2023 (11) TMI 1142 - AT - Income Tax

Additions against unsecured loan as accommodation entries - Assessee claimed that, it may be considered as accommodation entries/circular-trading/ layering of funds and therefore suo-moto offered commission income in the range of 0.5% to 1% of the funds circulated by the company as its income - HELD THAT - It was the assessee who had voluntarily stated before the AO that if the monies transacted through the two (2) entities are held to be tainted, then the company may be regarded as entity involved in providing accommodation entries thereby suggesting that it was not the beneficiary of the unexplained sum of Rs. 87 Lakhs but it was an aide who was facilitating the same and therefore only commission income could be inferred in relation thereto. If that be so, then as a natural corollary all the transactions conducted by the assessee during the year through its bank account has to be treated as accommodation entries facilitated by them. The assessee cannot blow hot and cold at the same time and assert that the sum to the extent of Rs. 87,00,000/- identified by the Investigating authorities be treated as tainted and the rest of the transactions be accepted at its face value to be sacrosanct. Since assessee failed to produce any material to prove the genuiness of un-secured loan (other than entries in financials), I am unable to subscribe to the contention of the assessee that it had received genuine unsecured loans out of which investments were made/purchased and therefore these transactions should be overlooked. Having held that the assessee was never engaged in business of trading in shares but providing accommodation entries in guise of the same, all the alleged purchase sale transactions conducted by the assessee was rightly regarded as accommodation entries by the AO. Estimation of commission income - As we find prima facie merit in the plea of the Ld. AR that in the facts of the case, both inward and outward remittances may not be considered as accommodation entries provided to ultimate beneficiaries which yielded commission income. Rather, the payments made/cheques issued by the assessee company would represent the accommodation entries provided by it and that the inward remittances represents the funds layered by the assessee to provide such accommodation entries. Hence, in the facts and circumstances of the case as seen from records, in my considered view, the commission income was required to be estimated only with reference to the aggregate of the debit entries found in the bank statement of the assessee and that the credit entries ought not be considered. We find force in the Ld. DR s contention that such an exercise would remain academic in absence of the bank statement of the assessee. Hence, in the fitness of the matters, the limited issue regarding quantification of commission income is set aside back to the file of the AO with direction to the assessee to produce/furnish its bank statement for verification and quantification of debit entries for estimation of commission income. The AO shall allow sufficient opportunity and time to the assessee in this regard. In case the commission income estimated comes to a figure higher than the sum originally added or the assessee fails to provide or furnish the bank statement, then the commission income as originally estimated by the AO would stand confirmed. Appeal stands partly allowed for statistical purposes.

Summary

Issues:
The judgment involves the confirmation of addition made by way of undisclosed commission income in multiple assessment years.

Issue 1: Addition of undisclosed commission income
The assessee, a private limited company, filed its return of income for AY 2012-13 declaring total income of Rs. 770/-. The AO gathered that the assessee had availed accommodation entries from certain entities, leading to the reopening of assessment. The assessee claimed to be engaged in share trading but failed to provide details to substantiate transactions. The AO concluded that the assessee provided accommodation entries instead of engaging in genuine share trading, estimating commission income at Rs. 2,84,00,000/-. The CIT(A) confirmed the AO's action. The Tribunal upheld the lower authorities' decision, noting the lack of evidence supporting the nature of transactions and affirming the assessee's role as an accommodation entry provider.

Issue 2: Estimation of commission income
The AR argued that only debit entries in the bank statement should be considered for estimating commission income, as they represent funds layered by the assessee to provide accommodation entries. The Tribunal agreed in principle with this argument but highlighted the absence of the bank statement as a hindrance. The issue of quantification of commission income was remanded back to the AO with directions for the assessee to furnish the bank statement for verification. The Tribunal allowed the appeal for AY 2012-13 for statistical purposes, with similar decisions applying to AYs 2013-14 & 2017-18.

Separate Judgement:
The judgment was delivered by SHRI ABY T. VARKEY, JM.