Section 68 cannot tax gross accommodation-entry receipts where only commission income is ally embedded and taxable.

Section 68 could not be invoked on the entire receipts from circular transactions where the assessee acted only as a conduit for accommodation entries. The admitted facts showed that sale proceeds were immediately passed on against corresponding purchases, leaving only a commission margin, so the source of the credit entries stood explained and the statutory precondition for treating them as unexplained cash credits was not met. In these circumstances, only the real income embedded in the arrangement, namely commission, was liable to tax, not the gross purchases or receipts. A precedent dealing with a different factual setting of bogus purchases by a beneficiary was held inapplicable, and the first appellate authority's view was upheld.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961 on account of bogus purchases and circular transactions was sustainable, or whether only the real commission income embedded in such transactions could be brought to tax.

Analysis: The admitted position was that the assessee was engaged in circular transactions and acting as a conduit for accommodation entries. The sale proceeds were received and immediately passed on against corresponding purchases, leaving only a margin representing commission. On these facts, the source of the credit entries was explained, and the precondition for invoking section 68 was not satisfied. The factual matrix also showed that the assessee was not the beneficiary of the gross receipts but only earned commission from the arrangement. In such circumstances, the proper course was to tax the real income embedded in the transactions rather than treat the entire purchases or receipts as unexplained cash credits. The reliance placed on a case dealing with a different factual situation of bogus purchases by a beneficiary did not assist the Revenue.

Conclusion: The addition under section 68 was not sustainable, and only the commission income arising from the accommodation entries could be assessed. The finding of the first appellate authority was upheld.

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