DY. CIT-5(1), INDORE vs. M/S. SUNIL SHARE & STOCK (P) LTD., INDORE
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal upheld the CIT(A)'s deletion of additions. It found no error in deleting the protective addition as the assessee was engaged in brokerage/commission income and the beneficiaries' details were available. The commission addition was also deleted as the assessee had already offered a higher amount as commission income, preventing double taxation.
What were the facts?
The assessee was found to be providing accommodation entries for share capital gains/losses by routing cash through multiple companies and charging commission. The AO made protective additions of Rs. 1,88,79,850/- and Rs. 9,43,993/- as commission income.
What were the issues?
Whether protective additions for accommodation entries are justified when beneficiaries are identified and commission income is already offered. Whether additions made without proper opportunity or evidence are valid.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEBER & SHRI B.M. BIYANI, ACCOUNTNT MEMBER
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This assessee’s appeal for A.Y. 2005-06, arises from order of the CIT(A)-II, Indore dated 07-01-2019, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
Page No 2 DCIT vs. M/s. Sunil Share & Stock Pvt. Ltd.
Department has raised the following grounds of appeal:-
“1. Whether on the facts and in the circumstances of the case the Ld. CIT (A) was justified in deleting the addition made of Rs. 1,88,79,850/- made on protective basis holding that since the assessee has given accommodative entries to the beneficiaries only commission income can be added as his income? 2. Whether on the facts and in the circumstances of the case the Ld. CIT (A) was justified in deleting the addition made on account of commission from beneficiaries, holding that the same has already been offered by the assessee as income? 3. The Appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal.”
3. The brief facts of the case are that a survey under section 133A of the Act was conducted on the business premises of “Sunil Shares and Private Ltd” at Rajani Bhawan, MG Road, Indore on 20-01-2005 and was found that the assessee was indulged in practice of giving accommodation entries of share capital gain/capital loss. During the course of assessment, the AO observed that the assessee company was indulged in the practice of providing accommodation entries of share capital gains/losses. The modus operandi of the assessee was that it used to receive cash through mediators/parties and after routing the same through 2-3 companies, the assessee handed over the cheques finally to the beneficiaries. For the above, the assessee used to charge commission in cash for providing these accommodation entries. The AO observed that during the year under consideration, the assessee had received cash from M/s Sahayata Marketing for � 1,88,79,850/- from the group concerns and these amounts were finally given as accommodation entries in the form of long-term or short-term Page No 3 DCIT vs. M/s. Sunil Share & Stock Pvt. Ltd. capital gains. The source of share investment is cash received from the beneficiaries and routed through various bank accounts. The AO held that since the assessee is in the business of providing accommodation entries, these amounts are added in the hands of the assessee on “protective basis” under section 68 of the Act, since substantive addition has to be made in the hands of the beneficiaries. Further, the AO added a sum of � 9,43,993/- as commission income earned by the assessee in providing accommodation entries to the beneficiaries.
In appeal, Ld. CIT(Appeals) allowed the assessee’s appeal and deleted both the additions. With respect to the addition of � 1,88,79,850/- from Sahayata Marketing which were subject to tax in the hands of the assessee on protective basis, Ld. CIT(Appeals) deleted the addition of the following grounds:
(i) The appellant company had not received any amount in its bank account. The amount was received by M/s Sahayata Marketing and the assessee is not required to explain the source of cash deposited with the third party (ii) The AO has not given proper opportunity to the assessee for providing explanation (iii) The AO has not brought on record any evidence to prove the modus operandi of the assessee’s business so assumed by him. Even if the modus operandi so assumed by the AO is considered as correct, then also what can be added is only the commission on Page No 4 DCIT vs. M/s. Sunil Share & Stock Pvt. Ltd. brokerage so earned from providing the so-called accommodation entries to the beneficiaries (iv) The addition has already been made and rightly so on substantive basis in the hands of the beneficiaries. Therefore, there is no logic in making the protective addition in the hands of the assessee (v) The AO without issuing summons the parties in question, added the entire amount of depositors to the assessee’s income. (vi) The assessee has mainly earned income from brokerage and the assessee has already shown 5% brokerage income in its profit and loss account: there can be no basis to add any further amount to the assessee’s income under section 68 of the Act
The Department is in appeal against the aforesaid order passed by ld. CIT(A) deleting the additions in the hands of the assessee on protective basis. The DR relied upon the observations made by the AO in the assessment order. In response, the AR of the assessee drew our attention to page 23 of the paper book and submitted that even in the earlier years in the assessment for assessment year 2002-03, no adverse inference was drawn against the assessee on similar facts. Further, the AR drew our attention to page 6 of the assessment order and submitted that the additions under section 68 of the Act were made in the hands the assessee purely on the basis of assumptions and no documents were in possession of the AO to hold that such income was taxable in the hands of the assessee, even on protective basis. Further, the counsel for the assessee submitted that the assessee is engaged in the business of earning brokerage/commission income and as is evident from page 6 of the assessment order, various cheques were also Page No 5 DCIT vs. M/s. Sunil Share & Stock Pvt. Ltd. issued from the above bank account in favour of various parties. However, the AO proceeded to tax the entire amount of deposits made in the aforesaid bank account in the hands of the assessee. Further, counsel for the assessee submitted that in the remand report dated 05-11-2018, notices have been issued to the “beneficiaries” and accordingly, Ld. CIT(Appeals) has not erred in facts and in law in deleting the additions in the hands of the assessee, which have been made on protective basis.
We have heard the rival contentions and perused the material on record. From the facts placed before us, we are of the view that in the facts of the instant case, Ld. CIT(Appeals) has not erred in facts and in law in deleting the additions made on protective basis in the hands of the assessee. The Ld. CIT(Appeals) has categorically observed that the assessee is engaged in the business of earning brokerage/commission income and hence there is no reason why the total deposits made in the bank account held by third parties should be taxed in the hands of the assessee on protective basis. We further observed that the Department has details available regarding various beneficiaries, details of which have been placed on record at pages 25-35 of the paper book. Further, Ld. CIT(Appeals) also specifically observed that additions were made in the hands of the assessee without even issuing summons to the beneficiaries in the instant case. Therefore, accordingly, looking into the facts of the present case, we find no infirmity in the order of Ld. CIT(Appeals) who has deleted the additions made in the hands of the assessee on protective basis after passing a detailed and reasoned order and considering the facts of the instant case.
Page No 6 DCIT vs. M/s. Sunil Share & Stock Pvt. Ltd.
In the result, ground number 1 of the Department’s appeal is dismissed.
Regarding ground number 2 of the Department’s appeal, the brief facts are that AO made addition of � 9,43,993/- in the hands of the assessee on the ground that the assessee has earned brokerage/commission by way of providing accommodation entries. Ld. CIT(Appeals) however deleted the additions by the observing that the AO has mentioned in his order that the assessee had charged commission ranging from 2% to 3% for the beneficiaries on account of providing accommodation entries. The ld. CIT(A) observed that the assessee has already offered 5% commission income i.e. � 1,54,05,419/- which is much more than the commission that the AO had estimated and again adding it to the assessee’s income would tantamount to double taxation of the same. Accordingly, in light of the facts and circumstances of the case, the Ld. CIT(Appeals) deleted the addition on account of commission/brokerage tax made by the AO in the hands of assessee.
We are of the considered view that Ld. CIT(Appeals) in the instant set of facts has not erred in deleting the additions, since the assessee has already offered a higher amount of income as brokerage/commission income in its return of income and again adding a sum of � 9,43,993/- as commission/brokerage income would amount to double taxation.
In the result, ground number 2 of the Department’s appeal is dismissed.
Page No 7 DCIT vs. M/s. Sunil Share & Stock Pvt. Ltd.
In the result, the appeal of the Department is dismissed.
Order pronounced in the open court on 13 -12-2022
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