2025 (7) TMI 1808 - AT - Income Tax

ITAT reduces commission rate on bogus accommodation entries from 10% to 5% per precedent and identified beneficiary

Megha Trading Co. Versus ITO, Ward 43 (1), Kolkata

The ITAT Kolkata partially allowed the appeal of the assessee concerning bogus accommodation sales bill entries. The tribunal held that since the ... Bogus accommodation sales bill entries - commission rate application - AR submitted that in this case the beneficiary of the accommodation entry was identified and based upon the finding of the survey, the commission on accommodation entry bills only was liable to be charged. HELD THAT:- In the case of Mina Pradhan [2024 (11) TMI 1314 - ITAT KOLKATA] on similar facts, as against the commission rate of 1% on the accommodation entries the rate of 5% was applied. AR very fairly conceded that in place of commission of 10% applied by the CIT(A), the commission @5% may be applied as the beneficiary is identified. DR supported the order of the Ld. CIT(A). CIT(A) has not given any basis for applying the rate of 10% as the commission. AO is directed to apply the commission at the rate of 5% on the accommodation entry provided by the assessee - Appeal raised by the assessee are partly allowed. ISSUES: Whether the Assessing Officer (AO) was justified in treating the entire amount of accommodation entries as unexplained expenditure under section 69C read with section 115BBE of the Income Tax Act, 1961.Whether the Commissioner of Income Tax (Appeals) (CIT(A)) was correct in directing the AO to treat 10% of the accommodation entry amount as unaccounted income towards commission earned by the assessee.What is the appropriate commission rate to be applied on accommodation entries recognized as income of the assessee.Whether the addition of the entire accommodation entry amount as income or expenditure is valid in the absence of documentary evidence.Whether the provisions of section 69C of the Income Tax Act apply to sales transactions admitted as accommodation entries. RULINGS / HOLDINGS: The AO was not justified in treating the entire amount of accommodation entries as unexplained expenditure u/s 69C r.w.s. 115BBE of the Act, as the assessee had provided accommodation entries to the other party and the nature of transactions was not clearly established.The CIT(A) rightly observed that the AO's addition of Rs. 77,03,114/- (full accommodation entry amount plus 1%) was not supported by clarity and evidence, and directed the AO to treat 10% of the accommodation entry amount as unaccounted income towards commission earned by the assessee, thereby restricting the addition to Rs. 7,62,684/-.Following a coordinate bench decision, the Tribunal held that a commission rate of 5% on the accommodation entry amount is appropriate, modifying the CIT(A)'s direction of 10%, as the CIT(A) did not provide a basis for the 10% rate.The provisions of section 69C apply to unexplained expenditure not recorded in books of account; therefore, applying section 69C to sales transactions admitted as accommodation entries is incorrect.In the absence of documentary evidence from the assessee supporting the nature of transactions, the addition cannot be sustained on the entire accommodation entry amount but only on a reasonable commission percentage reflecting profit element. RATIONALE: The legal framework applied includes sections 69C and 115BBE of the Income Tax Act, 1961, which deal with unexplained expenditure and its treatment as income.The Tribunal relied on the principle that section 69C applies to unexplained expenditure not recorded in books, and thus cannot be applied to sales transactions admitted as accommodation entries.The coordinate bench decision was followed, which held that commission on accommodation entries should reflect a reasonable profit element, applying a 5% rate rather than the 1% or 10% previously considered.The Tribunal emphasized the need for documentary evidence to establish the nature of transactions and the beneficiary of accommodation entries before making additions to income.There was no dissent or doctrinal shift; the decision aligns with established principles on accommodation entries and unexplained expenditure under the Income Tax Act.