2021 (8) TMI 371 - AT - Income Tax

Benefit of telescoping the commission income with the income declared in the return - assessee is only an accommodation entry provider - HELD THAT - There is absolutely no dispute that assessee is only an accommodation entry provider and that all the entries reflected in the books are merely accommodation entries and not real transactions of the assessee - AO had rejected the book results and had resorted to determining the income of the assessee on an estimated basis by estimating commission @1%. Hence, the income returned by the assessee cannot be brought to tax. Similarly, the loss returned by the assessee cannot be allowed to be set off with estimated commission income. We find that assessee is seeking telescoping benefit of commission income with the income returned by the assessee because, the ld. AO had started the computation of income from the figure of income / loss as per the return of income. We hold that (a) in the A.Y.2008-09 to 2011-12, only estimated commission @1% on investments and sales to outside companies / parties should be considered and the same should be telescoped with the income returned by the assessee for the respective assessment years. (b) in the A.Y₹ 2012-13, 2013-14 2014-15 only estimated commission @1% and investments and sales to outside companies / parties should be considered without disturbing the set off as given by the ld. AO in his assessment order as this Tribunal does not have power of enhancement. The ground Nos. 5 6 are disposed of in the above mentioned terms. Addition of income @1% on the value of increase in investments - HELD THAT - We deem it fit and appropriate that the aforesaid chart on investments filed by the assessee requires to be re-visited by the ld. AO and we deem it fit to remand this issue to the file of the ld. AO for denovo adjudication on this aspect of the issue in accordance with law. Accordingly, ground No.7 raised by the assessee for A.Y₹ 2012-13, 2013-14 and 2014-15 is allowed for statistical purposes. Addition u/s 68 - HELD THAT - No finding has been given by the ld. AO with regard to the fact of receipt of monies by issuance of convertible equity warrants; its treatment given by assessee in the books; prevailing law on the impugned issue; whether the same was done in accordance with SEBI Guidelines as pointed out by the assessee in its annual report etc. We find that the ld. AO directly concludes the issue that the amount forfeited represents unaccounted income of the assessee. We find that the ld. AO had also not brought on record, under what provisions of the Act, the amount forfeited becomes income of the assessee. Hence, in the interest of justice and fair play, we deem it fit and appropriate, to remand this issue to the file of ld. AO for denovo adjudication in accordance with law. Since, the entire issue is sent back to the file of the ld. AO for denovo adjudication in accordance with law, the reliance placed on the decision in the case of Alag Securities 2020 (6) TMI 304 - BOMBAY HIGH COURT would be premature at this stage. The assessee is at liberty to quote the said decision before the ld. AO while adjudicating this issue in the denovo proceedings. The ld. AO is hereby directed to determine its applicability to the facts of the case. Appeals of the assessee for all the years are partly allowed for statistical purposes.

Summary

Issues Involved:
1. Entitlement for benefit of telescoping the commission income with the income declared in the return.
2. Addition of income @1% on the value of increase in investments.
3. Addition on account of forfeiture of share application money.

Detailed Analysis:

1. Entitlement for Benefit of Telescoping the Commission Income with the Income Declared in the Return:
The primary issue is whether the assessee is entitled to the benefit of telescoping the commission income with the income declared in the return. The assessee argued for the set-off of income declared in the books against the assessable commission income, which was denied by the CIT(A) on the grounds that the assessee did not prove that the income declared in its books was wholly and exclusively from commission income.

Findings:
- A search under Section 132 of the Income Tax Act was conducted, revealing that the assessee earned commission income from providing bogus accommodation entries.
- The AO assessed the commission income at 1% based on the transactions, which was upheld by the CIT(A).
- The Tribunal found that the transactions in the books were sham and bogus, thus rejecting the book results and estimating the income on a commission basis.
- The Tribunal held that the assessee is entitled to the benefit of telescoping for assessment years where positive income was declared but not for years where losses were declared and set off by the AO.

2. Addition of Income @1% on the Value of Increase in Investments:
The assessee challenged the addition of income @1% on the value of the increase in investments, arguing that the AO had erroneously considered the figures.

Findings:
- The Tribunal noted discrepancies in the figures considered by the AO and directed a re-examination of the investments as per the chart provided by the assessee.
- The issue was remanded to the AO for denovo adjudication to verify the correct figures and compute the commission income accordingly.

3. Addition on Account of Forfeiture of Share Application Money:
The assessee contested the addition of ?27,90,40,000/- on account of forfeiture of share application money, arguing that it should be treated as a capital receipt and not as income.

Findings:
- The AO treated the forfeited share application money as income, alleging it was a method to bring unaccounted money into the books.
- The CIT(A) upheld this addition.
- The Tribunal found that the AO did not provide a detailed examination or specify the section under which the addition was made.
- The Tribunal remanded the issue to the AO for denovo adjudication, directing the AO to consider the assessee's submissions and applicable SEBI guidelines.

Conclusion:
The appeals were partly allowed for statistical purposes, with specific issues remanded to the AO for further examination and proper adjudication in accordance with the law. The Tribunal emphasized the need for a detailed and lawful assessment of the issues raised by the assessee.