Accommodation entry commission rate dispute (0.1% vs 0.6%) and s.68 protective bank credit addition rejected on appeal

Where the assessee admitted commission at 0.1% for providing accommodation entries but the AO applied 0.6%, the Tribunal upheld the CIT(A)'s view that only the incremental 0.5% could be treated as undisclosed commission, since the admitted 0.1% was already offered; the Revenue's challenge failed. On a protective addition under s. 68, the Tribunal affirmed deletion because the AO himself accepted that the assessee merely routed funds for commission, brought no material to show the bank credits were the assessee's own assets, and did not identify any corresponding substantive addition in another case; consequently, a protective addition was impermissible. The Revenue's appeal was dismissed.

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ISSUES PRESENTED AND CONSIDERED

1) Whether the commission income attributable to providing accommodation entries should be computed at the rate of 0.6%, and if so, whether the assessable addition should be confined to the incremental commission over and above what was already offered by the assessee.

2) Whether a protective addition under section 68 could be sustained in respect of the total amount of accommodation entry cheques credited to bank accounts, where the Assessing Officer accepted that the assessee acted only as an intermediary earning commission and failed to indicate any corresponding substantive addition in another case or to show that the credits represented the assessee's own assets.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Rate of commission and scope of addition (0.6% vs. 0.1%)

Legal framework (as discussed): The Court proceeded on the basis that income from accommodation entry activity is to be assessed as commission income, and the dispute was confined to the appropriate rate and quantum of addition.

Interpretation and reasoning: The Court accepted the appellate finding that (i) the provision of accommodation entries of Rs. 19.18 crore was undisputed, (ii) evidence on record supported adoption of 0.6% as the market rate, and therefore the rate applied by the Assessing Officer was not arbitrary. However, the Court also agreed that where the assessee had already admitted and offered commission at 0.1%, the Assessing Officer erred in adding the entire 0.6% as undisclosed income; only the differential over the admitted commission could be added.

Conclusions: Adoption of 0.6% commission was upheld, but the addition was correctly restricted to the incremental 0.5% (resulting in sustenance of Rs. 9,59,000 and deletion of the balance).

Issue 2: Sustainability of protective addition under section 68 for the full accommodation entry amount

Legal framework (as discussed): The Court examined the propriety of making an addition under section 68 on a protective basis in the assessee's hands for the gross credits, particularly where the assessment order did not identify any substantive addition in another case.

Interpretation and reasoning: The Court agreed that the Assessing Officer had accepted the assessee's role as merely passing on amounts and earning commission (which was separately assessed). In such circumstances, without material to show that the credited sums were the assessee's own assets, the section 68 addition could not be sustained. The Court also placed weight on the absence of any stated enquiries establishing the source as belonging to the assessee and, critically, the failure to indicate in whose case the substantive addition of the same amount had been made. In the absence of such information, the Court held that a protective addition in the assessee's case was not justified.

Conclusions: Deletion of the protective addition of Rs. 19.18 crore under section 68 was upheld, as the conditions relied upon by the Assessing Officer to treat the credits as the assessee's unexplained income were not established and the protective basis was unsupported by identification of a substantive assessment elsewhere.

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