2024 (9) TMI 1701 - AT - Income Tax

Shell company used for accommodation entries cannot be taxed twice when commission already assessed elsewhere

ITAT Delhi dismissed revenue's appeal regarding additions under section 68 for undisclosed sources and unexplained bank entries. The tribunal found the ... Addition on account of undisclosed sources u/s 68 - unexplained entries in bank account - HELD THAT:- The case of the assessee for the above mentioned AYs is squarely covered by the decision of Zed Enterprises (P) Ltd 51869984 held 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. CIT(A) held that as far as 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. We therefore, are in agreement with the above extracted observations/findings in present case are squarely covered by this case. Decided against revenue. The issues presented and considered in the judgment are as follows:1. Whether the additions made by the Assessing Officer on account of undisclosed sources and unaccounted commission are justified.2. Whether the proceedings initiated under Section 153C and the assessment framed under the same section are valid.3. Whether the order passed by the Assessing Officer without disposing of objections raised by the assessee is valid.4. Whether the identity, creditworthiness of lenders, and genuineness of transactions have been adequately proved.5. Whether the assessee is involved in providing and taking accommodation entries.Issue-wise detailed analysis:1. The Revenue appealed against the deletion of additions made on account of undisclosed sources and unaccounted commission by the Commissioner of Income Tax (Appeals) (CIT(A)). The Revenue argued that the CIT(A) erred in deleting these additions without concrete additional evidence. The CIT(A) held that the assessee was merely a conduit concern for providing accommodation entries and that the commission income was already taxed in the hands of the actual operators. The Tribunal found merit in the arguments of the Authorized Representative (AR) and dismissed the Revenue's appeals, citing precedents supporting the deletion of the additions.2. The validity of proceedings under Section 153C and the assessment framed under the same section was challenged by the assessee in their Cross Objections. The CIT(A) was criticized for rejecting contentions regarding the jurisdiction of the Assessing Officer and the absence of satisfaction recorded by the AO of the searched person. The Tribunal upheld the CIT(A)'s decision, stating that the facts of the present case were similar to previous cases where such objections were dismissed.3. The issue of the Assessing Officer passing the order without addressing objections raised by the assessee was raised in the Cross Objections. The CIT(A)'s decision was challenged, but the Tribunal did not find merit in this argument and dismissed the Cross Objections.Significant holdings:The Tribunal upheld the CIT(A)'s decision to delete the additions made by the Assessing Officer, citing precedents and reasoning that the assessee was merely a conduit concern for providing accommodation entries. The Tribunal dismissed the Revenue's appeals and the Cross Objections, concluding that the facts of the case aligned with previous decisions and that the additions were not justified.In conclusion, the Tribunal's decision in this case centered on the role of the assessee as a conduit concern for providing accommodation entries and the taxation of commission income. The Tribunal relied on precedents to support the deletion of additions made by the Assessing Officer and dismissed both the Revenue's appeals and the Cross Objections filed by the assessee.