2026 (1) TMI 1475 - AT - Income Tax

Tax assessment characterising receipts as commission from accommodation entries upheld; bad debt documentation accepted and appeal dismissed

Addition treated as commission income where post-search investigation and assessment materials established the assessee was engaged in providing ... Addition u/s 68 - addition as commission income at 2% - material found during the course of search, post search investigation and assessment clearly established that the assessee is just into the business of providing accommodation entries in lieu of commission - HELD THAT:- As it is evident on record that the assessee company was not a paper company. Therefore, finding of CIT(A) regarding deletion of addition are upheld. Disallowance of bad debts - As assessee had provided documents and address as well as PAN of the parties in respect of whom he claimed bad debts. Therefore, the findings of CIT(A) regarding deletion of addition on account of disallowance of bad debts are upheld. Appeal of Revenue is dismissed. Issues: (i) Whether the addition of Rs. 9,94,000/- made as presumed commission income (on the basis that the assessee provided accommodation entries) was correctly deleted by the first appellate authority; (ii) Whether the disallowance of Rs. 2,75,00,000/- claimed as bad debts was correctly deleted by the first appellate authority.Issue (i): Whether the addition of Rs. 9,94,000/- as commission income (on account of accommodation entries) was rightly deleted by the first appellate authority.Analysis: The factual matrix shows the assessee to be a registered NBFC with recurring interest income and audited accounts accepted in earlier and subsequent years; prior decisions addressing the same entities tested and upheld genuineness of transactions; the assessing officer's conclusion was primarily based on communications from another authority without independent analysis or production of incriminating material in the assessment; the appellate authority evaluated transactional records, audit compliance and precedent decisions and found no basis to treat the company as a paper entity providing accommodation entries.Conclusion: The deletion of the addition of Rs. 9,94,000/- is upheld in favour of the assessee.Issue (ii): Whether the deletion of the disallowance of Rs. 2,75,00,000/- claimed as bad debts was correct.Analysis: The appellate authority found that the assessee furnished documents including parties' details, PAN and addresses and that statutory conditions for claiming bad debt were examined; considerations included whether the amounts had been brought to tax in earlier years and whether the debt arose from regular business; the appellate authority accepted the evidence produced by the assessee and set aside the disallowance by the assessing officer who had relied on non-compliance and characterisation without conclusive proof.Conclusion: The deletion of the disallowance of Rs. 2,75,00,000/- is upheld in favour of the assessee.Final Conclusion: The appeal by the Revenue is dismissed and the first appellate authority's deletions of the additions of Rs. 9,94,000/- and Rs. 2,75,00,000/- are sustained, while the remaining addition confirmed below stands unaffected.Ratio Decidendi: Where the assessing officer's additions rest primarily on information from third-party communications without adducing or analyzing incriminating material and the assessee produces credible, corroborative audited records and prior acceptance of similar receipts, the presumption under Section 68 cannot be sustained; similarly, deduction of bad debts under Section 36(1)(vii) requires proof that the debt was previously accounted for as income and was written off, failing which disallowance is not improper.