The High Court of Bombay recently ruled that in the Accommodation Entry Business, entire deposits cannot be assessed as unexplained cash credits.
The Assessee, Alag Securities Pvt. Ltd is engaged in the business of providing accommodation entries to entry seekers.
During the assessment proceedings, AO held that the identity of the parties involved in the transactions was not furnished as well as genuineness of the transactions relating to total cash deposits were not satisfactorily explained by the assessee.
Holding that the source, nature, genuineness, and creditworthiness of the creditors relating to the transactions were not proved by the assessee, the amount which was found in deposits in various bank accounts was added back to the total income of the assessee as unexplained income from undisclosed sources under Section 68 of the Income Tax Act, 1961.
The Tribunal had held that only 0.15% of the total deposits were to be treated as income from the commission in the hands of the respective entities. The CIT (A) directed the Assessing Officer to adopt only 0.15% of the total deposits as commission in the hands of the assessee and to delete the balance addition.
The division bench of Justice Milind N. Jadhav and Justice Ujjal Bhuyan stated that Section 68 would come into play when any sum is found credited in the books of the assessee and the assessee offers no explanation about nature and source thereof or the explanation offered by the assessee is not in the opinion of the Assessing Officer satisfactory. But that is not the position in the present case.
The bench further noted that it has been the consistent stand of the assessee that the business of the assessee entered around customers/beneficiaries making deposits in cash amounts and in lieu thereof taking cheques from the assessee for amounts slightly lesser than the quantum of deposits, the difference representing the commission realized by the assessee. The cash amounts deposited by the customers i.e., the beneficiaries had been accounted for in the assessment orders of these beneficiaries.
Therefore, the question of adding such cash credits to the income of the assessee, more so when the assessee was only concerned with the commission earned on providing accommodation entries does not arise.
The bench, while upholding the decision of the Tribunal said, “the tribunal had already held 0.1% commission in similar types of transactions to be a reasonable percentage of commission. Therefore Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee itself. This finding is a plausible one and it cannot be said that the rate of the commission was arrived at in an arbitrary manner. The same does not suffer from any error or infirmity to warrant interference and no substantial question of law arises therefrom. Hence, the appeal filed by the Revenue is accordingly dismissed.”