2016 (10) TMI 418 - AT - Income Tax

Block assessment proceedings u/s 158BD - addition u/s 68 - double additions - Held that - We find that the entire credits of 2, 65, 30, 000/- in the bank accounts of four persons have already been added in the block assessment proceedings u/s 158BD of the Act dated 30.11.2006 in the hands of the assessee in addition to adding the commission income thereon @ 1% amounting to 2, 65, 300/-. We also find that in the said block assessment order the ld AO had given a categorical finding that the assessee is only providing accommodation entries and receiving only commission income thereon @ 1% . Moreover the ld AO had also observed in the block assessment order supra that the ultimate beneficiary of all these bank transactions are only UIC group and not the assessee. These facts were not controverted by the revenue before us. Under these circumstances we hold that there is no need to make any addition towards cash credit or commission income up to 07.05.2002 in the regular assessment proceedings for the Asst Year 2003-04 as it would only result in double addition. Hence the addition u/s 68 of the Act is directed to be deleted. Accordingly the ground No. 2 raised by the assessee is allowed. However since the bank transactions upto the date of search i.e 7.5.2002 have been considered in the block assessment proceedings u/s 158BD of the Act and commission income thereon is taxed in the block assessment the commission income from 8.5.2002 to 31.3.2003 needs to be taxed in the similar way. We deem it fit and appropriate to direct the ld AO accordingly to meet the ends of justice. - Decided partly in favour of assessee

Summary

Issues:
1. Justification of upholding addition made u/s 68 of the Act
2. Treatment of cash credits and commission income in regular assessment proceedings

Analysis:
1. The first issue in the judgment concerns the justification of upholding the addition made under section 68 of the Income Tax Act. The case involved a block assessment where the Assessing Officer (AO) added a sum on a protective basis, considering the assessee's role as a conduit for channeling unaccounted money. The AO observed that funds transferred to the assessee's account were not actual income but part of a scheme to channelize unaccounted money back to the UIC group. The AO added the amount on a protective basis and taxed commission income. The assessee argued that the funds were received against sale of investments, duly disclosed, and accounted for as capital gains. The assessee contended that as the investments were no longer in possession, treating the amount as unexplained credit was unjust. The Commissioner of Income Tax Appeals (CITA) upheld the addition, leading to the appeal before the ITAT Kolkata. The ITAT, after reviewing the evidence and block assessment order, found that the entire credits in bank accounts were already included in the block assessment. The ITAT held that making further additions in regular assessment would result in double taxation. Consequently, the ITAT directed deletion of the addition under section 68 of the Act, allowing the assessee's appeal partially.

2. The second issue addressed in the judgment pertains to the treatment of cash credits and commission income in regular assessment proceedings. The AO had added a specific amount as unexplained cash credit under section 68 of the Act in the regular assessment. The assessee argued that the amount was part of the total credits already considered in the block assessment, leading to potential double taxation. The ITAT, after examining the facts and block assessment order, concluded that adding the amount in the regular assessment would indeed result in double addition. Therefore, the ITAT directed the deletion of the addition under section 68 of the Act. However, the ITAT noted the need to tax commission income for a specific period not covered in the block assessment, instructing the AO to address this to ensure proper taxation. As a result, the ITAT partly allowed the assessee's appeal, emphasizing the avoidance of double taxation and maintaining consistency in the tax treatment of the transactions involved.

In conclusion, the judgment delves into the complexities of assessing cash credits, commission income, and the implications of block assessments on regular assessment proceedings. The ITAT's decision to delete the addition under section 68 of the Act while ensuring proper taxation of commission income showcases a nuanced approach to resolving tax disputes and preventing double taxation in such cases.