CA acting as middleman arranging accommodation entries-Commission income estimated @ 1% upheld

CA acting as middleman arranging accommodation entries of share capital-premium through fictitious companies. Commission income estimated @ 1% upheld

CA acting as middleman arranging accommodation entries

ABCAUS Case Law Citation:
ABCAUS 1271 (2017) (06) ITAT

The Grievance:
The appeal of the assessee was directed against the order passed by CIT(A) confirming the addition, on estimation basis, of undisclosed commission income @ 1% of gross transaction value of providing accommodation entries.

Assessment Year : 2009-10, 2010-11, 2011-12
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The appellant assessee was a Chartered Accountant (‘CA’) by profession and was having income from profession and other sources.

The assessee was searched u/s 132 of the Income Tax Act, 1961 (‘the Act’) by the DDIT (Inv.) along with a business group. The DDIT (Inv.) recorded the statement of the assessee u/s 131 of the Act and thereafter on various dates , whereby the assessee had admitted that he used to receive cash and in turn provide RTGS/cheque entries to the business group companies in the guise of share capital and share premium from fictitious companies. In his statement , the assessee also stated that one person (‘Client’) ran the fictitious companies and engaged few persons of no means as Directors of these fictitious conduit companies. The assessee further admitted that he received 0.1% as commission for arranging bogus entries by way of cheque against the cash for the business group. In his statement recorded on oath u/s 131 of the Act, the client also had admitted that he had floated various companies for this scheme of conversion of cash into cheque through these bogus companies and introduction of unaccounted income into the regular books of account. It was also stated that the assessee CA was the facilitator for handling the cash through angdias and arranging cheque for group companies as share capital and share premium. The client also narrated the modus operandi for this arrangement of movement of unaccounted cash and the role of the CA.

The cash received was reinvested in the group companies as share capital after routing the same through fictitious companies of the client and in many cases the cash was deposited in some individual account and the same was routed through few layers of other bank accounts and ultimately the money was transferred to various beneficiary companies in the form of share capital/premium. The Assessing Officer (‘AO’) noted that the groups approached the settlement commission and had offered the investment made in the share capital as well as commission paid/expenditure incurred for procuring the accommodation entries as additional income. Further the AO observed from the seized material that the assessee had received commission ranging from 1.5 to 2.45% for arranging the bogus entries.

The AO accordingly took the average of 2.45% and 1.5% as 2% on the total amount of Rs. 8,70,80,000/- which worked out to commission of Rs. 17,41,600/- which was added to the total income of the assessee vide assessment order u/s 153A r.w.s. 143(3) of the Act.

On appeal, CIT(A) held that although no documentary evidence has been submitted, it would be appropriate to estimate the net commission (after allowing expenses) earned by the assessee @ 1.00% of the transaction value and accordingly directed the A.O. to restrict the addition of undisclosed commission income @ 1% of the transaction value.

Aggrieved by the appellate order passed by the CIT(A), the assessee filed the instantappeal before the Tribunal.

Observations made by the Tribunal:
The ITAT considered the statement recorded and the relevant material on record.

It was observed that there was a finding supported by document seized during the searches conducted by Revenue u/s 132(1) wherein it was mentioned that commission ranging from 1.5%- 2.45% on transaction value was paid on accommodation entries . The assessee had admitted to be involved in these clandestine activities.

The ITAT opined that the assessee might be a part of the chain of persons who were beneficiary of these clandestine activities but since the document was seized from the assessee , the assessee had to demonstrate that the entire income as is reflected in the seized document is brought to tax albeit in the hands of other persons who were part of common conspiracy in these clandestine activities and the entire income suffered taxation.

However, it was noted that no such cogent material and evidences had been brought on record by the assessee. Mere statement of the ‘Client’ recorded u/s 131 was not sufficient as it was merely material obtained during search.

The Tribunal stated that while the document seized during the search spoke loudly of commission to the tune of 1.5% to 2.45% being paid on these accommodation entries. In-any case, CIT(A) had factored for expenses to be allowed for meeting various expenses which are likely to had been incurred by the assessee in undertaking these clandestine activities of being facilitator of accommodation entries.

Held:
No infirmity was found in the appellate order of the CIT(A). The appeal(s) for all the years being identical, were dismissed.

CA acting as middleman arranging accommodation entries

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