2025 (9) TMI 36 - AT - Income Tax

Appeal upholds finding taxpayer was accommodation entry provider; accommodation credits treated as turnover; deemed profit rate reduced to 0.4%

Sh. Ramesh Kumar Bagri Versus Income Tax Officer/NFAC, Delhi

ITAT upheld the appellate authority's finding that the taxpayer was an accommodation entry provider, rejecting the taxpayer's challenge for lack of ... Unexplained cash credit - accommodation entry receipts - HELD THAT:- All the assessee’s accounts have witnessed is a continuous flow of credits and debits wherein he has been found to be a mere accommodation entry provider on account of his failure in filing the supportive evidence claiming any genuine business activity. We thus see no reason to interfere with the CIT(A) detailed discussion holding the assessee to be an accommodation entry provider in principle. The assessee fails in his first and foremost argument in very terms therefore. Quantification of the assessee’s impugned accommodation entry commission income which has been estimated @ 0.5% after treating his credit entries as part of turnover only - Both the parties could hardly dispute that this tribunal’s various decisions have held such accommodation entries as assessable at varying profit rates ranging between 0.15% to 0.8% of the turnover in various instances. And also that possibility of some errors in such a pure estimation exercise could not be altogether ruled out as well. Be that as it may, we deem it appropriate in this factual backdrop that the assessee deserves part relief to the extent that his above accommodation entry turnover deserves to be assessed @ 0.4% than 0.5% to be followed by the learned Assessing Officer’s consequential computation as per law. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessee's bank credits amounting to Rs. 55,17,27,090/- can be characterized as unexplained and indicative of being an accommodation-entry (entry-provider) operation in the absence of satisfactory supporting documents. 2. If the assessee is held to be an accommodation-entry provider, what is the appropriate method and rate for quantifying the assessable income (commission) from such entries - specifically whether the rate applied by the lower authorities (0.5% of credits) is justified. 3. Whether the appellate reduction of the AO's initial treatment (complete addition) to a percentage-based estimation of commission income is legally sustainable and what precedential guidance governs the choice of the percentage. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of bank credits as accommodation entries Legal framework: The income-tax scheme permits reopening under Section 147 r.w.s. 144 to assess previously unexplained income; unexplained bank credits may be assessed where the assessee fails to substantiate the nature/source of receipts and documentary evidence is lacking or unreliable. Precedent treatment: The Tribunal and lower authorities have in multiple decisions treated continuous flows of credits and matching indicia (meagre capital base, absence of corroborative documents like waybills, ledgers not matching counterparties, adverse enquiries under Section 133(6), investigative reports) as consistent with entry-provider operations. Interpretation and reasoning: The Court examined the assessment record including remand enquiry results, statements from counterparties, lack of corroborative material (way bills, stock registers, payment advices), inconsistent ledgers, non-compliance by alleged counterparties to notices, and an investigative communication indicating entry-provider activity. The Tribunal found the assessee's post-assessment production of materials inadequate and the police/investigation report unpersuasive as exculpatory evidence. On the totality of facts, the pattern of continuous credits/debits, disproportionate turnover to capital, and adverse third-party responses support characterization as accommodation entries. Ratio vs. Obiter: Ratio - Where an assessee, confronted with adverse remand-enquiry findings and absence of corroborative business records, fails to substantiate credits, the assessing authority is justified in treating such receipts as unexplained and attributable to accommodation-entry operations. The Tribunal's conclusion that the assessee is an entry-provider is a binding ratio for the facts of this case. Observations on the inadequacy of the police report are factual findings supportive of the ratio. Conclusion: The Tribunal upholds the finding that the impugned bank credits represent accommodation-entry transactions; the assessee's primary challenge to that characterization is rejected. Issue 2 - Quantification of assessable income from accommodation entries (rate determination) Legal framework: When receipts are held to be from entry-provider activity, taxation of the assessee's income can be effected by estimating the commission/profit element rather than adding full credits, provided estimation is reasonable, based on evidence or consistent judicial guidance, and applied after considering the nature of transactions. Precedent treatment (followed/distinguished): The Tribunal noted a body of earlier decisions applying varying commission rates in entry-provider cases, with reported rates ranging approximately from 0.15% to 0.8% of turnover. These authorities provide a comparative yardstick rather than a rigid rule; courts have applied different percentages based on transactional character (e.g., loans vs. bogus bills) and available evidence. Interpretation and reasoning: The AO originally proposed treating all credits as unexplained but, on remand, recognized that if the assessee were an entry-provider only commission should be assessed and suggested 5% (note: AO's 5% proposal in record appears a typographical/initial estimate). Lower appellate authority applied 0.5% after surveying precedent ranges. The Tribunal accepted that estimation is inherently approximate but required a fair and fact-sensitive rate. Considering precedents and the nature of entries, the Tribunal found 0.4% to be a more appropriate and equitable rate than 0.5% for the peculiar facts here, affording the assessee partial relief while maintaining the entry-provider finding. Ratio vs. Obiter: Ratio - In the circumstances where credits are held to be accommodation-entry inflows but detailed proof of commission is absent, the assessing authority may reasonably estimate commission income as a small percentage of total credits; the Tribunal's adoption of 0.4% is the operative ratio for quantification in this matter. Observations on the general range of rates in other tribunals and the nature of higher rates for loans versus lower rates for bogus bills are explanatory (obiter) but used to contextualize the chosen rate. Conclusion: The Tribunal sustains the principle of estimated commission taxation but modifies the quantification from 0.5% to 0.4% of the credited turnover; assessment to be computed accordingly by the AO. Issue 3 - Reliance on remand report, investigative inputs and precedential non-bindingness Legal framework: Remand reports and enquiries under Section 133(6) are admissible material for assessing veracity; investigative agency inputs may be considered but do not substitute for conclusive proof. Tribunal decisions on percentage rates are persuasive but not precedential beyond the facts of each case. Precedent treatment: The Tribunal acknowledged a body of tribunal decisions using varied percentages as guidance. It reaffirmed that estimation is fact-sensitive and not a matter for an inflexible rule; prior tribunal rates guide but do not bind. Interpretation and reasoning: The Tribunal relied on the remand report's active enquiries and adverse responses from counterparties to support the entry-provider conclusion. It treated the investigative communication as corroborative but not decisive, noting factual particularities. To avoid unintended precedential effect, the Tribunal expressly qualified that the 0.4% determination is based on the peculiar facts and shall not be treated as precedent. Ratio vs. Obiter: Ratio - Active remand enquiries and third-party adverse responses may justify treating credits as unexplained; estimation must be fact-grounded and tribunals may adjust prior rates based on the instant record. Obiter - General discussion of various percentage rates and their contextual bases function as persuasive commentary. Conclusion: The Tribunal appropriately considered remand and investigative material; it applied a fact-sensitive estimation and cautioned that its chosen percentage is not to be treated as a binding precedent. Overall Disposition The Tribunal affirmed that the credits were from accommodation-entry activity and allowed the appeals in part by directing the Assessing Officer to compute taxable commission at 0.4% of the credited turnover for the relevant assessment years, leaving the factual characterization intact and prescribing that the quantification is case-specific and not precedent-setting.