2021 (12) TMI 867 - AT - Income Tax

Tribunal upholds AO's assessment for commission income and rejects books of accounts

Sh Rajendra Sohan Lal Jain Versus Dy. Commissioner of Income–Tax, Central Circle-4, Surat

Sh Rajendra Sohan Lal Jain Versus Dy. Commissioner of Income–Tax, Central Circle-4, Surat - TMI Issues Involved:1. Validity of the search conducted under Section 132 of the Income Tax Act.2. Validity of assessment orders passed under Section 144 read with Section 153A.3. Additions made without incriminating materials found during the search.4. Business activities characterized as accommodation bills provider based on confessional statements.5. Retraction of statements recorded during the search.6. Assessment of commission income on sales, import purchases, and loans.7. Rejection of books of accounts.8. Disallowance of expenses, including foreign exchange fluctuation loss.Detailed Analysis:1. Validity of the Search Conducted Under Section 132:The assessee argued that the search conducted on 03/10/2013 was not justified and did not satisfy the requirements of Section 132 of the Income Tax Act. However, the Tribunal noted that no specific submissions were made during the hearing regarding this issue. Therefore, this ground of appeal was treated as not pressed and dismissed.2. Validity of Assessment Orders Passed Under Section 144 Read with Section 153A:The assessee contended that the assessment orders passed under Section 144 read with Section 153A were invalid as they were based on an invalid search action. The Tribunal upheld the validity of the search action and the subsequent assessment orders. It was noted that the search action and the evidences gathered during and post-search justified the issuance of notice under Section 153A and the assessment proceedings.3. Additions Made Without Incriminating Materials Found During the Search:The assessee argued that no incriminating materials were found during the search, and thus, no additions could be made. The Tribunal found that sufficient incriminating evidence was unearthed during the search, including emails and other documents, which corroborated the statements made by the assessee and his associates. These evidences indicated that the assessee was involved in providing accommodation entries.4. Business Activities Characterized as Accommodation Bills Provider Based on Confessional Statements:The assessee's business was characterized as an accommodation bills provider based on confessional statements recorded under Section 132(4). The Tribunal noted that the assessee and his associates admitted to providing accommodation entries in the form of sales, purchases of diamonds, and unsecured loans. The Tribunal upheld the characterization of the assessee's business activities as accommodation bills provider based on the corroborative evidence found during the search.5. Retraction of Statements Recorded During the Search:The assessee retracted the statements recorded during the search, claiming that they were made under coercion and pressure. The Tribunal observed that the retraction was filed after a considerable delay of 12 months and lacked credibility. The Tribunal held that the retraction did not hold evidentiary value as it was not supported by any proof of coercion or threat.6. Assessment of Commission Income on Sales, Import Purchases, and Loans:The Assessing Officer (AO) assessed commission income based on the assessee's statements and corroborative evidence. The AO calculated the commission income at 0.20% on import transactions and 0.50% on loan transactions, resulting in an addition of Rs. 18,40,602/- after allowing a deduction of 25% for expenses. The Tribunal upheld the AO's assessment, noting that the assessee's business activities were found to be fictitious and merely paper transactions.7. Rejection of Books of Accounts:The AO rejected the assessee's books of accounts under Section 145(3), citing that the books did not reflect the true nature of the business activities, which were found to be accommodation entries. The Tribunal upheld the rejection of the books of accounts, agreeing with the AO's findings that the books were not reliable and did not represent genuine business transactions.8. Disallowance of Expenses, Including Foreign Exchange Fluctuation Loss:The AO disallowed various expenses, including foreign exchange fluctuation loss, claimed by the assessee. The Tribunal upheld the disallowance, noting that the assessee's business activities were not genuine, and the expenses claimed were not substantiated with credible evidence. The Tribunal also observed that the assessee did not provide any proof of entering into hedging contracts with bankers to justify the foreign exchange fluctuation loss.Conclusion:The Tribunal dismissed the appeals for the assessment years 2008-09 to 2014-15, upholding the AO's assessment of commission income and rejection of the books of accounts. The Tribunal found that the assessee's business activities were characterized as accommodation entries based on sufficient incriminating evidence and corroborative statements. The retraction of statements was not accepted due to the delay and lack of supporting evidence. The disallowance of expenses, including foreign exchange fluctuation loss, was also upheld.