2019 (11) TMI 458 - AT - Income Tax

Revision u/s 263 - estimation of profit - accommodation entry provider - CIT(A) for the A.Yrs 2006-07 and 2007-08 vide its order dated 25/01/2017 had recorded a categorical finding that assessee is indeed an accommodation entry provider and had processed to estimate net profit i.e. commission income at 0.15% of the total turnover as against 1% adopted by the ld. AO - HELD THAT - We hold that assessee herein is an accommodation entry provider. We find that the Hon ble Delhi High Court decision relied upon by the ld. CIT in the case of CIT vs. D.K.Garg 2017 (8) TMI 450 - DELHI HIGH COURT was in the case of an accommodation entry provider wherein the assessee therein had requested for adoption of peak credit theory in a situation where he could not explain the source of various deposits made in the bank account. In that context, the Hon ble Delhi High Court rejected the peak credit theory and directed to tax the total deposits as unexplained cash credit u/s.68 of the Act. We hold that such decision is factually distinguishable with the instant case. It is not in dispute that in the instant case, the Director of the assessee company had indeed given statement before the Maharashtra Sales Tax authorities during the course of sales tax search and had also categorically stated that it is only engaged in providing accommodation entries and no actual purchase and sale activities were carried out by the assessee company. It is well settled that what is to be taxed ultimately is only the real income of the assessee company. Considering the totality of facts and circumstances of the instant case and considering the behavior of the assessee in earlier and subsequent years which had also been approved by the ld. CIT(A) in certain years, we hold that commission income alone could be assessed as the real income of the assessee and not the value of transactions. Appeal of the assessee is allowed.

Summary

Issues involved:
Determining the validity of invoking revisionary jurisdiction u/s.263 of the Act by the ld. Administrative CIT regarding the assessment order for A.Y. 2009-10.

Detailed Analysis:

1. Background and Assessment Process:
The appeal in question pertains to the assessment year 2009-10, where the assessee company filed its return of income declaring total income under normal provisions and u/s.115JB of the Act. The assessment was reopened based on a statement by the Director of the company during a search operation by Sales Tax authorities, indicating possible accommodation entries.

2. AO's Findings and Decision:
The Assessing Officer (AO) rejected the book results of the assessee under section 145(3) of the Act, treating the company as an accommodation entry provider and taxing commission income at 1% of total transactions. The AO highlighted discrepancies in business expenditures and lack of supporting documentation, leading to the conclusion that the company was not engaged in genuine transactions.

3. Revisionary Jurisdiction u/s.263:
The ld. CIT invoked revisionary jurisdiction u/s.263, citing failure by the AO to investigate bogus purchases adequately, causing revenue loss. However, the Tribunal noted that the AO had conducted a thorough examination of the transactions and made a conscious decision based on past behavior and circumstances.

4. Judicial Precedents and Tribunal's Decision:
The ld. CIT's reliance on certain court decisions to treat the company as an accommodation entry provider was deemed inapplicable to the present case. The Tribunal found that the AO's decision was reasonable, considering the real income of the company. Previous rulings and a similar case before the Tribunal supported the AO's assessment approach.

5. Conclusion and Tribunal's Decision:
The Tribunal quashed the revision order u/s.263, stating that the AO's decision was not erroneous or prejudicial to revenue interests. The ld. CIT's failure to consider the company's past records and behavior before revising the assessment order was highlighted. Ultimately, the Tribunal allowed the assessee's appeal, emphasizing the importance of a comprehensive assessment based on factual circumstances and past behavior.

In summary, the Tribunal's detailed analysis focused on the validity of invoking revisionary jurisdiction u/s.263, emphasizing the importance of a thorough assessment process and consideration of past behavior in determining the real income of the assessee company.