2025 (12) TMI 1688 - AT - Income Tax

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 ... Determination of commission income on providing accommodation entries - as noted by the Ld. CIT(A) the assessee had disclosed 0.1% as commission income for providing the said accommodation entries but the AO adopted commission @ 0.6% - CIT(A) upheld the said enhancement made by the AO, but observed that the AO had added the entire 0.6% commission as undisclosed income, instead of the excess of 0.6% over the admitted commission rate of 0.1%. Accordingly, he restricted the addition to the difference of 0.5% - HELD THAT:- In view of the facts stated by the Ld. CIT(A) and discussed above, we find no infirmity in the order of the Ld. CIT(A), and the same is upheld. Accordingly, ground no. 2 of the Revenue’s appeal is dismissed. Addition on a ‘protective basis’ u/s 68 - as alleged assessee had not discharged its liability to prove the genuineness of the transaction within the provision of section 68 - CIT(A) deleted addition - HELD THAT:- We agree with the findings of the Ld. CIT(A) that in this case it has been accepted by the AO that the assessee was only passing on amounts received in his account for which he was getting commission income, which the AO had assessed accordingly. CIT(A) also noted that no facts have been brought out by the AO that the cheques credited in the bank accounts of the companies controlled by the assessee were indeed the assets of the assessee. Moreover, no facts have been stated in the assessment order to indicate in whose case(s) the addition was made on a ‘substantive basis’. Therefore, in the absence of information about the said fact, we are of the considered view that no ‘protective addition’ can be made in the case of the assessee as has been done by the AO. Reasoning given by CIT(A) in deleting the said addition is justified and requires no interference. Appeal of the revenue is dismissed. 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.