2021 (12) TMI 873 - AT - Income Tax

Unaccounted investment - Addition in the hands of the assessee on protective basis on account of expenses u/s. 69C - Assessee has been held to be an entry provider through which, the money has been routed for making investment in another companies and considering the facts of the whole transactions made addition in the hands of the real beneficiary on substantive basis and in the hands of the assessee, on protective basis - HELD THAT - The addition in the hands of the beneficiary has been confirmed by the Commissioner of Income tax (Appeals) in their respective cases holding that the addition is required to be made in the hands of those companies, on substantive basis. The revenue have not shown us any evidence that the addition in the hands of those companies having survived for the reason that it should be taxed in the hands of this assessee. AO has also made addition u/s. 69 C of the Act of expenses of obtaining the accommodation entry in the hands of the assessee, on protective basis. The expenditure of accommodation entries were also held to be the income of those assesses, who obtained accommodation entry and therefore, such expenditure is confirmed as unexplained expenditure of those beneficiaries. In view of this, the learned Commissioner of Income tax (Appeals), after carefully recording the order of the learned Commissioner of Income tax (Appeals) in the hands of the beneficiaries, have deleted the addition in the hands of the assessee. There is no evidence that income belongs to this assessee and further stand of the revenue is that this assessee is only a paper company. Further, if at any moment, in the case of the beneficiaries, if it is held that the income belongs to the assessee and not to those beneficiaries, the provisions of Section 153 of the income tax act will come to the rescue of the revenue. We find no infirmity in the order of learned Commissioner of Income-tax (Appeals) in deleting the addition in the hands of this assessee, made on protective basis, when addition already made in the case of other assesses on substantive basis, have been confirmed. - Decided against revenue.

Summary

Issues:
- Appeal against deletion of addition of unaccounted investment and commission
- Protective addition of unaccounted investment
- Protective addition of unaccounted commission
- Confirmation of substantive additions in other companies
- Assessment based on protective basis
- Deletion of additions in the hands of the assessee
- Dismissal of appeals by the revenue

Analysis:

Issue 1: Appeal against deletion of addition of unaccounted investment and commission
The Deputy Commissioner of Income tax filed appeals against the deletion of additions made by the Commissioner of Income-tax (Appeals) for assessment years 2011-12 and 2012-13. The additions were related to unaccounted investment and commission under section 69C. The AO contended that the entries were accommodation entries and the assessee was a conduit for introducing unaccounted funds. However, the CIT(A) held that the substantive additions had been confirmed in the hands of other companies, making the protective additions in the hands of the assessee unnecessary.

Issue 2: Protective addition of unaccounted investment
The AO made protective additions of unaccounted investment in the hands of the assessee based on the belief that the company was used for routing bogus share application money. However, the CIT(A) found that the additions had been confirmed in the hands of the actual beneficiaries, rendering the protective additions redundant.

Issue 3: Protective addition of unaccounted commission
Similarly, the AO added unaccounted commission on the routing of bogus share application money as a protective measure. The CIT(A) deleted these additions as well, citing the confirmation of substantive additions in the hands of the real beneficiaries.

Issue 4: Confirmation of substantive additions in other companies
The substantive additions made by the AO in other companies were confirmed by the CIT(A), leading to the conclusion that the protective additions in the hands of the assessee were not required.

Issue 5: Assessment based on protective basis
The assessment by the AO was based on a protective basis, assuming the assessee's involvement in routing unaccounted funds. However, the CIT(A) found no evidence to support taxing the assessee when the substantive additions had been confirmed in the hands of the actual beneficiaries.

Issue 6: Deletion of additions in the hands of the assessee
The CIT(A) deleted the additions made in the hands of the assessee, emphasizing that the substantive additions had already been confirmed in the hands of other parties. The lack of evidence linking the income to the assessee led to the deletion of the protective additions.

Issue 7: Dismissal of appeals by the revenue
Ultimately, the ITAT dismissed the appeals by the revenue for both assessment years, upholding the CIT(A)'s decision to delete the additions in the hands of the assessee based on the confirmation of substantive additions in other companies.

This comprehensive analysis highlights the key issues and the reasoning behind the judgment delivered by the ITAT Mumbai in the mentioned case.