TaxTMI 
TaxTMI 
2026 (9) TMI 246
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....A.Y 2005-06: 1) Whether on the facts and in the circumstances of the case and in law, the CIT APPEAL was justified in holding that the assessee failed to disclose the identities of beneficiaries under Section 68 of the Income Tax Act 1961 without providing the assessee reasonable opportunity to examine and obtain information from the seized computer data that was in exclusive possession of the Revenue authorities thereby violating the principles of natural justice 2) Whether on the facts and in the circumstances of the case and in law the CIT APPEAL was justified in simultaneously holding that (a) the books of assessee include computer data from which complete information was extracted by the authorities and (b) the assessee failed to disclose information sought by way of books of account when the authorities were already in possession of complete data extracted from the assessee's computer system 3) Whether on the facts and in the circumstances of the case and in law the CIT APPEAL erred in placing the burden on the assessee to disclose information that was exclusively in the possession of the Revenue authorities after seizure thereby requiring impossibl....
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....he addition made by the assessing officer. 4. In further appeal, the Tribunal, vide order dated 07.07.2017 in ITA Nos. 6043 to 6048/Mum/2012 for A.Ys. 2005-06 to 2010-11, set aside the assessments and restored the matters to the Assessing Officer for fresh adjudication after giving adequate opportunity to the assessee. 6. The assessee submitted before the Assessing Officer that the entire amount of Rs.26,91,45,555/- credited in its bank accounts could not be treated as the amount on which it had earned commission. According to the assessee, a sum of Rs.10,45,80,000/- comprised only transfer/reversal entries involving movement of funds on which no commission income had arisen. The assessee contended that commission should be computed only on the balance amount of Rs.16,45,65,555/- and that the appropriate rate of commission was 0.15%, resulting in commission income of Rs.2,46,848/-. The assessee further claimed business expenses of Rs.4,65,506/-, but voluntarily restricted the claim to 50% of such expenses, i.e. Rs.2,32,753/-, and accordingly offered the balance amount of approximately Rs.14,095/- as taxable income. 7. The Assessing Officer did not accept these claims. As r....
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....lose a small positive income instead of a loss. The Assessing Officer therefore rejected the additional claim of expenses and retained the assessed income at Rs.53,82,911/- while completing the assessment under section 143(3) read with section 254 of the Act on 27.03.2018. 10. Before the learned CIT(A), the assessee submitted that the issue was covered by the decisions of the Tribunal in its own case as well as in the cases of other concerns belonging to the Mukesh Choksi group. The assessee contended that, in those cases, the Tribunal had directed the Assessing Officer to compute commission income at 0.15% of the turnover and had also allowed 50% of the expenses against such commission income. The assessee therefore requested the learned CIT(A) to follow the same approach in the present case. 11. The learned CIT(A), however, noted that the Hon'ble Bombay High Court had subsequently adjudicated on a similar issue in another concern of the same group in M/s Buniyad Chemicals Ltd., ITA No. 1796 of 2018, order dated 17.03.2025. The learned CIT(A) noted that, in that case, the Hon'ble High Court held that where an assessee engaged in providing accommodation entries identifies the....
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....ee is unable to identify the beneficiary, the corresponding credit should be taxed under section 68 of the Act. The learned CIT(A) also directed the Assessing Officer to allow 50% of the expenses against the commission income, following the decisions of the Tribunal in the assessee's own case and in the cases of other group concerns, and partly allowed the appeal. 14. The assessee is in appeal before us against the order passed by the learned CIT(A). We have heard the rival submissions and perused the material available on record. The dispute before us is whether the credits appearing in the assessee's bank accounts can be restricted to taxation of commission income because the assessee admittedly carried on the business of providing accommodation entries, or whether the credits can be brought to tax under section 68 of the Act where the assessee fails to identify the beneficiaries of such entries. The assessee has also challenged the findings of the learned CIT(A) on the ground that the Revenue had already seized the computer data containing the relevant information and, therefore, the assessee could not be required to furnish the same information again. 15. Before dealing w....
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....sessee could not escape its obligation to explain the credits. The Court noted that the data had originally been extracted from the assessee's own computer system and Shri Mukesh Choksi had admitted that books of account were maintained and the Department had extracted the data from those very books. The Hon'ble High Court consequently held that such computerized data constituted the assessee's "books" for the purpose of section 68 of the Act. 17. The Hon'ble High Court further considered the statement of Shri Mukesh Choksi and specifically noticed that, in respect of 3,321 cases, he had stated that details of the customers were not available. The Hon'ble High Court found it unacceptable that an accommodation-entry provider handling transactions running into crores of rupees could claim that it did not know the persons for whom the funds had been received and withdrawn. The Court therefore held that, in the absence of the details of the beneficiaries, the assessee could not contend that the credits should nevertheless escape section 68 of the Act and only the commission component should be taxed. 18. The same principle has thereafter been followed by the Coordinate Bench in A....
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....ding credit, and not merely the commission element, can be considered under section 68 of the Act. This is the principle which we shall apply while deciding the grounds raised before us. Ground No. 1 21. In Ground No. 1, the assessee has challenged the finding of the learned CIT(A) that the assessee failed to disclose the identities of the beneficiaries. The assessee contended that the Department had seized the computer data and that such data remained in the exclusive possession of the Revenue. According to the assessee, the learned CIT(A) could not hold against it that the beneficiaries were not identified without first giving it reasonable opportunity to examine and obtain the information from such seized data. 22. We are unable to accept this ground. The record shows that during the set-aside assessment proceedings the Assessing Officer repeatedly asked the assessee to explain its claim regarding the transactions. Shri Mukesh Choksi appeared before the Assessing Officer, but in respect of the transfer entries of Rs.10,45,80,000/- he did not furnish the names of the concerns to whom the entries belonged nor did the assessee provide any supporting evidence. The assessee ....
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....7 "We do not accept the submissions of the respondent-assessee that because he is engaged in the business of providing accommodation entry, revenue cannot assess the credits appearing in its bank account which are the money deposited by its customers. The respondent-assessee, to succeed in this submission, must give verifiable details of these customers; only then can the revenue verify whether the credits appearing belong to such customers. The CIT (A), therefore, gave the relief in para 4.3 by observing that an estimate of income will be made only in case of identified beneficiaries and balance credits would be assessed under Section 68 of the Act." Para 38 "The respondent-assessee cannot contend that they will not give details of beneficiaries, but at the same time, credits cannot be assessed in its hands. We wonder how the revenue can find out to whom the credits belong to unearth unaccounted income. The respondent-assessee cannot act as a shield for beneficiaries by making such a submission and at the same time refuse to pay taxes for the unexplained amounts in its bank accounts." Para 39 "If the submissions made by the counsel for the responde....
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....), on the one hand, treated the computer data as part of the assessee's books and, on the other hand, held that the assessee failed to disclose the information contained in those very books, although the Department already possessed the data. 30. We do not find any contradiction in these findings. The question whether the computer data constitutes "books of the assessee" and the question whether the assessee has satisfactorily explained a particular credit appearing in those books are two different questions. The fact that an entry can be found in the computer data does not by itself explain who deposited the money, for whose benefit the entry was given, to whom the corresponding payment was made, and whether the assessee's contention that the money belonged to a particular beneficiary is correct. 31. The Hon'ble Bombay High Court in Buniyad Chemicals Ltd. has directly dealt with this distinction. The Court held that data maintained in the computer and extracted by the Department constituted books of the assessee for the purpose of section 68 of the Act. The Court also held that the assessee remained under an obligation to explain the credits by furnishing the details necessa....
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....that claim have to be furnished by the assessee. 37. As stated while deciding Ground No. 1, the Assessing Officer shall allow the assessee reasonable access to relied-upon seized material if a specific request is made. However, such access does not alter the basic burden under section 68 of the Act. Ground No. 3 is accordingly dismissed. Ground No. 4 38. In Ground No. 4, the assessee contended that once the Revenue had seized and extracted the complete data from its computer system, the Revenue could not thereafter claim that the assessee had failed to furnish information which was already in the possession of the Department. 39. We find that this ground proceeds on an incorrect understanding of the requirement under section 68 of the Act. Possession of raw information by the Department and explanation of a credit by the assessee are not the same thing. The Revenue may possess bank statements, computer data and transaction entries, but it is the assessee which claims that a particular credit belongs to a particular beneficiary and that the assessee earned only commission thereon. The assessee must therefore establish the connection between the credit and the benefici....
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....identify the specific credit proposed to be so treated and give the assessee reasonable opportunity to furnish the name and particulars of the beneficiary and the supporting material relating to that credit. Where the assessee points to information already forming part of the seized material or the Department's records, the Assessing Officer shall examine such material before drawing any adverse conclusion. If the beneficiary is established from the material on record, the Assessing Officer shall treat the entry as an identified beneficiary entry and compute only the commission income in accordance with the direction of the learned CIT(A). Only the credits which remain unexplained after such exercise can be considered under section 68 of the Act. 46. With the above clarification, Ground No. 5 is dismissed. Ground No. 6 47. In Ground No. 6, the assessee contended that the Department had identified about 5,400 beneficiaries and had not taken action in about 3,321 cases because, according to the assessee, those entries were transfer entries and the sister concerns themselves were beneficiaries. The assessee further contended that this itself establishes that the Department ha....
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....n Tex-Chem (India) Private Limited (supra), where the Coordinate Bench directed beneficiary-wise verification and application of Buniyad Chemicals Ltd., and with UGC Text and Build Private Limited (supra), where the Coordinate Bench held that the commission approach can apply only after the beneficiaries are identified. 52. Ground No. 6 is therefore dismissed, subject to the verification directed above. 53. In view of the above discussion, we find that the learned CIT(A) has correctly applied the principle subsequently settled by the Hon'ble jurisdictional High Court in Principal Commissioner of Income-tax-14 v. Buniyad Chemicals Ltd. [2025] 474 ITR 452 (Bom.) / [2025] 304 Taxman 560 (Bom.) / [2025] 172 taxmann.com 462 (Bom.), which has thereafter been followed by the Coordinate Benches in Axtron Tex-Chem (India) Private Limited v. DCIT, ITA Nos. 4786 to 4789/Mum/2024 & ITA Nos. 5175 and 5178/Mum/2024, order dated 30.05.2025, and UGC Text and Build Private Limited v. ITO, ITA Nos. 1922, 1926 & 1927/Mum/2025, order dated 13.08.2025. The consistent principle in these decisions is that where the beneficiary of an accommodation entry is identified and the entry is established as ....
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.... a deduction." Ground No. 3 - On Disregard for Statutory Mandate over Precedent: "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in solely relying upon a prior decision of the ITAT in the assessee's own case, without considering the overriding statutory prohibition contained in Explanation 3 to Section 37(1), a decision that contradicts the express mandate of the statute cannot be followed." Ground No. 4 - On Failure to Treat Business as Illegal/Sham: "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the business of providing accommodation entries is a sham transaction intended to manipulate the books of account and evade tax, and therefore, the entire gross income/commission arising there from is liable to be taxed without any allowance for estimated expenses." Ground No. 5 - On the Admissibility of the Appeal Under CBDT Circular No. 5/2024 (Paragraph 3.1(h) Exception): "Whether the appeal is mandatorily required to be pursued to secure a binding judicial precedent on the issue of non-allowability of expenditure in a ....
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....e learned CIT(A) allowing 50% of the expenditure. Ground Nos. 1 and 2 are dismissed. 61. As regards Ground No. 3, the Department has contended that the learned CIT(A) wrongly followed the earlier decision of the Tribunal without giving effect to the statutory prohibition contained in section 37(1) of the Act. We find that there is no conflict between the earlier Tribunal decision and the statutory provision in the facts of the present case. The learned CIT(A) has not allowed any expenditure which has been incurred by way of penalty or for committing an offence. He has merely allowed 50% of the normal expenses against the commission income, following the earlier decision in the assessee's own case. The statutory prohibition therefore does not justify a blanket disallowance of all expenditure. Ground No. 3 is dismissed. 62. In Ground No. 4, the Department has contended that, since the accommodation-entry activity was illegal or sham, the entire gross commission should be taxed without allowing any expenditure. We are unable to accept this proposition. The Income-tax Act taxes income or profits and not gross receipts merely because the activity giving rise to the income is un....