2025 (3) TMI 881 - HC - Income Tax

Unexplained cash credits u/s. 68 - assessee had failed to furnish satisfactory explanation with regard to the identity of the parties and the sources and genuineness of the transaction - misconduct by CA - additions at 0.37% on the gross deposits as against 0.15% offered by the appellant - Tribunal reduced the rate of 0.37% to 0.15% by merely following its own order for earlier assessment years - statement of the Director of assessee on which heavy reliance is placed by assessee HELD THAT - The Tribunal has not given any reasons as to if the respondent-assessee does not explain the beneficiary s identity then why the whole amount should not be added under Section 68 but only 0.15% of the said deposit. In our view therefore the Tribunal has adopted a very casual approach to such a serious matter of rampant tax evasion by merely saying issue is covered. In our view in such cases Tribunal should not go by the concession of the counsel before them but it was their duty to examine the issue in proper perspective since Tribunal is a final fact finding authority under the Act. We say so because of the admission made by the respondent-assessee in the statement of its director recorded under Section 131 of the Act on which heavy reliance is placed by the counsel for the respondent-assessee was not even considered by the Tribunal. Reliance on statement of director of assessee - Explanation cannot be accepted more so from the respondent-assessee company who is claiming to have been engaged in the business of providing accommodation entries where crores of rupees are deposited and withdrawn. If the respondent-assessee does not have the details of the beneficiaries then we fail to understand how the money were deposited in the bank accounts of the respondent-assessee and withdrawn from such bank accounts without respondent assessee knowing the details of these beneficiaries. The only person who can operate these bank account would be the respondent-assessee who at least at the time of withdrawing would know to whom the amount withdrawn is given. In the absence of any details of such beneficiaries we cannot accept the submissions of the respondent-assessee that even if the credits are not explained or details are not given still such credits cannot be added in the hands of the respondent-assessee. Misconduct by Chartered Accountant - Before we conclude we will be failing in our duty as a Court of law if we do not comment on the accommodation entry provider Mr. Mukesh Choksi through his web of shell companies and various admissions made by the counsel for the respondent-assessee. It is also important to note that Mr Mukesh Choksi director of the respondent-assessee in his answer to question No.14 of the statement has admitted that he was a practicing Chartered Accountant but has surrendered the Certificate of Practice (COP) in 1993 and thereafter is only engaged in the business of providing accommodation entries. He has also stated that search action has been taken against him/his companies more than once. We are rather surprised that a Chartered Accountant who may not be holding a COP but if involved in illegal activities as to whether any action is or can be taken by the Institute of the Chartered Accountants of India against such a person. Suppose no action is taken against such a person. In that case we hereby direct the Institute of Chartered Accountants of India to inquire whether such a person is liable for any professional misconduct as per the Chartered Accountant s Act 1949. Shri Choksi in this statement has also admitted that he has abetted in evasion of tax by various beneficiaries. He has also admitted that he cannot give details of the beneficiaries. Mr. Choksi has also admitted that by engaging in accommodation entry he has engaged in the laundering of money. Therefore in our view the authorities under the Prevention of Money Laundering Act 2002 should also investigate Shri Choksi on these activities. This is a case where the low deterrent effect of the law has worked on a professional talent to become a habitual economic and financial offender and this should be stopped in the larger interest of our country. Adoption of rate of commission - In our view what rate should be adopted as commission would be a pure question of fact and therefore insofar as the rate of commission with respect to those credits which are identified by the respondent-assessee is concerned same should be taken at 0.15%. To conclude we answer question (a) in favour of the appellant-revenue and against the respondent-assessee. Insofar as question (b) is concerned we answer the same against the appellant-revenue and in favour of the respondent-assessee. Consequently we reverse the Tribunal s order and restore CIT (A) s order subject to retaining the rate of commission at 0.15 % as adopted by the Tribunal.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(a) Whether the Tribunal was justified in restricting the addition made on account of unexplained cash credits under Section 68 of the Income-tax Act to 0.15%, without sufficient explanation regarding the identity, source, and genuineness of the transactions.

(b) Whether the Tribunal was justified in restricting the addition to the commission income at 0.15% despite material evidence indicating the commission charged by the assessee group varied between 1.5% and 3.5%.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Unexplained Cash Credits under Section 68

- Relevant Legal Framework and Precedents: Section 68 of the Income-tax Act mandates that any sum credited in the books of an assessee for which no satisfactory explanation is provided regarding its nature and source can be charged as income. The provision requires the assessee to establish the identity, creditworthiness, and genuineness of the credits.

- Court's Interpretation and Reasoning: The Court emphasized that the respondent-assessee failed to provide details of the credits amounting to Rs. 10,73,52,553/- in its bank accounts. The Court found that the Tribunal erroneously restricted the addition to 0.15% without providing reasons for deviating from the CIT(A)'s decision, which required full addition under Section 68 if beneficiaries were not identified.

- Key Evidence and Findings: The respondent-assessee admitted to being an accommodation entry provider but did not provide any details of the customers or beneficiaries. The Court noted that the credits were extracted from the respondent-assessee's computer, indicating that the data was available but not disclosed.

- Application of Law to Facts: The Court held that without identifying the beneficiaries or providing satisfactory explanations, the credits should be treated as unexplained income under Section 68. The explanation that the credits belonged to customers was insufficient without verifiable details.

- Treatment of Competing Arguments: The respondent-assessee argued that the credits were not its income and that only commission income should be taxed. The Court rejected this, stating that unexplained credits and commission income are distinct issues. The Tribunal's decision to apply 0.15% was seen as lacking justification.

- Conclusions: The Court concluded that the Tribunal's order was incorrect in restricting the addition to 0.15% and reinstated the CIT(A)'s approach, requiring full addition under Section 68 for unexplained credits.

Issue (b): Rate of Commission

- Relevant Legal Framework and Precedents: The determination of the appropriate rate of commission is a factual matter, typically based on evidence and the specific circumstances of the case.

- Court's Interpretation and Reasoning: The Court noted that the CIT(A) had directed a commission rate of 0.37% if beneficiaries were identified. The Tribunal reduced this to 0.15% based on its previous orders without adequately addressing the evidence suggesting higher commission rates.

- Key Evidence and Findings: The Court acknowledged the material indicating that the commission rates varied between 1.5% and 3.5%, which was not adequately considered by the Tribunal.

- Application of Law to Facts: The Court accepted the Tribunal's rate of 0.15% for identified beneficiaries, viewing it as a factual determination within the Tribunal's purview.

- Treatment of Competing Arguments: The revenue argued for a higher rate based on evidence, while the respondent-assessee contended that 0.15% was appropriate. The Court sided with the Tribunal's factual finding for identified beneficiaries.

- Conclusions: The Court upheld the Tribunal's rate of 0.15% for identified beneficiaries but emphasized the need for full addition under Section 68 for unexplained credits.

3. SIGNIFICANT HOLDINGS

- The Court held that unexplained credits in the bank accounts of the respondent-assessee should be added as income under Section 68 unless the assessee provides satisfactory explanations.

- The Court reaffirmed the principle that the burden of proof lies on the assessee to explain the nature and source of credits in its accounts.

- The Court criticized the Tribunal for adopting a casual approach and not adequately addressing the evidence or the CIT(A)'s reasoning.

- The Court directed investigations into potential professional misconduct and criminal activities related to the case, highlighting the seriousness of the issues involved.

- The appeal was allowed in favor of the revenue concerning unexplained credits, while the Tribunal's rate of commission for identified beneficiaries was upheld.