2016 (5) TMI 820 - AT - Income Tax

Addition towards commission on accommodation entries - taxability in the hands of assessee - Held that - No evidence has been brought on record by the revenue to prove that the transactions of 24 companies with Bhushan group of companies are accommodation entries. No material has been brought on record to prove that the said companies were actually engaged in providing accommodation entries. No material has been found in search or survey to conclusively establish that all the 24 companies are dummy and the assessee had managed and controlled their financial affairs. The Learned AO had alleged that cheques were issued in lieu of cash received. But then, there was no recovery of unaccounted cash during the search or survey operations.No evidence has been brought on record by the revenue to prove that the assessee had earned commission income @ 0.55% on these alleged accommodation entries. Moreover, the receipt of commission income of ₹ 1.66 crores for all the asst years put together as assessed by the Learned AO is not matched by recovery of undisclosed assets or documents indicating undisclosed expenditure which were found during search and survey operations. No material was found in search and survey operations which would prove that the assessee was managing or controlling the 24 companies except placing reliance on statements of certain employees of those companies which were later retracted by them. No material has been brought on record by the revenue to prove that sufficient action was taken by the revenue on the employees who had retracted the statements and who had also originally offered to pay tax on the commission income derived by them. No examination was carried out by the revenue with Mr.R.K.Gupta , Vice President and Company Secretary of M/s Bhushan Power & Steel Ltd who had addressed a letter dated 10.2.2010 stating that documents like memorandum of sale of shares, delivery of share certificates etc are being sent for getting signature from directors of respective companies of Mr.S.M.Nahata. This letter was admittedly addressed by Mr.R.K.Gupta to one of the employee of those companies which were found in the office premises of the assessee. The assessee had already demonstrated the circumstances under which the papers of those companies had come to his possession i.e in his professional capacity. No evidences has been brought on record by the Learned AO except alleging that the money was routed in the bank account of the companies through other bank accounts. But then the onus was on the Learned AO to discover such bank accounts and establish the money trail.The Learned AO has failed to point out any bank account in which cash was initially deposited. The ROC website does not contain the nature of transactions except containing the balance sheet, list of directors and shareholders. Hence from the said website, it is very strange that how the Learned AO was able to conclude that the transactions are accommodation entries. The valuable assets found during the search and survey such as cash and jewellery have been properly explained by the assessee and no addition has been made on that account by the Learned AO. The details of 21 bank accounts were also found in the search and survey operations which were explained at the assessment stage that all the bank accounts were duly disclosed in the regular books of accounts of account holders which has been accepted by the Learned AO. There was no discovery of any bank account wherein the commission allegedly received by the assessee was found deposited.The entire addition has been made by the Learned AO only based on mere suspicion, surmises and conjectures.- Decided in favour of assessee

Summary

Issues Involved:
1. Whether an addition towards commission on accommodation entries could be taxed in the hands of the assessee.

Issue-Wise Detailed Analysis:

Issue 1: Addition towards commission on accommodation entries

Facts and Background:
The assessee, a practicing chartered accountant, was subjected to a search under Section 132 of the Income Tax Act, 1961, at his residential premises and a survey under Section 133A at his office. Certain valuable assets, including cash and jewelry, were found and explained by the assessee, which was accepted by the Assessing Officer (AO). The AO alleged that the assessee managed and controlled 31 companies involved in providing accommodation entries to Bhushan Power & Steel Ltd and other entities. The AO issued a show-cause notice to the assessee based on various documents and statements obtained during the search and survey operations.

Assessee's Explanation:
The assessee responded to the show-cause notice, explaining that he rendered professional services to the companies in question and received professional fees for the same. The assessee denied any involvement in providing accommodation entries and argued that the statements of employees relied upon by the AO were retracted and not supported by any cogent material.

AO's Findings:
The AO did not accept the assessee's explanation and concluded that the assessee managed and controlled the 31 companies, which were engaged in providing accommodation entries. The AO estimated the commission income at 0.55% of the accommodation entries provided and brought it to tax.

CIT(A)'s Findings:
The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the AO's findings were based on suspicion, surmises, and conjectures without any concrete evidence. The CIT(A) noted that no material was found to prove that the assessee received any commission on the alleged accommodation entries.

Tribunal's Analysis:
The Tribunal upheld the CIT(A)'s order, emphasizing the following points:
1. Lack of Evidence: No concrete evidence was provided by the AO to prove that the transactions of the 24 companies with Bhushan group were accommodation entries or that the assessee managed and controlled these companies.
2. Professional Services: The assessee's relationship with the companies was purely professional, and he received fees for his services, which was a matter of record.
3. Retraction of Statements: The statements of certain employees, which were later retracted, were not supported by any material evidence. The retraction was not challenged by the revenue, and no action was taken against the employees who retracted their statements.
4. ROC Data: The AO's reliance on the ROC website data to conclude that the transactions were accommodation entries was unfounded, as the website only contained balance sheets and lists of directors and shareholders.
5. No Discovery of Unaccounted Assets: The search and survey operations did not lead to the discovery of any unaccounted assets or bank accounts indicating undisclosed income.
6. Judicial Precedents: The Tribunal referred to several judicial precedents, including decisions from the Supreme Court and various High Courts, which supported the assessee's case that mere suspicion and conjectures cannot form the basis for an addition.

Conclusion:
The Tribunal concluded that the addition made by the AO was based on mere suspicion and conjectures without any substantive evidence. The order of the CIT(A) deleting the addition was upheld, and the appeals of the revenue were dismissed.