2024 (2) TMI 454 - AT - Income Tax

Protective addition on account of unexplained credit entries appearing in the bank account - assessee company is a conduit - addition on account of unaccounted commission @ 0.25 % of total unexplained credit entries HELD THAT - As credits received by the appellant cannot be treated as unexplained credit in its hands since, the said transactions are mere arrangement of funds/routing of unaccounted income of the beneficiaries to whom the said funds were transferred through the bank of the appellant company in lieu of commission. In this regard, on perusal of the bank statement and ledger of the appellant company it is evident that the funds have flown, as the appellant company has received funds from various concerns as mentioned above and thereafter amounts were transferred to the above mentioned companies/ concerns immediately, the appellant company is not beneficiary company. The above arrangement of funds is nothing but part of modus operandi of the accommodation entry provider to introduce the unaccounted funds of the beneficiaries in their respective bank accounts. AO also in the assessment order has observed that the appellant company was a conduit company operated by Sh. Naresh Jain and Anand Jain to provide accommodation entries to various beneficiaries and said beneficiaries have already been identified. Accordingly, when the beneficiaries were identified, the addition in such cases can at best be that of commission earned on such accommodation entries. As far as charging of commission is concerned, it has been held in the case of Sh. Anand Jain and Sh. Naresh Jain that they were entry operators who were managing and controlling various shell concerns including the appellant for providing accommodation entries in lieu of commission. Hence, no addition on account commission is called for in this case. Since the assessee company is a conduit, the substantive addition has to be made in the name of the parties mentioned above as per the list given by the ld. AR. Hence, we hold that the ld. CIT(A) has rightly deleted the addition made on protective basis in the case of the assessee. Appeal of revenue dismissed.

Issues Involved:

1. Deletion of protective addition of Rs. 2,25,47,365/- by CIT(A).
2. Deletion of addition of Rs. 56,368/- on account of unaccounted commission.
3. Validity of assessment against a non-existing company.
4. Jurisdictional validity of the assessment order under Section 143(3) read with Section 153C.
5. Validity of additions made under Section 153C in the absence of incriminating material.
6. Genuineness of credit transactions and the role of the assessee in providing accommodation entries.

Summary:

1. Deletion of Protective Addition of Rs. 2,25,47,365/-:
The Revenue contested the deletion of the protective addition made by the AO on account of unexplained credit entries. The CIT(A) found that the appellant company acted as a conduit for routing unaccounted income of beneficiaries through its bank account. The AO identified the beneficiaries and disseminated the information to their respective assessing officers. The CIT(A) concluded that since the appellant was not the beneficiary, the addition could not be sustained in its hands. The ITAT upheld this view, agreeing that the protective addition was rightly deleted.

2. Deletion of Addition of Rs. 56,368/- on Account of Unaccounted Commission:
The AO added Rs. 56,368/- as commission income at 0.25% of the total unexplained credits. The CIT(A) noted that the appellant company, managed by entry operators Sh. Anand Jain and Sh. Naresh Jain, did not earn any commission. The ITAT concurred, stating that no commission income was chargeable to the appellant company, and thus, the addition was rightly deleted.

3. Validity of Assessment Against a Non-Existing Company:
The assessee argued that the assessment was invalid as it was against a non-existing company. The CIT(A) rejected this contention, finding no merit in the argument. The ITAT did not provide separate findings on this issue, implicitly supporting the CIT(A)'s decision.

4. Jurisdictional Validity of the Assessment Order Under Section 143(3) read with Section 153C:
The assessee challenged the jurisdiction of the AO in passing the assessment order. The CIT(A) found that the AO followed the due process under Section 153C after receiving seized documents from the AO of the searched person. The ITAT upheld this finding, affirming the jurisdictional validity of the assessment order.

5. Validity of Additions Made Under Section 153C in the Absence of Incriminating Material:
The assessee contended that the additions under Section 153C were invalid without incriminating material. The CIT(A) dismissed this argument, noting that the seized documents related to the appellant and affected its total income. The ITAT agreed with the CIT(A), finding no infirmity in the additions made under Section 153C.

6. Genuineness of Credit Transactions and Role in Providing Accommodation Entries:
The CIT(A) examined the credit transactions and concluded that the appellant company merely routed funds as part of an accommodation entry scheme. The AO's findings that the appellant acted as a conduit were upheld. The ITAT affirmed that since the beneficiaries were identified, no substantive addition could be made in the appellant's hands. The appellant's role as a conduit was acknowledged, and the protective addition was deleted.

Conclusion:
The ITAT dismissed the Revenue's appeals and the assessee's cross objections, upholding the CIT(A)'s order in its entirety. The protective addition and the commission income addition were rightly deleted, and the jurisdictional and procedural challenges raised by the assessee were found to be without merit.

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