2021 (7) TMI 689 - AT - Income Tax

Addition u/s 68 - cash deposited in the bank account of the assessee unexplained - HELD THAT - A clear finding of the revenue authorities that on perusal of the bank statement and the details furnished by the assessee, the credit entries relating to cash, the name of the alleged person from whom cash has been received, is given but the claim of the identity is not substantiated by way of filing PAN, ITR, confirmation etc. and therefore, identity is not proved by the assessee in second round of assessment proceedings as well. The cash has been deposited in various names, but the assessee failed to prove their identity. Therefore, sources of deposits were not proved. Thus, though the Tribunal has given opportunity to the assessee for establishing three ingredients that of, identity, creditworthiness and genuineness, the same were not established by the assessee relating to cash deposits before the Assessing Officer as well as before the CIT(A). CIT(A) has rightly held that cash deposited in the bank account of the assessee remained unexplained as per Section 68. Unexplained cash deposits which has to be restricted to peak relating to addition u/s 68, the same is also not proved by the assessee before the Assessing Officer as well as before the CIT(A). Thus, CIT(A) rightly rejected the said claim. As regards the As regards, stand taken by the Revenue in Noida charge group cases, the same is rightly rejected as the assessee could not prove as to how the same will be applicable in assessee s case relating to credit entries in bank account including cash deposits - Decided against assessee.

Issues Involved:
1. Determination of commission income rate.
2. Addition of cash deposits under Section 68 of the Income Tax Act.
3. Compliance with ITAT directions regarding commission rate and cash deposits.

Detailed Analysis:

1. Determination of Commission Income Rate:
The primary issue revolves around the determination of the commission income rate. The appellant contended that the CIT(A) erred in upholding the Assessing Officer's (AO) determination of commission income at 2% on the amount representing the entries given to outside parties. The appellant argued that the CIT(A) did not correctly appreciate the facts of the case and disregarded the directions of the Hon’ble ITAT, which had instructed the AO to apply the rate considering the precedence available in this regard. The appellant submitted that the rate of commission in the trade of providing accommodation entries was about 0.25%, supported by certain decisions and assessment orders where the rate of commission ranged from 25 paise per hundred to 50 paise per hundred. However, the AO determined the commission income at 2% based on rough notings in seized papers, which the appellant argued were unreliable and not corroborated with other material.

2. Addition of Cash Deposits under Section 68:
The second major issue concerns the addition of cash deposits in the bank account of the appellant company. The CIT(A) upheld the AO's addition of ?52,41,000/- for the assessment year 2003-04 and ?75,10,400/- for the assessment year 2004-05. The appellant argued that the cash deposits were part of the business of providing accommodation entries and should not be added under Section 68 of the Income Tax Act. The appellant also contended that since the AO had already considered commission income on the amount of accommodation entries, the cash deposits could not be added again as they were two sides of the same transaction. The appellant further argued that there was no need to prove the identity and creditworthiness of the parties in relation to the cash deposits as they were part of the business of providing accommodation entries.

3. Compliance with ITAT Directions:
The appellant contended that the AO did not comply with the ITAT's directions to determine the commission income rate based on the precedence available in similar cases. The ITAT had remanded the matter back to the AO with instructions to exclude credit entries received from Group entities and determine the commission income on unexplained credit entries. The appellant argued that the AO did not follow these directions and instead determined the commission income at 2% without considering the precedence. The appellant also argued that the CIT(A) failed to restrict the addition in respect of cash deposits with reference to peak credit as per the ITAT's directions.

Judgment:
The Tribunal dismissed both appeals of the assessee for the assessment years 2003-04 and 2004-05. The Tribunal noted that the revenue authorities found that the appellant failed to substantiate the identity, creditworthiness, and genuineness of the cash deposits. The appellant did not provide PAN, ITR, or confirmation for the alleged persons from whom cash was received. Consequently, the sources of deposits were not proved, and the cash deposits remained unexplained under Section 68 of the Income Tax Act. The Tribunal also upheld the CIT(A)'s rejection of the appellant's claim to restrict the addition to peak credit, noting that the appellant failed to prove this claim before the AO and CIT(A). The Tribunal found no merit in the appellant's argument regarding the precedence in Noida charge group cases, as the appellant could not demonstrate its applicability to their case. Therefore, the appeals for both assessment years were dismissed.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to maintain the AO's determination of commission income at 2% and the addition of cash deposits under Section 68. The Tribunal found that the appellant failed to substantiate the identity, creditworthiness, and genuineness of the cash deposits and did not comply with the ITAT's directions regarding the determination of the commission rate. Consequently, both appeals were dismissed.

← Previous Next →