2025 (3) TMI 38 - AT - Income Tax

Shell company cannot be taxed separately when entry operators already paid tax on commission income

The ITAT Delhi upheld CIT(A)'s decision to delete additions under section 68 for unexplained bank entries. The assessee company was identified as a shell ... Addition u/s 68 - unexplained entries in bank account - assessee has failed to produce any concrete and any additional evidences in support of its contention - CIT(A) deleted addition - HELD THAT:- The case of the assessee for the above mentioned AYs is squarely covered by the decision of Zed Enterprises (P) Ltd [2024 (1) TMI 1442 - ITAT DELHI] 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 assessment order passed under Section 153C is valid in the absence of incriminating material.3. Whether the explanations and evidences provided by the assessee to prove the identity and creditworthiness of lenders were correctly rejected.4. Whether the assessee's involvement in providing and taking accommodation entries is established.Issue-wise detailed analysis:1. The relevant legal framework and precedents were considered, including Section 68 of the Income Tax Act, 1961. The Court interpreted the facts in light of the AO's actions and the submissions made by both parties. Key evidence included the original ITRs filed by the assessee and the assessment orders passed by the AO. The Court applied the law to the facts by examining the nature of the credits in the assessee's bank accounts and the allegations of providing accommodation entries. Competing arguments were presented by the Revenue and the assessee, with the AR arguing against the additions made by the AO. The Court concluded that the case was similar to precedents where commission income was not charged in the hands of pass-through entities, leading to the dismissal of the Revenue's appeals.2. The Court considered the validity of the assessment order under Section 153C in the absence of incriminating material. The AR argued that the additions made by the AO were not justified as the credits were pass-through entries for laundering black money. The Court referenced previous tribunal decisions to support the AR's contentions and ultimately dismissed the Revenue's appeals.3. The rejection of explanations and evidences provided by the assessee was a key issue. The Court analyzed the findings of the AO and the arguments presented by the AR. The AR contended that the assessee was merely a conduit for providing accommodation entries and should not be taxed for commission income already assessed in the hands of the entry operators. The Court agreed with the AR's arguments, citing previous tribunal decisions, and dismissed the Revenue's appeals.4. The assessee's involvement in providing and taking accommodation entries was a significant issue. The Court examined the facts of the case and the submissions made by both parties. The AR argued against the findings of the AO, emphasizing that the assessee was not the beneficiary of the entries. The Court relied on previous tribunal decisions to support the AR's contentions and dismissed the Revenue's appeals.Significant holdings:The Court held that the case was similar to precedents where commission income was not charged in the hands of pass-through entities. The final determinations on each issue led to the dismissal of all appeals and cross objections.Overall, the judgment focused on the interpretation of relevant legal provisions, application of precedents, analysis of evidence, and consideration of competing arguments to reach conclusions on the issues presented.