2013 (12) TMI 133 - AT - Income Tax

Tribunal directs fresh assessment, limits additions to peak credit, eliminates circular transactions, and shifts burden of proof.

The Tribunal set aside the appeals to the Assessing Officer for fresh adjudication, directing consideration of all cases together, restriction of ... Modus operandi - Providing accomodation entries - Held that:- The assessee has indulged in circular and multiple transactions, by layering through floatation of more than 90 companies - Huge amount of cash has been deposited and transferred to and from assessee's bank account - Tax can be levied only on peak unexplained credit - It is impossible to arrive at the correct assessable amount - The burden of proof is on assessee to prove the chain of transaction, then only correct income can be computed - The isue was set aside for fresh examination. Issues Involved:1. Legality of additions made under Section 68 of the Income Tax Act.2. Determination of commission income.3. Assessment of income in the hands of Mr. Tarun Goyal versus individual companies.4. Elimination of multiple taxation due to circular transactions.Detailed Analysis:1. Legality of Additions Made Under Section 68:A search and seizure operation was conducted on the Tarun Goyal Group of Companies, revealing a modus operandi of providing accommodation entries through numerous companies managed by Mr. Tarun Goyal. The companies had common addresses and directors who were employees of Mr. Goyal. The modus operandi involved accepting cash from beneficiaries, depositing it in bank accounts, and issuing cheques to beneficiaries, disguising transactions as genuine through layering of accounts. The Assessing Officer (AO) made additions on account of undisclosed commission earned and unexplained credits (cash deposits) under Section 68 of the Income Tax Act. The CIT (A) upheld these additions, leading the assessee to appeal.2. Determination of Commission Income:Mr. Tarun Goyal confessed to earning commission income from providing accommodation entries. He offered a commission income of Rs. 10 lacs on Rs. 40 crores of accommodation entries in his income tax return for AY 2009-10. The assessee argued that the commission income should be taxed only at the point of cash deposit and not at multiple points to avoid double taxation. The AO adopted a commission rate of 2.25%, which the assessee contended was excessive and should be 0.25% as stated by Mr. Goyal during the search and assessment proceedings.3. Assessment of Income in the Hands of Mr. Tarun Goyal Versus Individual Companies:The assessee argued that assessment should be made as a group considering the totality of facts and not separately for each entity. They contended that depositing cash in bank accounts was part of the business of providing accommodation entries, and thus no addition should be made for cash deposits. The assessee also argued that commission income should be added only in the hands of Mr. Tarun Goyal, who had already surrendered income on account of commission in his return for AY 2009-10. The Revenue opposed this, stating that each assessee is a separate entity and must explain credits in their books, failing which additions under Section 68 are justified.4. Elimination of Multiple Taxation Due to Circular Transactions:The Tribunal agreed with the assessee's contention that taxing the same amount multiple times due to circular transactions is against the law. It held that only the peak unexplained credit should be taxed, and subsequent transfers of the same amount should be treated as explained credits. However, the burden of proof lies on the assessee to demonstrate the chain of transactions and the calculation of peak unexplained credit. The Tribunal set aside all the appeals to the AO for fresh adjudication, directing the AO to restrict additions to the peak unexplained credit after eliminating circular transactions and to determine the percentage of commission earned based on the material on record.Conclusion:The Tribunal set aside the appeals to the AO for fresh adjudication, directing the AO to consider all cases together, restrict additions to the peak unexplained credit, eliminate multiple taxation due to circular transactions, and determine the commission percentage based on the material on record. The burden of proof lies on the assessee to demonstrate the chain of transactions and prove each credit in the books of each assessee.Order Pronounced:Order pronounced in the open Court on 18/10/2013.