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Facts
The assessee company filed its return of income declaring Rs. 5,25,360. Information was received indicating the assessee was a beneficiary of accommodation entries worth Rs. 1,33,29,600. Proceedings under Section 147 were initiated, and additions of Rs. 80,31,373 and Rs. 90,29,600 were made.
Held
The Tribunal held that the assessee acted as a facilitator for accommodation entries, and the bank transactions lacked business rationale. Relying on precedent, the Tribunal dismissed the appeal.
Key Issues
Whether the additions made on account of accommodation entries are justified, and if the tribunal's reliance on precedent for disallowance is correct.
Sections Cited
250, 143(3), 147, 148, 143(2), 251, 133(6), 68, 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
ORDER
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by the assessee is against order dated 30.01.2024 of Learned Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre (NFAC), Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of Assessment Order dated 31.12.2019 of the Learned Income Tax Officer, Ward 8(1), New Delhi (hereinafter referred as “the Ld. AO”) under Sections 143(3)/147 of the Act for assessment year 2012-13.
Brief facts of the case are that the assessee company filed its return of income on 28.03.2013 declaring income of Rs.5,25,360/- . Information from DDIT(Inv.), Unit 5(3), New Delhi dated 18.03.2019, 22.03.2019 and 16.03.2019 from DDIT was received that the assessee company was a beneficiary of accommodation entry through RTGS/Cheque/transfer entries from the bogus or paper concerns of Skylark Group & other entities during the year under consideration and the aggregate amount of accommodation entries worth Rs.1,33,29,600/-. After examination of the information given by the assessee company in its original ITR and the evidence contained in the reports of the Investigation Wing conveyed to this office, proceedings under Section 147 of the Act were initiated in the case of assessee by recording reasons and satisfaction that income has escaped assessment. Notice under Section 148 of the Act was issued on 31.03.2019. Notice under Section 143(2) of the Act along with questionnaire were issued on different dates to provide the assessee sufficient opportunity to explain the nature and source of transaction entered into. A copy of reasons for reopening the assessment proceeding of the Act was issued. The assessee company raised objections which were decided vide order dated 09.10.2019. On completion of assessment proceeding, Ld. AO vide order dated 31.12.2019 made additions of Rs.80,31,373/- and Rs.90,29,600/-.
Against order dated 31.12.2019 of Ld. AO, the appellant/assessee preferred appeal before the Ld. CIT(A) which was dismissed vide order dated 30.01.2024.
Being aggrieved, the appellant/assessee preferred present appeal with following Grounds of Appeal
1. On the facts and circumstances of the case, the order passed by the learned 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 exercising his powers by violating the provisions of Section 251 of the Act.
3. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in enhancing the assessment on adhoc basis by solely placing the reliance on the judgment of a non-jurisdictional High Court and without bringing on record any material evidence.
4. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in affirming and enhancing an assessment which itself was made on protective basis only by doubting few transactions entered into by the assessee.
5. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in upholding the assessment order passed without disposal of objections raised by the assessee by way of a speaking order and without dealing with communication by assessee on such improper disposal.
6. The Learned CIT (A) has erred both on facts and in law in estimating income equivalent to fifty percent of total of debit and credit transactions contradicting his own conclusion that transactions appearing in bank statement were made with an arrangement for earning commission income by providing accommodation entries only without carrying on any actual business activity and without even justifying such higher rate of estimated income ignoring the fact that commission is never payable at such higher rate..
7. That the appellant craves leave to add, amend or alter any of the grounds of appeal.”
At the time of hearing, none appeared on behalf of the assessee on 12.08.2024, 14.11.2024, 29.01.2025, 17.07.2025 and today i.e. 27.08.2025.
Learned Authorized Representative for Revenue relied on orders of Ld. Departmental Authorities.
From examination of record in light of aforesaid rival contentions, it is amply clear that Ld. CIT(A) in para nos. 5.1 to 5.5 observed as under “5.1 The information received in this case from the Investigation Wing and on perusal of the assessee's bank statement obtained under the provisions of section 133(6) of the IT Act from the assessee's banker, it is clear that the assessee company has received credits through RTGS/bank transfer in its bank account from different entities involved in the business of providing accommodation entry. As is apparent from the bank statement of the assessee wherein it is clear that the opening as well as closing balance is minimal which has led to conclusion that the assessee being a facilitator for providing accommodation entries and therefore, an addition w.r.t. commission income @ 2% the assessee has already been made on substantiate basis as discussed above.
5.2 Apparently there is no business activity carried out by the assessee, only credits and debits in the bank account almost of equal amount, with paltry sum of Rs 4051 and Rs 142 in Axis Bank and HDFC Bank respectively. The only income brought to tax by the assessing authority is the Commission earned at 2% of total credits. The fact remains that the source of funds which is the credits appearing in the bank statement at Rs 40,15,68,626 has not been explained nor the purpose of the debits from these bank accounts. This is all the more important because merely creating companies for acting as conduits for passing money without suffering even a percent as tax (effective tax on Commission at 2%) will not suffice. There is not even a discussion of what is the nature of accommodation entry here for eg whether it is introduction of share capital, sundry creditors, sundry debtors paid back, bogus purchases - there is no such accommodation entry impacting the books of account. What is here is a bank statement through which funds are passing. There are both credit and debit entries. The funds are parked through RTGS/bank transfer. The accounts are with Axis Bank and HDFC Bank and the information was gathered from banks after issuing notice u/s 133(6). The following decisions rendered have upheld the addition in its entirety and not restricted it to 2% merely stating that only Commission is earned in the transaction. Once again I am reiterating some of the points discussed above.
5.3 It has been observed from the bank statements, the details filed, the profit & loss account & financials of assessee company during the course of assessment proceedings of the earlier year that: (a) No actual business was conducted by Assessee Company. (b) The assessee didn't actually deliver any goods or services to any party except transaction without purpose. (c) Funds in large volume were transferred as credits and debits from the bank account of the assessee company without purpose and any economic rationale. (d) The credits/transactions appearing in the bank account seems to be with an arrangement for earning commission. (e) All the debit and credit transactions appearing in the bank account of Assessee Company are not business transactions but accommodation entries executed on commission. (f) The credit entries which are coming into the assessee's bank account were Immediately transferred out either on the same day or on the next day. (g) The modus operandi employed is to provide a passage to entry and commission must have been charged as per the trend in providing entry of a financial transaction. 5.4 As can be seen above there is no actual delivery of Goods and Services, it is only to earn Commission. But there are court decisions on the contrary. Taxpayer has not explained what business it does nor has it explained what purpose the debits are made. In a judgment in the case of N. K. Proteins Ltd. Vs. DCIT (SLA-CC No. 769 of 2017 dated 16.01.2017) which is a judgment on bogus purchases, the Hon'ble High Court of Gujarat has decided issue in favour of the revenue. The SLP filed by the assessee in this case has been dismissed by the Hon'ble Supreme Court. The relevant paragraph of Hon'ble High Court judgment in the case of N.K. Proteins Ltd. i.e. Para 6 are reproduced as under: "The Tribunal in the case of Vijay Proteins Ltd. vs. CIT has observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed Income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s. Indian Woolen Carpet Factory (supra) or M/s. Vijay Proteins Ltd. In the present case the Tribunal has categorically observed that the assessee had shown bogus purchase amounting to Rs. 2,92,93,288/- and taxing only 25% of these bogus claim goes against The principles of section 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transactions have been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,288/- represented alleged purchases from bogus suppliers it was not Incumbent on it to restrict the disallowance to only Rs. 73,23,322/-" The above para analyses the case of Vijay Proteins Ltd and it is further held that when the purchases are treated as bogus, there is no point in restricting it to a certain percentage and a disallowance of 100% should be done. Considering this decision which was rendered by Gujarat HC, the addition in this case is on the entire amount of Rs 40,15,68,626. 50% of this amount is treated as income in the hands of the assessee, taking the credits and debits into consideration. The figure brought to tax is Rs.200784313. 5.5 In the result the appeal is dismissed.”
In view of above referred paras nos. 5.1 to 5.5 of the impugned order in absence of any supporting material, the grounds of appeal are de void of merit are untenable and are dismissed.