2013 (10) TMI 1522 - AT - Income Tax

Summary

Issues Involved:

1. Legality of additions made u/s 68 for cash deposits in bank accounts.
2. Determination of commission income and its appropriate rate.
3. Whether assessments should be made collectively for the group or individually for each entity.
4. Taxation of circular transactions and layering of accounts.

Summary:

1. Legality of Additions Made u/s 68 for Cash Deposits in Bank Accounts:

The Tribunal examined the modus operandi of Mr. Tarun Goyal, who created multiple companies to provide accommodation entries. The AO made additions on account of unexplained credits being cash deposits u/s 68. The Tribunal held that each company, being a separate juristic person, must explain the credits in its books. The argument that all additions should be made only in the hands of Mr. Tarun Goyal was rejected. However, the Tribunal agreed that only the peak unexplained credit should be taxed after eliminating circular transactions to avoid multiple taxation of the same amount.

2. Determination of Commission Income and Its Appropriate Rate:

Mr. Tarun Goyal admitted to earning commission on accommodation entries. The AO adopted a commission rate of 2.25%, which the assessee contested as excessive, arguing for a rate of 0.25%. The Tribunal directed the AO to determine the commission income based on the quantum of cash received and deposited, considering the material on record and precedents, and to bring the same to tax.

3. Whether Assessments Should Be Made Collectively for the Group or Individually for Each Entity:

The Tribunal rejected the assessee's request to frame a single assessment for all entities, stating that each company must be assessed individually. However, it emphasized that the totality of circumstances should be considered, and the correct income should be determined by taxing only the peak credit after eliminating circular transactions.

4. Taxation of Circular Transactions and Layering of Accounts:

The Tribunal acknowledged that Mr. Tarun Goyal's modus operandi involved layering of accounts, resulting in multiple transfers of the same amount. It held that only the first point of cash deposit should be taxed, and subsequent transfers should be treated as explained credits to avoid multiple taxation. The burden of proof lies on the assessee to demonstrate the chain of transactions and the calculation of peak unexplained credit.

Conclusion:

The Tribunal set aside all appeals to the AO for fresh adjudication, directing the AO to restrict additions to the peak unexplained credit after eliminating circular transactions, determine the appropriate commission rate, and ensure no multiple taxation of the same amount. The burden of proof remains on the assessee to explain each credit in the books of each entity.

Order pronounced in the open Court on 18/10/2013.