Accommodation entry income taxed on commission only; higher estimated rate and unexplained investment addition under section 69 were not sustained.

In accommodation entry business, income is to be taxed on the commission actually attributable to routing funds, and not on an unsupported higher estimate. The text notes that commission offered at 0.15% was accepted in substance, while the higher 0.60% rate was found excessive on the available material and comparable precedents, with 0.16% adopted. It also states that aggregate bank balances of 11 controlled entities could not be added under section 69 as unexplained investment where the balances were recorded in books and were linked to the entry business; only the commission element on routed funds was taxable.

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Issues: (i) Whether the commission income from accommodation entry business was liable to be estimated at 0.60% or 0.16% for the relevant assessment years; and (ii) whether the aggregate bank balances of 11 entities could be added as unexplained investment in the assessee's hands under section 69.

Issue (i): Whether the commission income from accommodation entry business was liable to be estimated at 0.60% or 0.16% for the relevant assessment years.

Analysis: The assessee had admitted receipt of commission income from providing accommodation entries and had offered income at 0.15%. No incriminating material was found to show that the commission rate was 0.60%. The higher rate was taken mainly from an earlier search assessment, but the volume of business had substantially increased and judicial precedents in similar accommodation entry cases had accepted commission rates around 0.15%. On the facts and comparative material, the rate adopted by the lower authorities was found excessive.

Conclusion: The commission income was to be estimated at 0.16% and not at 0.60%, and the assessee succeeded on this issue in part.

Issue (ii): Whether the aggregate bank balances of 11 entities could be added as unexplained investment in the assessee's hands under section 69.

Analysis: The bank balances belonged to 11 entities whose books reflected the relevant balances, and the revenue authorities had treated the assets and liabilities of those concerns as nil. The assessee was found to be managing and controlling the entities, but the balances themselves formed part of the accommodation entry business and could not be brought to tax as unexplained investment in a one-sided manner without considering the corresponding liabilities and the nature of the recorded transactions. The amount was instead relatable to the entry business and had to be assessed only on the commission element.

Conclusion: The addition under section 69 was not sustained as such, and only commission income attributable to the routed funds was taxable; the assessee succeeded on this issue in part.

Final Conclusion: The appeals were allowed only to the extent of reducing the commission rate and deleting the addition of bank balances as unexplained investment, with a limited sustained addition on the commission element.

Ratio Decidendi: In accommodation entry cases, income is to be brought to tax on the commission actually attributable to the routing of funds, and recorded bank balances of entry-providing entities cannot be assessed as unexplained investment without a proper nexus and consideration of the corresponding liabilities.

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