Accommodation entry income is taxed at commission level only, not on routed turnover or conduit deposits.

In accommodation entry cases, the routed turnover through controlled entities could not be taxed as unexplained cash credits in the hands of the entry operator absent evidence that the funds belonged to him; only the commission earned on the entry business was taxable. On the facts recorded, the commission estimate at 0.80% was treated as reasonable and was sustained, rather than 1.5%. A further claim to set off sustained unexplained deposits and cash against estimated commission income was rejected because the two additions rested on different bases and the supporting record was insufficient.

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Issues: (i) Whether the entire value of accommodation entries routed through controlled entities could be assessed as unexplained cash credits in the hands of the entry operator; (ii) whether commission income from such accommodation entry business was to be estimated at 1.5% or 0.80%; and (iii) whether the amount sustained as unexplained deposits in bank accounts and cash for the relevant year could be set off against the estimated commission income.

Issue (i): Whether the entire value of accommodation entries routed through controlled entities could be assessed as unexplained cash credits in the hands of the entry operator.

Analysis: The material on record showed that the assessee was acting as an accommodation entry provider through entities controlled by him, with the beneficiaries and the routing mechanism identified from seized documents, bank accounts, statements, and laptop data. The addition made by the Assessing Officer treated the whole turnover of entries as income, although no material showed that the routed funds actually belonged to the assessee. The books and deposits belonged to the conduit entities and the beneficiaries, and the cash-credit provision could not be applied to tax the operator on the entire turnover merely because he managed the routing of funds. The reasoning adopted by the first appellate authority was that the correct hands for taxation of the routed amounts were the beneficiaries, not the conduit operator.

Conclusion: The entire value of the accommodation entries was not taxable as unexplained cash credits in the hands of the assessee. The deletion of the additions on this account was upheld.

Issue (ii): Whether commission income from such accommodation entry business was to be estimated at 1.5% or 0.80%.

Analysis: The evidence established that the assessee earned commission for providing accommodation entries, but the record did not support estimation at 1.5% for the whole operation. The business involved multiple types of entries, layered transactions, and incidental expenses such as statutory and operating costs. The estimate had to be grounded in material and comparable cases. On the facts, the rate adopted by the first appellate authority at 0.80% was found to be reasonable and consistent with the precedents relied upon in similar entry-provider cases.

Conclusion: The estimate of commission income at 0.80% was sustained and the challenge to that rate failed.

Issue (iii): Whether the amount sustained as unexplained deposits in bank accounts and cash for the relevant year could be set off against the estimated commission income.

Analysis: For the relevant year, most of the seized bank-account balances were explained by audited accounts and returns of the respective entities, and the remaining amount represented only the portion for which supporting material was not produced, including cash seized and certain bank deposits. The assessee's request to offset that sustained addition against the commission income was not accepted because the two additions were made on different bases and the claim lacked merit on the record.

Conclusion: The set-off claim was rejected and the sustained addition was maintained.

Final Conclusion: The appeals of both sides failed in substance on the core dispute, with the assessee succeeding only to the extent that the entire turnover of routed entries could not be taxed in his hands, while the commission estimate and the limited sustained addition for the relevant year were upheld.

Ratio Decidendi: Where an assessee is found to be an accommodation entry provider, only the commission or brokerage earned on the transactions can ordinarily be brought to tax in his hands, and the routed turnover or deposits through conduit entities cannot be assessed as his income absent evidence that the funds belonged to him.

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