Accommodation-entry income taxed only once, with additions limited to unreconciled balance and protective penalty unsustainable.

Income from an accommodation-entry business is assessable only in the hands where it is substantively taxable, and generally only the net commission income is relevant. Where cash deposits or turnover in one assessee's bank account may already have been included in the main operator's receipts, the figures must be reconciled before any separate addition is sustained; if not fully accounted for, only the unreconciled balance can be taxed at the net commission rate applied in the connected matter. Penalty under section 271(1)(c) cannot stand on a merely protective addition and depends on the final substantive taxability determination.

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Issues: (i) Whether the cash deposits and turnover reflected in the assessee's bank account could be treated as the assessee's taxable income when the same accommodation-entry business had already been assessed in the hands of the main entry operator, and what consequence followed if the amounts were not fully accounted for there; (ii) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could survive where the quantum addition was made on a protective basis.

Issue (i): Whether the cash deposits and turnover reflected in the assessee's bank account could be treated as the assessee's taxable income when the same accommodation-entry business had already been assessed in the hands of the main entry operator, and what consequence followed if the amounts were not fully accounted for there?

Analysis: The assessee was found to be part of an accommodation-entry network. The Tribunal accepted that, on the principle already applied in the connected case of the main entry operator, the gross receipts of such entry business are to be assessed in the hands of the main operator only to the extent of net commission income. However, the record showed a mismatch between the cash deposits and turnover reflected in the assessee's case and the amounts considered in the hands of the main operator. Since the exact overlap had not been verified, the matter required factual reconciliation. If the amounts deposited in the assessee's bank account or shown as turnover had already been included in the main operator's receipts for commission computation, no addition would survive in the assessee's hands. If not, the assessee could be brought to tax only to the extent of the unaccounted balance, and only on the net commission rate applied in the connected case.

Conclusion: The protective deletion could not be sustained absolutely; the issue was restored for verification, with addition, if any, confined to the unreconciled balance at 0.2% net commission.

Issue (ii): Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could survive where the quantum addition was made on a protective basis?

Analysis: Penalty cannot rest on a mere protective assessment, because the very basis of concealment is uncertain until the income is finally assessed in the appropriate hands. The Tribunal held that so long as the addition remained protective, levy of penalty was not justified. At the same time, if on verification any amount was found not to have been taxed in the hands of the main operator and was assessable in the assessee's hands on substantive basis, penalty could then be considered only on that substantive amount, after due opportunity of hearing.

Conclusion: Penalty was not sustainable on the protective addition and the matter was remitted to follow the final quantum determination.

Final Conclusion: The revenue's appeals succeeded only to the extent of a factual verification and limited remand; the protective additions were not affirmed as such, and penalty was held to depend on the outcome of the substantive taxability inquiry.

Ratio Decidendi: Income arising from an accommodation-entry business is to be taxed only in the hands in which it is substantively assessable and, where the assessment is merely protective, penalty for concealment cannot be levied until substantive liability is finally determined.

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