2024 (11) TMI 1314 - AT - Income Tax

Section 69C wrongly applied to sales transactions - only 5% profit element taxable, not entire accommodation entry amount

Mina Pradhan Versus ITO, Ward-42 (4), Kolkata

ITAT Kolkata held that AO incorrectly applied Section 69C provisions to sales transactions with SINPL, which were accommodation entries rather than ... Addition u/s 69C - bogus purchases - HELD THAT:- The transactions were relating to sales to SINPL and therefore, the same could not be added u/s 69C of the Act as has been erroneously done by the Ld. AO and also confirmed by the Ld. CIT(A). The provisions of Section 69C of the Act relate to unexplained expenditure which are not recorded in the books of accounts. AO was incorrect in law in applying the provisions of Section 69C on the transactions shown as sales to SINPL. The result of search itself indicated that SINPL had made payments against the purchase of machinery and parts from various entities which were bogus and were involved in providing bogus accommodation entry in the form of bogus sales. Since the purchases were made by SINPL, the disallowance, if any, should have been made in the case of SINPL. There is merit in the argument of the assessee and which is also borne out from the facts of the case that since the assessee was providing accommodation entries, only the profit element on the sale could have been added. AR was fair enough to admit that a higher amount of 5% may be treated as commission on the transactions of Rs. 34,59,840/-. Accordingly, the Ld. AO is directed to apply the profit rate of 5% on the sales shown which are admitted to be accommodation entries, which works out to Rs. 1,72,992/- and is rounded off to Rs. 1,73,000/- on the transactions of Rs. 34,59,840/- and accordingly, add the same to the income of the assessee disclosed in the return of income in place added u/s 69C. Commission rate of 5% is applied in place of 1% on the bogus accommodation sales bill entries instead of 1% mentioned in the ground of appeal. Issues Involved:1. Legality of the assumption of jurisdiction under Section 148 of the Income Tax Act.2. Validity of additions under Section 69C of the Income Tax Act for alleged bogus purchases.3. Treatment of accommodation entries and the appropriate commission rate.Detailed Analysis:1. Legality of the Assumption of Jurisdiction under Section 148:The appellant challenged the assumption of jurisdiction under Section 148, arguing it was in violation of mandatory jurisdictional conditions. However, this ground was not pressed during the proceedings, and thus, the tribunal dismissed it as not pressed. The tribunal did not provide a detailed analysis of this issue, indicating that no substantial argument or evidence was presented to challenge the jurisdiction effectively.2. Validity of Additions under Section 69C for Alleged Bogus Purchases:The core issue was the addition of Rs. 34,59,840/- for AY 2017-18 and Rs. 48,41,226/- for AY 2018-19 under Section 69C, which pertains to unexplained expenditure. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld these additions based on information that the appellant engaged in bogus transactions with M/s Saakar Infra Nirman Pvt. Ltd. (SINPL). The AO relied on incriminating documents indicating that SINPL made payments for machinery and parts from entities providing bogus accommodation entries. The appellant admitted to providing accommodation entries for a commission but argued that no actual sales or purchases occurred. The tribunal found that the transactions were indeed accommodation entries and not unexplained expenditures as defined under Section 69C. Therefore, the tribunal concluded that the AO incorrectly applied Section 69C, as the transactions were recorded in the books as sales, not unexplained expenditures.3. Treatment of Accommodation Entries and the Appropriate Commission Rate:The appellant admitted to earning a 1% commission on the accommodation entries but suggested a higher commission rate of 5% during the hearing. The tribunal accepted this suggestion, directing that a 5% commission be applied to the total sales amount, resulting in a revised addition of Rs. 1,73,000/- for AY 2017-18 and Rs. 2,42,100/- for AY 2018-19. This adjustment reflects the tribunal's acknowledgment of the appellant's role in providing accommodation entries and the profit element involved.Conclusion:The tribunal allowed the appeals partly, modifying the additions made by the AO under Section 69C to reflect only the commission income from accommodation entries, thereby reducing the tax liability significantly. The tribunal's decision underscores the importance of distinguishing between unexplained expenditures and recorded transactions, particularly in cases involving accommodation entries.