2024 (1) TMI 1442 - AT - Income Tax

Shell company escapes section 68 addition as funds merely passed through without benefiting entity

ITAT Delhi upheld CIT(A)'s decision deleting addition u/s 68 for unexplained bank entries. The assessee company was identified as a shell concern operated ... Addition u/s 68 - unexplained entries in bank account -as per AO assessee has failed to produce any concrete - CIT(A) deleted addition - HELD THAT:- CIT(A) held that the assessee company has received funds from various concerns as mentioned above and thereafter amounts were transferred to the above mentioned companies/concerns immediately, thus the appellant company is not beneficiary company. CIT(A) also obtained the remand report from the AO and held that the AO has verified the fund flow statement depicting the source of funds and utilization of the same for payments to beneficiaries submitted by the assessee. CIT(A) held that it was found which established that the Sh. Anand Jain and Sh. Naresh Kumar Jain were operating bank accounts in the names of various concerns/companies through which accommodation entries were being provided and the appellant company was one of such shell concerns. Further the beneficiaries of such accommodation entries were also identified and information to their respective AOs was also disseminated as mentioned in the assessment order as well as the remand report. Charging of commission is concerned in the case of the assessee, it has been held by the AO in the assessment order that Sh. Anand Jain and Sh. Naresh Jain were entry operators who were managing and controlling various shell concerns including the appellant for providing accommodation entries in lieu of commission and taking that logic there is no question of charging of commission income in the hands of the appellant company arises, since nothing has been earned by the company, being the shell concern. Since, the commission already stands taxed in the hands of the entry operators in their individual capacity, no separate commission can be charged in the hands of the pass through/ companies floated by the entry operators. As the assessee is found to be one of such pass-through entity, we decline to interfere with the order of the ld. CIT(A) in deleting the commission charged. The issues presented and considered in the judgment are as follows:1. Whether the addition of Rs 2,85,37,640 made on account of undisclosed sources and Rs. 71,344 made on account of unaccounted commission should be upheld.2. Whether the proceedings initiated under Section 153C and the assessment framed under Section 153C are valid.3. Whether the explanations and evidences brought on record by the assessee to prove the identity and creditworthiness of the lenders and genuineness of the transactions are sufficient.4. Whether the assessee is involved in providing and taking accommodation entries.Issue-wise detailed analysis:1. The Revenue appealed against the deletion of the additions made by the Assessing Officer. The Revenue argued that the commission charged should not have been deleted as the assessee company was involved in providing accommodation entries. The assessee contended that the commission had already been taxed in the hands of the entry operators, and therefore, no separate commission should be charged to the company. The Tribunal examined the arguments and upheld the decision of the CIT(A) to delete the commission charged.2. The Tribunal considered the findings of the CIT(A) who held that the transactions were arrangements of funds/routing of unaccounted income of the beneficiaries through the appellant company. The CIT(A) identified the beneficiaries of the entries given by the assessee company and concluded that the company was not a beneficiary but a pass-through entity. The Tribunal agreed with the CIT(A) that since the commission had already been taxed in the hands of the entry operators, no separate commission should be charged to the appellant company.Significant holdings:The core principle established in this judgment is that when commission income has already been taxed in the hands of the entry operators, no separate commission should be charged to pass-through entities like the appellant company. The Tribunal dismissed the appeals of the Revenue and the Cross Objections of the assessee, upholding the decision of the CIT(A) to delete the commission charged.The Tribunal pronounced the order on January 9, 2024, dismissing the appeals and cross-objections.