“accommodating party”
The decision most relied on for accommodating party is CIT v. Bholanath Poly Fab. Pvt. Ltd. (355 ITR 290), cited in 712 judgments on BharatTax.
Leading authorities on accommodating party
If an assessee makes purchases from bogus parties, but the underlying goods are genuinely acquired and sold, only the profit margin embedded in such purchases, and not the entire value of the bogus purchases, should be added to the assessee's income.
Transactions defying human probability cannot be applied to isolated purchases if sales are accepted as genuine, and purchases cannot be disallowed without considering the entire transaction and documentary evidence. Failure to produce parties in an assessment proceeding may not be fatal to the assessee.
A statement recorded under Section 132(4) from a third party, lacking corroborative evidence, does not constitute sufficient incriminating material to assume jurisdiction or make additions in an assessment under Section 153A or 153C.
A live link of third-party information can form the basis for reopening an assessment under Section 148, provided it contains material facts necessary for assessment. The Assessing Officer must demonstrate a "reason to believe" that income has escaped assessment, which can be satisfied by such information even if it pertains to other assessees or relates to accommodation entries.
The Assessing Officer is justified in initiating reassessment proceedings under Section 147 based on specific, tangible information received, even if an assessment under Section 143(1) or 143(3) was previously done. At the initial stage, "reason to believe" only requires relevant material to form a reasonable belief that income has escaped assessment, not established proof of escapement.
The validity of reassessment proceedings initiated under Sections 147/148 against legal representatives of a deceased assessee requires a demonstrable 'reason to believe' that income escaped assessment, often based on third-party information such as alleged accommodation entries.
Information received from the Investigation Wing, identifying the assessee as a beneficiary of accommodation entries through share application from a third party, constitutes valid tangible material and 'reasons to believe' for initiating reassessment proceedings under Section 147 of the Income Tax Act.
Mere production of identity documents like a certificate of incorporation or PAN is insufficient to prove the genuineness of a transaction or the investor under Section 68, especially when material indicates the investor is a paper company and not a genuine party.
