2021 (12) TMI 867 - AT - Income Tax

Additions of commission income - Assessment u/s 153A r.w.s 144 - Whether additions are not based on incriminating evidence? - HELD THAT - From the admission of assessee, Sachin Pareek and Surendra Jain in their statement and identification of actual beneficiary of import and delivery of diamonds by actual beneficiary and e-mail found to actual beneficiary, CIT(A) concluded that assessee and his group was providing accommodation entry. CIT(A) further concluded that once the business as per books is proved fictitious and bogus, the action of AO in rejecting the books is obvious. On the ground/ grievance of the assessee on additions of commission and allowance of 25% expenses the CIT(A) concluded that the addition made by AO is on lower side comparative to the addition in case of Bhanwar Lal Jain, who was also providing similar accommodation entry with similar modus operandi. Once books are rejected, the profit is to be estimated on the basis of commission rates and net profit is to be determined. On the grievance of assessee of exchange rate difference, CIT(A) held that when the actual business is importing for others and in the books credit in the name of exporters (other beneficiary), the exchange rate difference is not payable by the assessee and rejected the ground raised by the assessee. Assessee basically made two fold submissions that no incriminating material/ evidence was recovered during the course of search and that the assessee retracted from his statement recorded by the search party and the assessee was doing real business and not engaged in providing accommodation entry. We find that during the search action more than sufficient incriminating evidence was found, which is also supported with the corroborative evidence found in the form of e-mails and other evidence in the form of books of account recovered from the pen drive, which itself is incriminating evidence against the assessee. Assessee in his retraction statement has not explained the material evidence found in the form of e-mail, from his e-mail account, his background history as to how he entered in the this particular business of providing entry, which he himself disclosed during the search action that he learnt all this business module of providing accommodation entry from his ex-employer namely Ratanlal Jain. The said retraction is filed for the first time before AO after gap of 12 months period. The reliance in case Manoj Begani 2017 (12) TMI 1408 - ITAT KOLKATA , passed by Kolkata Tribunal which is case of beneficiary of the alleged accommodation entry from Rajendra Jain, is not helpful to the assessee. Here in the present case, there is clear admissions of the assessee about the entire business affair carried out by him with his associate for providing bogus entry, mere obitor in case of beneficiary by the Coordinate bench, will not absolve the assessee from his own admission. The finding of Tribunal in Manoj Begani vs. ACIT(supra) is based on the facts and evidences produced by that assessee. Therefore, in view of the abovesaid discussions, we are in full agreement with the finding of ld CIT(A) that once the books are rejected the profit is to be estimated on the basis of commission rates and net profit is to be determined. We also affirms the finding of ld CIT(A) that that when the actual business of assessee was importing goods for others and in the books credit in the name of exporters, thus exchange rate difference is not payable by the assessee and the assessee is not eligible for deduction of such exchange rate fluctuation. No evidence is filed by the assessee on record to prove the fact that the assessee entered into hedging contract with the Banker, the evidence found in the form of e-mail and other evidences show the facts otherwise. Therefore, the submissions made by the assessee do not inspire confidence. None of the case laws relied by the ld AR for the assessee is helpful to the assessee as there was sufficient incriminating material seized during the search action on the assessee on the basis of which it is clearly proved that the assessee is in the business of entry provider. Commissions has already included by the assessee in his sales transaction - Considering the facts that the lower authority have categorically held that the assessee was not doing any genuine business transactions and was engaged in providing accommodation entry, books of the assessee was rejected and only very meager rate of commission income was added to the total income of the assessee, which we have already affirmed. If for the sake of assuming it is considered that the assessee was doing genuine business, thus, keeping in view of volume of transactions in his bank account, the income of assessee would be estimated many fold comparative to the commission income added by the AO. Thus, the alternative ground of appeal is also rejected.

Issues Involved:
1. Validity of the search conducted under Section 132 of the Income Tax Act.
2. Validity of assessment orders passed under Section 144 read with Section 153A.
3. Additions made without incriminating materials found during the search.
4. Business activities characterized as accommodation bills provider based on confessional statements.
5. Retraction of statements recorded during the search.
6. Assessment of commission income on sales, import purchases, and loans.
7. Rejection of books of accounts.
8. Disallowance of expenses, including foreign exchange fluctuation loss.

Detailed Analysis:

1. Validity of the Search Conducted Under Section 132:
The assessee argued that the search conducted on 03/10/2013 was not justified and did not satisfy the requirements of Section 132 of the Income Tax Act. However, the Tribunal noted that no specific submissions were made during the hearing regarding this issue. Therefore, this ground of appeal was treated as not pressed and dismissed.

2. Validity of Assessment Orders Passed Under Section 144 Read with Section 153A:
The assessee contended that the assessment orders passed under Section 144 read with Section 153A were invalid as they were based on an invalid search action. The Tribunal upheld the validity of the search action and the subsequent assessment orders. It was noted that the search action and the evidences gathered during and post-search justified the issuance of notice under Section 153A and the assessment proceedings.

3. Additions Made Without Incriminating Materials Found During the Search:
The assessee argued that no incriminating materials were found during the search, and thus, no additions could be made. The Tribunal found that sufficient incriminating evidence was unearthed during the search, including emails and other documents, which corroborated the statements made by the assessee and his associates. These evidences indicated that the assessee was involved in providing accommodation entries.

4. Business Activities Characterized as Accommodation Bills Provider Based on Confessional Statements:
The assessee's business was characterized as an accommodation bills provider based on confessional statements recorded under Section 132(4). The Tribunal noted that the assessee and his associates admitted to providing accommodation entries in the form of sales, purchases of diamonds, and unsecured loans. The Tribunal upheld the characterization of the assessee's business activities as accommodation bills provider based on the corroborative evidence found during the search.

5. Retraction of Statements Recorded During the Search:
The assessee retracted the statements recorded during the search, claiming that they were made under coercion and pressure. The Tribunal observed that the retraction was filed after a considerable delay of 12 months and lacked credibility. The Tribunal held that the retraction did not hold evidentiary value as it was not supported by any proof of coercion or threat.

6. Assessment of Commission Income on Sales, Import Purchases, and Loans:
The Assessing Officer (AO) assessed commission income based on the assessee's statements and corroborative evidence. The AO calculated the commission income at 0.20% on import transactions and 0.50% on loan transactions, resulting in an addition of ?18,40,602/- after allowing a deduction of 25% for expenses. The Tribunal upheld the AO's assessment, noting that the assessee's business activities were found to be fictitious and merely paper transactions.

7. Rejection of Books of Accounts:
The AO rejected the assessee's books of accounts under Section 145(3), citing that the books did not reflect the true nature of the business activities, which were found to be accommodation entries. The Tribunal upheld the rejection of the books of accounts, agreeing with the AO's findings that the books were not reliable and did not represent genuine business transactions.

8. Disallowance of Expenses, Including Foreign Exchange Fluctuation Loss:
The AO disallowed various expenses, including foreign exchange fluctuation loss, claimed by the assessee. The Tribunal upheld the disallowance, noting that the assessee's business activities were not genuine, and the expenses claimed were not substantiated with credible evidence. The Tribunal also observed that the assessee did not provide any proof of entering into hedging contracts with bankers to justify the foreign exchange fluctuation loss.

Conclusion:
The Tribunal dismissed the appeals for the assessment years 2008-09 to 2014-15, upholding the AO's assessment of commission income and rejection of the books of accounts. The Tribunal found that the assessee's business activities were characterized as accommodation entries based on sufficient incriminating evidence and corroborative statements. The retraction of statements was not accepted due to the delay and lack of supporting evidence. The disallowance of expenses, including foreign exchange fluctuation loss, was also upheld.

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