2020 (5) TMI 514 - AT - Income Tax

Reopening of assessment u/s 147 - additions u/s 68 on account of amount routed through for giving accommodation entries on account of the amounts received in cash as well as cheque on account of share capital - HELD THAT - From the reasons recorded, we find that the AO had no clarity as to what he considers as income escaped assessment whether the commission on the entries provided or the total amount of entries - while calculating the assessment proceedings, AO made addition of the entries which he himself has accepted that these entries have been provided to other companies as accommodation entries. In that case, there is an inbuilt contradiction in the action of the Assessing Officer while concluding the assessment proceeding. AO treats that the assessee has been utilized to provide entries to other companies wherein he treated the assessee as a conduit and also he treated the assessee as the owner of this amount. The AO mentions that the assessee is helping various beneficiaries in providing accommodation entries in relation to capital and expenses. On merits, the AO has not made any primary, independent enquiry to arrive at a conclusion to tax the amount u/s 68 of the Act. Since the Part A of the reasons recorded are clear and lucid about the method and modus of the entries being forwarded by the assessee company and not accounting the commission received thereof, and owing to the fact that the assessee has refused the opportunity of refuting the evidences gathered by revenue that Sh. Vishal Aggarwal and others has used the company as a conduit to give accommodation entries, the addition made on account of commission income earned by the assessee on the amount of the entries provided is hereby confirmed. Since, the assessee is proven to be a conduit/pass through entity without any business of its own, no other addition in the hands of the assessee company is warranted. Owing to the nature of the allegations and non-application of mind, we hold that Part B of the reasons recorded cannot be held to be valid cease to survive. Consequently, the additions made by the Assessing Officer are liable to be deleted. Appeals of the assessees are partly allowed.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Legitimacy of additions made by the Assessing Officer (AO) based on the reasons for reopening.
3. Application of mind by the AO in recording reasons for reopening.
4. Justification for the addition of commission income and other alleged escaped incomes.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment:
The appeals were filed by the assessee against the orders of the CIT(A) regarding the reopening of the assessment under Section 148. The assessee argued that the additions made by the AO were not in accordance with the reasons for reopening, thus liable to be quashed. The Revenue countered that the additions were justified under Explanation III to Section 148, which allows the AO to add any other escaped income discovered during the assessment proceedings.

2. Legitimacy of Additions Made by the AO:
The AO reopened the assessment based on information from the Investigation Wing about entry operators providing accommodation entries. The AO identified specific credits in the assessee's bank account and relied on statements from individuals like Vishal Aggarwal, who admitted to providing such entries. The AO concluded that the assessee provided accommodation entries totaling ?35.50 lakhs and earned unaccounted commission.

3. Application of Mind by the AO:
The Tribunal found that the AO's reasons for reopening the assessment consisted of two parts. Part A was clear about the method and modus operandi of the entries and the unaccounted commission. However, Part B showed a lack of clarity and application of mind. The AO added up various amounts from the balance sheet and profit & loss account without proper examination, leading to an arbitrary figure of ?95.88 lakhs as escaped income. This indicated non-application of mind and failure to examine the material thoroughly.

4. Justification for Addition of Commission Income and Other Alleged Escaped Incomes:
The Tribunal noted that the AO initially focused on the commission income from providing accommodation entries but later included various other amounts without proper justification. The AO's action was contradictory, treating the assessee as both a conduit and the owner of the amounts. The Tribunal confirmed the addition of commission income based on the clear evidence of the assessee acting as a conduit. However, other additions were deemed unwarranted as the assessee was proven to be a pass-through entity without its own business.

Conclusion:
The Tribunal concluded that Part A of the reasons recorded for reopening the assessment was valid, confirming the addition of commission income. However, Part B lacked validity due to non-application of mind, leading to the deletion of other additions. The appeals were partly allowed, confirming the commission income addition and deleting other unwarranted additions.