ITBA/APL/M/250/2023- 24/1052872681(1), dated 16.05.2023 passed against the assessment order by the Deputy Commissioner of Income Tax, Central Circle – 2(1), Mumbai, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 29.04.2021 for Assessment Year 2019-20.
Grounds taken by the assessee are reproduced as under:
Avance Technologies Ltd., AY 2019-20 “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.
2. That the Ld. AO as well as Ld. CIT(A) grossly erred in law and in facts of the case in holding the assessee company to be beneficiary of certain transactions despite the admitted fact that evidences substantiating contra were available on record.
3. That the Ld. AO as well as Ld. CIT(A) grossly erred in law and in facts of the case in making and upholding addition of Rs. 1,92,98,840/- to the income of the assessee company under Section 68 of the Act.
4. That the appellant seeks leave to amend, alter, change any grounds of appeal or take any further ground at any time even during the course of hearing of instant appeal.
Brief facts of the case are that assessee filed its return of income on 23.10.2019 reporting total income at Rs.75,51,700/-. A search had taken place in the case of Shri Naresh Manakchand Jain where from incriminating documents pertaining to assessee were found and seized, based on which ld. Assessing Officer had received information from Investigation Unit, Mumbai alleging the assessee that it had taken accommodation entry of Rs.1,92,98,840/- from Shri Nakoda Vitta (I) Pvt. Ltd. who is engaged in the business of cheque discounting and providing accommodation entries. The details of accommodation entry alleged to be received by the assessee is tabulated as under:
3.1. In respect of the aforesaid tabulated accommodation entries, assessee contends that it is a conduit company operated and maintained for providing accommodation entries. To substantiate the same, it placed on record assessment order for Assessment Year 2017- 18 dated 27.12.2019 wherein ld. Assessing Officer had observed that assessee is not engaged in actual business but involved in circular transactions and commission income is to be assessed in its turnover. Accordingly, commission income @ 1% was added to the returned income while completing the said assessment u/s. 143(3) of the Act. Assessee thus, claims that no addition can be made u/s.68 of the Act, Avance Technologies Ltd., AY 2019-20 it being a conduit company and therefore only income in the nature of commission on such entries could be added in its hands. Ld. Assessing Officer in the present case had completed the assessment by making addition of the gross amount of accommodation entry of Rs.1,92,98,840/- u/s. 68 of the Act which was confirmed by the ld. CIT(A).
Before us, ld. Counsel for the assessee asserted that only commission to the extent of 1% on such amount could be added in the hands of the assessee which is an accepted position by the Department in assessee’s own case when the assessment u/s.143(3) was completed for Assessment Year 2017-18 on similar fact pattern. In order to corroborate submission made by the ld. Counsel, specific query was raised to demonstrate that return of income filed by the assessee in the year under consideration included component of commission income on such entries in its financial statements. Assessee furnished audited financial statements for the year ended 31.03.2019. In the statement of Profit and Loss, revenue from operations is reported at Rs.339.82 lakhs and other income as Rs.87.23 lakhs. Notes to financial statements vide note no.17, reports that revenue from operations is from sale of traded goods and other income is in respect of interest received as reported in note no.18. Thus, from these stated facts, it is not discernible whether assessee had been offering commission income on its business of being a conduit company for the purpose of providing accommodation entries as claimed by it in the year under consideration. Since each assessment year is an independent assessment year and is to be assessed independently, in the current facts and circumstances of the case, we find it appropriate to remit the matter back to the Jurisdictional Assessing Officer (JAO) to verify and examine the Avance Technologies Ltd., AY 2019-20 financial statements in respect of the claim made by the assessee of earning commission income as a conduit company, operating and maintaining accommodation entries and thereby re-compute the assessed income in accordance with the provisions of law. Needless to say that assessee be given reasonable opportunity of being heard to establish its claim. Accordingly, grounds taken by the assessee are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order is pronounced in the open court on 28 October, 2024