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2022 (7) TMI 1218 - AT - Income TaxAddition u/s 68 on accommodation entries receipt - addition in the hands of this assessee on protective basis - HELD THAT - In this case, the assessee is found to be a conduit company providing accommodation entries to various parties. Names of entry operators are also mentioned in the assessment order and the statements are also recorded wherein they have categorically stated that all these entries are accommodation entries. During the year, this company invested in five different companies as share capital - AO made an addition of the accommodation entry amount as well as the concerned commission in the hands of the assessee on productive basis - CIT (A) deleted the addition on protective basis for the reason that on substantive basis these incomes have been taxed in the hands of all the beneficiaries. Naturally when the substantive addition is confirmed by the appellate authorities, we do not find any reason to dislodge the finding of the learned CIT (A) in deleting the addition in the hands of this assessee on protective basis. Commission income at the rate of 2.5% of the accommodation entry - CIT-A deleted the addition - HELD THAT - We do not find any reason to not to reverse the finding of the learned CIT (A) in deleting the commission income at the rate of 2.5% of the accommodation entry. Assessee is undisputedly an accommodation entry provider and therefore, the commission income requires to be added in the hands of the assessee. Accordingly, ground no. 3 of the appeal is allowed.
Issues Involved:
1. Deletion of protective addition of unaccounted investment and commission. 2. Confirmation of substantive additions in the hands of beneficiaries. 3. Addition of commission income in the hands of the assessee as an accommodation entry provider. Detailed Analysis: Issue 1: Deletion of Protective Addition of Unaccounted Investment and Commission The learned Assessing Officer (AO) challenged the deletion of protective additions made by the Commissioner of Income-tax (Appeals) [CIT(A)] in the case of Vishnu Textile Trade P. Ltd. The AO had added ?5.10 crores as unaccounted investment and ?12.75 lakhs as unaccounted commission under Section 69C of the Income-tax Act, 1961. The CIT(A) deleted these additions on the grounds that the investments were recorded in the regular books and the sources were explained through corresponding liabilities. The CIT(A) also noted that substantive additions had been confirmed in the hands of the actual beneficiaries, not the assessee. Issue 2: Confirmation of Substantive Additions in the Hands of Beneficiaries The CIT(A) confirmed substantive additions in the hands of various companies, such as M/s Solitaire Texfab Traders & Textiles P. Ltd., M/s Bhagwat Textiles P. Ltd., M/s Starwood Exports P. Ltd., M/s Rikosh Fashions P. Ltd., and M/s First Winner Textiles (India) P. Ltd. These companies were found to have received accommodation entries from the assessee. The CIT(A) upheld the substantive additions under Section 68 for amounts ranging from ?25 lakhs to ?1.85 crores, thereby justifying the deletion of protective additions in the hands of the assessee. Issue 3: Addition of Commission Income in the Hands of the Assessee The Tribunal found that the assessee was an accommodation entry provider, and thus, the commission income of ?12.75 lakhs at the rate of 2.5% of the accommodation entry should be added to the assessee's income. The Tribunal reversed the CIT(A)'s decision to delete this commission income, emphasizing that the assessee's role as an entry provider warranted this addition. Conclusion for ITA No. 2120/Mum/2019: The Tribunal dismissed the AO's appeal regarding the deletion of protective additions of ?5.10 crores and ?12.75 lakhs, confirming the CIT(A)'s decision. However, the Tribunal allowed the AO's appeal concerning the addition of commission income, reversing the CIT(A)'s deletion of ?12.75 lakhs. Thus, the AO's appeal was partly allowed. Case of DCIT Vs. VARAD Vinayak Textiles Pvt. Ltd. (ITA No. 1877/Mum/2019): Issue 1: Deletion of Protective Addition of Unaccounted Investment and Commission Similar to the first case, the AO appealed against the CIT(A)'s deletion of ?7 crores as unaccounted investment and ?17.50 lakhs as commission in the hands of VARAD Vinayak Textiles Pvt. Ltd. The CIT(A) deleted these additions on protective grounds, confirming substantive additions in the hands of the actual beneficiaries. Issue 2: Confirmation of Substantive Additions in the Hands of Beneficiaries The CIT(A) confirmed substantive additions in the hands of the beneficiaries, similar to the previous case, thereby justifying the deletion of protective additions in the hands of the assessee. Issue 3: Addition of Commission Income in the Hands of the Assessee The Tribunal found that the assessee was an accommodation entry provider and reversed the CIT(A)'s decision to delete the commission income of ?17.50 lakhs. The Tribunal emphasized that the commission income should be added to the assessee's income due to its role as an entry provider. Conclusion for ITA No. 1877/Mum/2019: The Tribunal dismissed the AO's appeal regarding the deletion of protective additions of ?7 crores and ?17.50 lakhs, confirming the CIT(A)'s decision. However, the Tribunal allowed the AO's appeal concerning the addition of commission income, reversing the CIT(A)'s deletion of ?17.50 lakhs. Thus, the AO's appeal was partly allowed. Final Order: Both appeals were partly allowed, with the Tribunal confirming the deletion of protective additions but reversing the deletion of commission income in both cases. The orders were pronounced in the open court on 26.07.2022.
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