2022 (11) TMI 1248 - AT - Income Tax

Assessment u/s 143(3) - accommodation entries provider - transaction between the appellant and other related concerns as accommodation entry and treating the appellant as alleged accommodation entry provider - as argued assessee is not an accommodation entry provider AND no opportunity of cross examination was provided regarding the alleged credible information received by ld. AO - HELD THAT - Complete details of the source of the funds received during the year as well as the amounts transferred to other companies has been filed by the assessee. Revenue authorities have failed to find any defect in such details. In the past for AY 2013-14 assessee s case was assessed u/s 143(3) of the Act and the assessee has not been held to be entry provider but has been assessed to be engaged in business of share investment. This plea of ld. D/R that most of the companies are having meagre income and no source of funds is also not correct as in the case of P G Industries Ltd., returned income is 1.14 Cr. and in case of Priceless Overseas Ltd., returned income is 59.97 lakh. It is also not in dispute that the assessee has requested for cross examination but no such opportunity was provided to the assessee to cross examine Mr. Mahendra Sethia who claimed to have been managing the assessee company as an accommodation entry provider. And not providing of such opportunity of cross examination renders the assessment proceedings as invalid and bad in law as held in the case of Andaman Timber Industries v. CCE 2015 (10) TMI 442 - SUPREME COURT Therefore since the assessee has explained the transactions carried out during the year in the bank account held in Vijaya Bank and the complete details of the deposits and withdrawal and the source and the documentary evidences in support thereof, the transactions, in my view are carried out in the regular course of business and by no stretch up imagination, the assessee company can be held as an accommodation entry provider/shell company. Therefore, set aside the finding of ld. CIT(A) and delete the addition of commission income - Decided in favour of assessee.

Summary

Issues:
Appeal against order u/s 250(6) of the Income Tax Act for AY 2016-17 - Delay in filing appeal - Assessment of income as accommodation entry provider - Cross-examination not provided - Addition of commission income.

Analysis:
1. Delay in Filing Appeal:
The appeal was initially time-barred by 136 days, but the assessee filed a condonation application, which was accepted by the Tribunal. The Tribunal found reasonable cause for the delay and admitted the appeal for adjudication.

2. Assessment as Accommodation Entry Provider:
The Assessing Officer (AO) concluded that the assessee was a paper/shell company providing accommodation entries due to high-risk transactions in a bank account. The AO computed income based on commission earned on transactions. The CIT(A) upheld this finding despite the assessee's submissions.

3. Grounds of Appeal:
The assessee raised multiple grounds challenging the AO's assessment, including lack of tangible material, denial of cross-examination, and unjustified commission income addition. The Tribunal considered these grounds in detail.

4. Cross-Examination and Evidence:
The assessee provided detailed evidence of transactions with group companies, including balance sheets and financial statements. The Tribunal noted that the transactions were legitimate business activities with proper documentation, contrary to accommodation entries. The failure to provide cross-examination opportunity was deemed a procedural flaw.

5. Legal Precedent and Conclusion:
The Tribunal referred to past assessments where the assessee was not considered an entry provider. Citing legal precedent, the Tribunal emphasized the importance of cross-examination and invalidated the assessment due to the lack of this opportunity. The Tribunal overturned the CIT(A)'s decision, deleting the addition of commission income.

6. Final Decision:
The Tribunal allowed the appeal, setting aside the CIT(A)'s decision and deleting the addition of commission income. The Tribunal concluded that the transactions were legitimate business activities, not accommodation entries. The appeal was allowed in favor of the assessee.

In conclusion, the Tribunal's judgment focused on the assessment of the assessee as an accommodation entry provider, the lack of cross-examination opportunity, and the addition of commission income. The Tribunal's decision highlighted the importance of providing a fair opportunity for cross-examination and examining the evidence in detail to determine the nature of transactions accurately.