2017 (2) TMI 1419 - AT - Income Tax

Addition u/s 68 - accommodation entries - HELD THAT - A.O. was well aware of the fact that the impugned transactions were done by account payee cheques which means that the money has flown from one identified bank account to another identified bank account. Nothing prevented the A.O. to trace the beneficiary bank account but we find that the A.O. has not done any such exercise. No doubt the burden is on the assessee but considering the nature of the transactions in the light of the statement of the assessee the A.O. should have made enquiries in depth to trace out the real beneficiaries of the accommodation entries provided by the assessee. The assessee is a man of small means therefore cannot be said to have earned such exorbitant unaccounted income. More so the assessee is employed in China and his only source of income is the salary received by him in China. Income Tax proceedings are civil proceedings and the degree of proof is by preponderance of probabilities. Considering the facts in totality in their true perspective in our considered view the balance of convenience in the light of the preponderance of probabilities is in favour of the assessee. Commission on accommodation entries - considering the nature of transactions and the acceptance by the assessee being an entry provider the impugned transactions have to be considered in the light of the acceptance of the assessee. Don t shoot the messenger . The assessee is earning commission by providing such accommodation bills and in our considered view and the understanding of the facts the only addition that can be made on the given facts is the commission earned by the assessee by providing such accommodation entries. Considering the peculiarity of the facts of the case in hand addition of the commission @ 3% of the accommodation entries should meet the ends of justice. We accordingly direct the A.O. to treat 3% of the accommodation entry as the income of the assessee. Appeal filed by Assessee is allowed.

Summary

Issues:
1. Validity of assessment made under sections 147 and 143(3) of the Income Tax Act.
2. Addition of unexplained cash credits and disallowance of expenses in the assessment.
3. Whether the impugned credit entry of ?2.68 crores should be treated as the assessee's income.
4. Burden of proof on the assessee regarding the credit entries in the books of accounts.
5. Nature of transactions and the assessee's role as an entry provider.
6. The appropriate addition to be made based on the peculiar facts of the case.

Analysis:

Issue 1: Validity of assessment under sections 147 and 143(3) of the Income Tax Act
The appellant challenged the validity of the assessment made under sections 147 and 143(3) of the Act. The Tribunal observed that the issue of re-opening the assessment was not raised before the lower authorities. The appellant conceded that no such ground was raised earlier and agreed that there was no case for re-opening based on the facts. The Tribunal dismissed the grievance as the issue was not pursued earlier.

Issue 2: Addition of unexplained cash credits and disallowance of expenses
The appellant raised concerns regarding the addition of unexplained cash credits and disallowance of expenses. The assessment was framed ex-parte without providing the appellant with an opportunity to be heard. The Tribunal set aside these issues to the CIT(A) for a fresh decision after providing a reasonable opportunity for the appellant to present their case.

Issue 3: Treatment of the impugned credit entry of ?2.68 crores
The appellant claimed that the creditors shown in the balance sheet were bogus and explained the modus operandi of transactions. The AO treated the credit entry as deemed income of the appellant due to failure in explaining the entries. The Tribunal, considering the peculiar facts, directed the AO to treat 3% of the accommodation entry as the appellant's income, based on the commission earned for providing such entries.

Issue 4: Burden of proof on the assessee
The AO believed that the appellant failed to discharge the burden of explaining the credit entries in the books of accounts. Despite the appellant's detailed submissions, the AO added the impugned credit entry as the appellant's income. The Tribunal emphasized the need for the AO to conduct in-depth inquiries to trace the real beneficiaries of the transactions.

Issue 5: Nature of transactions and role as an entry provider
The appellant explained the accommodation transactions and commission earned by providing such entries. The Tribunal acknowledged the appellant's role as an entry provider and directed the addition of 3% of the accommodation entry as the appellant's income, considering the peculiar facts of the case.

Issue 6: Appropriate addition based on the peculiar facts
The Tribunal decided in favor of the appellant based on the specific facts of the case. The Tribunal directed the AO to treat 3% of the accommodation entry as the appellant's income, emphasizing that this decision should not set a precedent for other cases.

In conclusion, the Tribunal allowed the appeal filed by the appellant based on the peculiar facts of the case, directing the AO to consider 3% of the accommodation entry as the appellant's income.