2025 (11) TMI 1664 - AT - Income Tax

Additions under Section 68 and bogus purchases deleted as AO relied on PAN data of different entity

ITAT Delhi held that additions made under s. 68 and on account of alleged bogus purchases were unsustainable. For AY 2016-17, the assessee had not ... Addition u/s 68 - additions on account of accommodation entries in terms of credits taken in capital account or sales account by means of transfers and an addition on account of bogus billing of purchase accounts to the income of the assessee - HELD THAT:- Where no books of account were maintained nor Balance sheet, P&L a/c etc. prepared during the A.Y. 2016-17, the heads and nature of additions in itself do not call for making additions in the hands of an individual. Ld. AO seems to have fallen in error in dawning conclusions based merely on PAN records though the PAN was identified as the appellant’s PAN, the name was of a company, i. e an entirely different entity. Decided against revenue. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether addition under section 68 on account of alleged accommodation entries and bogus purchases could be sustained in the hands of an individual assessee who was not carrying on any business and maintained no books of account for the relevant assessment year. 1.2 Whether information from a third-party survey, in which the name of the beneficiary was a company but the PAN corresponded to the assessee, was sufficient material to justify treating the alleged accommodation entries as unexplained cash credits in the assessee's hands. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of addition under section 68 in the hands of a non-business individual with no books of account Interpretation and reasoning 2.1 The Tribunal noted that the assessee was an individual deriving income from MLA pension, rent and legal consultancy as an Advocate and was not engaged in any business activity during the relevant assessment year. It was also noted that the assessee did not maintain any books of account, nor were a balance sheet or profit and loss account prepared for that year. 2.2 The addition made by the Assessing Officer comprised alleged accommodation entries in the form of credits in capital or sales accounts and bogus purchase bills, which are inherently linked to business activities and business books of account. The Commissioner (Appeals) observed that such accommodation entries by their very nature presuppose that the beneficiary is engaged in business. 2.3 The Commissioner (Appeals) found that there was no material on record, including in the assessee's bank statements or return of income, to indicate the existence of any business activity or income beyond what was disclosed. The Assessing Officer himself acknowledged that the assessment was completed on a 'protective basis' due to limitation, relying only on the available information and without concrete evidence connecting the assessee to the alleged transactions. 2.4 The Tribunal agreed that, in the absence of any business activity, books of account, or specific evidence of the assessee having received or routed the impugned sums, the very nature and heads of the additions (capital account credits, sales, bogus purchases) were inconsistent with the assessee's factual and financial profile as an individual non-business assessee. Conclusions 2.5 The Tribunal upheld the finding that section 68 could not be invoked on the basis of alleged accommodation entries and bogus purchases in the hands of an individual who was not carrying on any business and who maintained no books of account for the year. The addition of Rs. 11,21,91,653/- as unexplained cash credit under section 68 was rightly deleted. Issue 2: Sufficiency of third-party survey information where beneficiary's name and PAN do not match Interpretation and reasoning 2.6 The information leading to reopening emanated from a survey on third parties engaged in providing accommodation entries. The survey material identified 'UP Bone Mills Pvt. Ltd.' as the beneficiary of accommodation entries and bogus purchase bills; however, the PAN quoted against that name was that of the assessee (an individual). 2.7 The Commissioner (Appeals) observed that there was a mismatch: the beneficiary in the information was a company, while the PAN belonged to an individual with no business. The only common link between the assessee and the alleged beneficiary was the PAN entry; no corroborative material was produced to show that the assessee had actually availed accommodation entries, dealt with the surveyed entities, or received any of the alleged amounts. 2.8 It was reasoned that, given the structure of PAN as a 10-character alphanumeric code, the likelihood of error in quoting PAN is higher than the likelihood of error in naming the beneficiary entity. Considering the modus operandi of accommodation entry providers-catering to business entities seeking bogus purchase/sale bills-the possibility of a non-business individual being the true beneficiary on such facts was found to be remote. 2.9 The Commissioner (Appeals) held that, in the absence of any other material linking the assessee to the alleged accommodation entries, the solitary circumstance of the PAN match could not, by itself, reasonably support the conclusion that the impugned sum represented the assessee's undisclosed income. The Tribunal endorsed this reasoning, noting that the Assessing Officer 'fell in error' by drawing conclusions merely on the basis of PAN records where the named entity was a different person (a company). Conclusions 2.10 The Tribunal held that third-party survey information, showing a company as beneficiary but quoting the assessee's PAN, without any supporting evidence of actual involvement or receipt of funds by the assessee, did not constitute adequate material to treat the alleged accommodation entries as unexplained cash credits in the assessee's hands. The deletion of the addition by the Commissioner (Appeals) required no interference.