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

The ITAT Kolkata partially allowed the appeal of the assessee concerning bogus accommodation sales bill entries. The tribunal held that since the beneficiary of the accommodation entry was identified, a commission rate of 5% should be applied instead of the 10% rate imposed by the CIT(A). The AO was directed to apply the 5% commission rate on the accommodation entries, aligning with precedent in a similar case. The DR supported the CIT(A) order, but the tribunal found no basis for the 10% rate, reducing it to 5%.

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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.

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