Conduit account use: credits not unexplained, but a reasonable commission on routed turnover is taxable.

Where bank credits originate from a third party and investigation shows the account holder acted merely as a conduit, those credits do not constitute unexplained income of the account holder; however, permitting use of the account can generate a limited taxable benefit. The Tribunal accordingly rejected treating full credits as the assessee's income and instead estimated taxable commission by applying a reasonable percentage of the turnover routed through the account, assessing 0.5% of routed turnover as commission income to be taxed in the assessee's hands.

---

---

Issues: (i) Whether bank credits in the assessee's account can be treated as unexplained income of the assessee; (ii) If not, what taxable consequence arises from the assessee permitting use of his bank account (quantification of taxable commission).

Issue (i): Whether bank credits in the assessee's account are unexplained income of the assessee.

Analysis: The Tribunal examined bank statements and investigation records showing that the credits originated from Shree Impex and were withdrawn by its proprietor, with cheques issued from Shree Impex to the assessee's account followed by cash withdrawals. The pattern demonstrates that the assessee's account was used by a third party as the main beneficiary, and the assessee acted as a conduit. These factual findings led the Tribunal to distinguish between ownership of funds and the actual benefit derived by the assessee.

Conclusion: The bank credits are not to be treated as unexplained income of the assessee.

Issue (ii): If the account was used by a third party, what taxable consequence follows for the assessee who permitted such use.

Analysis: Although the assessee was not the principal beneficiary, the Tribunal found that by permitting use of his account he derived limited benefit. On the facts, the Tribunal estimated taxable income in the nature of commission for facilitating transactions, applying a percentage of the turnover routed through the account as a reasonable estimate of taxable benefit.

Conclusion: A commission income of 0.5% of the total turnover routed through the bank account is to be estimated and brought to tax in the hands of the assessee.

Final Conclusion: The appeal is partly allowed by disallowing treatment of whole bank credits as unexplained income while directing taxation of a 0.5% commission on the routed turnover; the same decision applies mutatis mutandis to the connected assessment years.

Ratio Decidendi: Where bank account credits are shown to originate from a third party who is the main beneficiary and the account-holder functions as a conduit, the credits cannot be treated as unexplained income of the account-holder; however, limited taxable benefit to the account-holder may be estimated and taxed on a reasonable percentage of the turnover routed through the account.

---