Addition us 68 for accommodation entries-don’t shoot the messenger. Addition restricted to commission earned on accommodation entries-ITAT
ABCAUS Case Law Citation:
ABCAUS 1125 (2017) (02) ITAT
Assessment Year : 1995-96
Date/Month of Pronouncement: February, 2017
Brief Facts of the Case:
The present judgment was delivered in the second round of litigation. In the first round of litigation, the quantum additions made on account of unexplained credits u/s 68 travelled up to the Tribunal which had set aside the assessment to the files of the Assessing Officer (AO) to decide issues on merit after the assessee had conceded that he will not raise the legal issues of reopening u/s 147.
The bone of contention was the sundry creditors balances of Rs. 2.68 crores in the balance sheet of the assessee. The assessee was asked to furnish details of all the creditors in the light of the provisions of section 68 of the Income Tax Act, 1961 (“the Act”). In one of his reply, the assessee categorically stated that the creditors shown in the balance sheet were bogus. The assessee also explained his modus operandi regarding transactions of cash deposited and cheques given in the statement recorded by the AO u/s 131 of the Act.
In remand proceedings, the assessee submitted as under:
It is submitted that during the financial year 1994-95, the assessee was in need of funds. Hence, under the guidance from the friends, the assessee decided to carry on the activity of providing accommodation transactions which could help him to generate some income.
In the course of the business being carried on by the assessee, various customers approach the assessee for obtaining adjustment bills. The customers make deposits in cash amounts and in turn they take cheques from the assessee for amounts slightly lesser than the amounts of deposits, the difference representing the commission realised by the assessee. Many a times, commission is paid in cash. The prevalent commission on such dealings is 0,15%. The said cash so received from the customers/beneficiaries are then deposited in the bank account under the guise of loan received from certain fictitious parties in cash in the amounts of Rs, 20,000/- each. Out of the amounts so deposited in the bank account, the cheques of the identical amounts are issued to the beneficiaries. The said payments are reflected as part of the loans and advances in the balance sheet of the assessee.
It is submitted that the cash so deposited in the bank account represents the cash belonging to the parties to whom the cheques are issued since the said parties are the ultimate beneficiaries of the amounts, in order to show the said transaction as genuine financing transaction, the assessee also periodically receives interest from the parties which are deposited in the bank account and the cash is repaid back to them.
It is submitted that the entire transaction representing loan given and the corresponding loan taken are non-genuine transaction and that the assessee has never taken any such loan or given any loan to these parties and that the transactions are only in the nature of accommodation transaction.
By engaging in such transaction, the beneficiaries tend to convert their unaccounted money into accounted money and hence can utilize the same. It is submitted that the real owners and beneficiaries of the said amount are those parties who have been issued the cheques and hence the assessee should not be subjected to tax on the amounts or income which does not belong to him. It is submitted that the tax should be levied on the persons who have actually earned the said amounts and to whom the said cash belong. The details of the names and addresses of the parties have already been furnished to your goodself. Based on the said details, we humbly request: your goodself that the aforesaid submissions made by the assessee may kindly be confirmed by Issuing summons to these parties and calling upon them to explain the correct facts. We submit that these facts can be only examined by summoning these parries and ascertaining the correct truth from them. Your goodself is vested with vide powers under the law to make necessary enquiries so as to ensure that only correct income is taxed in the hands of the assessee.
In light of the above, we submit that the amounts shown as loans taken in the balance sheet cannot be added as unexplained income of the assessee and that the assessee can only be subjected to tax on the commission income for arranging the said transactions.
The assessee by an affidavit stated that all the depositors were not genuine and all the lenders are fictitious and the real owner and beneficiaries of such cash received were partly to whom the cheques were issued. It was explained that the amount shown as loans given, merely represent accommodation transaction and are not actual loans taken or given. It was strongly contended that the assessee was only receiving commission for providing for such accommodation entries.
The modus operandi of the assessee and his detailed submission was not approved by the AO who was of the firm belief that the onus was upon the assessee to explain the credit entries in his books of accounts and since, the assessee has grossly failed in discharging the onus cast upon him by the provisions of section 68, the credit entry of Rs. 2.68 crores was treated as deemed income of the assessee and was added by the AO.
Contentions of the Appellant Assessee:
It was submitted that the assessee was a man of meager means and, therefore, could not be said to have earned such exorbitant unaccounted income. It was again stated that the assessee was merely an entry provider earning commission on such accommodation entries.
Contention of the Appellant Revenue:
It was contended that the assessee had grossly failed in discharging the burden cast upon him by the provisions of section 68. Therefore, there was no error or infirmity in the findings of the CIT(A).
Observations made by the Tribunal:
The Tribunal noted that the assessee in his statement recorded u/s 131 had explained that since past 10 years he was employed abroad drawing salary of Rs. 10.80 lacs (in Indian Currency). Also, the assessee had specifically stated that he was not maintaining any bank account abroad and was drawing salary in cash. It is also found that in Indian rupees, the total expenditure of the assessee was 6.50 lacs. Thus, according to the Tribunal, the assessee was a man of small means. And also, since past 10 years, the assessee was doing job abroad, the assessee could not furnish the requisite details for the assessment year under consideration. The assessee had requested the AO to make enquiries u/s 131 or u/s. 133(6) so as to obtain relevant bank statements.
The Tribunal opined that as per settled proposition of law Income Tax proceedings are civil proceedings and the degree of proof is by preponderance of probabilities. Considering the facts in totality in their true perspective, The ITAT was of the view that the balance of convenience, in the light of the preponderance of probabilities, was in favour of the assessee.
The Tribunal opined that considering the nature of transactions and the acceptance by the assessee being an entry provider, the impugned transactions have to be considered in the light of the acceptance of the assessee. “Don’t shoot the messenger”. The assessee was earning commission by providing such accommodation bills, the only addition that can be made on the given facts is the commission earned by the assessee by providing such accommodation entries.
The Tribunal held that considering the peculiarity of the facts of the case, addition of the commission @ 3% of the accommodation entries should meet the ends of justice.