2020 (6) TMI 304 - HC - Income Tax

Unexplained cash credits u/s 68 - accommodation entries - commission income at the rate of 0.15% - Substantial question of law - HELD THAT - It has been the consistent stand of the assessee which has been accepted by the First Appellate Authority and affirmed by the Tribunal that the business of the assessee centered around customers / beneficiaries making deposits in cash amounts and in lieu thereof taking cheques from the assessee for amounts slightly lesser than the quantum of deposits, the difference representing the commission realized by the assessee. The cash amounts deposited by the customers i.e., the beneficiaries had been accounted for in the assessment orders of these beneficiaries. Therefore, question of adding such cash credits to the income of the assessee, more so when the assessee was only concerned with the commission earned on providing accommodation entries does not arise. Percentage of commission - Tribunal had already held 0.1% commission in similar type of transactions to be a reasonable percentage of commission. Therefore Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee itself. This finding is a plausible one and it cannot be said that the rate of commission was arrived at in an arbitrary manner. The same does not suffer from any error or infirmity to warrant interference, that too, under Section 260-A of the Act. - Decided against revenue.

Issues Involved:
1. Whether the Tribunal erred in restricting the addition of ?4,78,94,000.00 made by the Assessing Officer on account of unexplained cash credits under Section 68 of the Income Tax Act to commission income calculated at 0.15%.
2. Whether the Tribunal erred in not considering that the material found during the search established that the net commission charged by the assessee varied between 1.5% to 3.6%.

Issue-wise Detailed Analysis:

Issue 1: Restriction of Addition to Commission Income at 0.15%
The Revenue challenged the Tribunal's decision to restrict the addition of ?4,78,94,000.00 made by the Assessing Officer (AO) on account of unexplained cash credits under Section 68 of the Income Tax Act to commission income calculated at 0.15%. The AO had initially added the entire amount to the income of the assessee, as the identity of the parties and the genuineness of the transactions were not satisfactorily explained. However, the First Appellate Authority (CIT(A)) and the Tribunal later restricted this addition to only 0.15% of the total deposits, treating it as commission income. The Tribunal upheld CIT(A)'s decision, noting that similar issues had been resolved in the same manner in previous cases involving the same group of companies, such as Mihir Agencies Pvt. Ltd. and Goldstar Finvest Pvt. Ltd. The Tribunal found that the assessee's business involved providing accommodation entries for a commission, and thus only the commission earned should be taxed, not the entire cash deposits.

Issue 2: Consideration of Material Found During Search
The Revenue argued that the Tribunal failed to consider the material found during the search, which indicated that the net commission charged by the assessee varied between 1.5% to 3.6%. However, the Tribunal observed that in similar cases, the average percentage of commission was between 0.15% to 0.25%, and in the case of Palresha and Company and Kiran and Company, 0.1% was considered reasonable. The Tribunal noted that the assessee had declared the commission at 0.15%, which was higher than the percentage considered reasonable in similar cases. Therefore, the Tribunal accepted the 0.15% commission rate declared by the assessee, finding it consistent with previous decisions and reasonable under the circumstances.

Assessment and Appeal Proceedings:
- The initial assessment under Section 143(3) read with Section 153C of the Act was made by the AO, determining the total income of the assessee at ?62,480.00 against a returned loss of ?14,596.00.
- Following a subsequent search on 25.11.2009 in the case of Mahasagar Group of Companies, the assessment was reopened, and the AO added ?4,78,94,000.00 to the total income as unexplained income from undisclosed sources under Section 68.
- The assessee appealed to CIT(A), which directed the AO to adopt only 0.15% of the total deposits as commission income, following the Tribunal's decision in similar cases.
- The Revenue's appeal to the Tribunal was dismissed, with the Tribunal affirming CIT(A)'s order and maintaining that the assessee was only concerned with the commission earned on providing accommodation entries.

Tribunal's Consistent Stand and Legal Position:
The Tribunal consistently held that in cases involving accommodation entries, only the commission earned should be taxed. Section 68 would not be attracted as the cash credits did not belong to or form part of the income of the assessee. The Tribunal's decision was based on the consistent stand taken in similar cases and the reasonable percentage of commission accepted in those cases.

Supreme Court Decision Reference:
The Revenue cited the Supreme Court decision in Principal Commissioner of Income Tax Vs. NRA Iron and Steel (P) Ltd. However, the Tribunal found this case distinguishable as the facts were different. In NRA Iron and Steel, the assessee claimed the cash credits as its income, and the creditors were found to be non-existent. In the present case, the assessee did not claim the cash credits as its income but admitted to providing accommodation entries for a commission. The cash credits were accounted for in the respective assessment of the beneficiaries.

Conclusion:
The High Court agreed with the Tribunal's view, holding that Section 68 was not applicable in this case, and the commission rate of 0.15% was reasonable. The appeal by the Revenue was dismissed, and no substantial question of law arose from the Tribunal's order.

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