2019 (10) TMI 974 - AT - Income Tax

Addition u/s.68 - unexplained cash credit - HELD THAT - Assessee is not able to discharge its burden as was cast u/s 68 of the 1961 Act . Thus, we have no hesitation in setting aside the appellate order passed by learned CIT(A) and confirm the additions to the tune of ₹ 3,13,90,000/- as were made by the AO, which addition now stood stand affirmed by us. Revenue succeeds on this issue. We order accordingly. Protective additions - Additions were made on protective basis based on statement of Director Mr. Jagdish Purohit that these accommodation entries were provided in lieu of commission income which was brought to tax by the AO as income computed @5% of amount of these accommodation entries. The assessee company is already held by us to be an entity engaged in providing bogus accommodation entries. Now coming to this addition towards commission income in lieu of providing accommodation entries. Firstly, these are estimates which certainly require some guess work but the said guess work should be an honest and fair guess work. We are not inclined to interfere in the estimation done by the AO while computing commission @5% of accommodation entry amount which was brought to tax by the AO, as in our considered view it is a reasonable and honest estimation made by the AO and cannot be said to be perverse estimation defying all cannons of commercial logics and reasoning. Secondly, the additions to the tune of ₹ 15,69,500/- were made on protective basis in the hands of the assessee and although we are confirming this addition also but at the same time we are remitting this issue back to the AO for limited verification as to the fate of this addition made on substantive basis and accordingly the AO shall decide about the sustainability of this addition of ₹ 15,69,500/-. Revenue also succeed on this ground as indicated above

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Genuineness of the transaction and creditworthiness of the lenders.
3. Protective addition of unaccounted commission income.

Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:
The primary issue revolves around whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of ?3,13,90,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO had added this amount as unexplained credit, doubting the genuineness of the transactions and the sources of funds. The AO observed that the assessee did not provide complete bank statements and failed to satisfactorily explain the sources of the funds received from Nabela Finvest Private Limited, Rotuda Capital and Finance Private Limited, and Kukreja Builders Private Limited. The CIT(A), however, admitted additional evidence under Rule 46A of the Income-tax Rules, 1962, and based on the remand report from the AO, concluded that the sources and sources of sources were explained and thus deleted the addition.

2. Genuineness of the Transaction and Creditworthiness of the Lenders:
The tribunal analyzed whether the assessee satisfied the mandate of Section 68 by proving the identity, creditworthiness of the creditors, and the genuineness of the transactions. The tribunal noted several inconsistencies in the assessee's financial statements, such as meager revenue from operations, no interest income from substantial loans and advances, and peculiar patterns in bank transactions. The tribunal observed that the assessee appeared to be an accommodation entry provider, engaged in money laundering by routing unaccounted funds through multiple layers of bank accounts. It was highlighted that one of the directors, Mr. Jagdish Purohit, had admitted to providing accommodation entries for commission, although he later retracted his statement. The tribunal concluded that the assessee failed to prove the genuineness of the transactions and the creditworthiness of the lenders, thereby justifying the addition under Section 68.

3. Protective Addition of Unaccounted Commission Income:
The AO had made a protective addition of ?15,69,500/- towards commission income allegedly earned by the assessee for providing accommodation entries. This addition was based on the statement of Mr. Jagdish Purohit, which was later retracted. The CIT(A) deleted this addition, reasoning that since the investment in share application money was found genuine, there was no question of earning commission. However, the tribunal upheld the AO's estimation of commission income at 5% of the accommodation entry amount, considering it a reasonable and honest estimation. The tribunal remitted the issue back to the AO for limited verification regarding the substantive basis of this addition.

Conclusion:
The tribunal allowed the revenue's appeal, setting aside the CIT(A)'s order and confirming the addition of ?3,13,90,000/- under Section 68. The tribunal also upheld the protective addition of ?15,69,500/- as commission income, remitting it back to the AO for verification. The decision emphasizes the importance of proving the genuineness of transactions and the creditworthiness of creditors under Section 68, especially in cases involving closely held companies suspected of providing accommodation entries.