Addition of Rs. 2.02 Crore as Accommodation Entries: ITAT Holds Addition Unsustainable On Lack of Primary Proof [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) held that the addition of Rs. 2.02 crore as accommodation entries was unsustainable due to lack of primary proof.

Vertool Consultancy LLP,appellant-assessee,challenged the reopening of assessment for AY 2017–18, initiated based on information received from the Investigation Wing, Ahmedabad. As per the Assessing Officer(AO)’s letter dated February 8, 2022, the firm was alleged to have received accommodation entries amounting to ₹2,02,15,000 from entities controlled by Jignesh Shah and Sanjay Shah. The Officer concluded that there was a failure on the part of the assessee to fully and truly disclose all material facts, resulting in income escaping assessment under Section 147 of the Act.

In response, the assessee denied having received any such accommodation entries and requested specific details to substantiate the allegations. The assessee asked for a bifurcation of the alleged amount with party-wise names, copies of statements from Jignesh Shah and Sanjay Shah claiming to have provided entries, seized materials proving such transactions, and an opportunity to cross-confirm with the said individuals.

Despite these requests, the AO failed to furnish any supporting details and proceeded with the reassessment, ultimately making an addition of ₹2,02,15,000 under Section 69 of the Act.

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The Assessment Order noted that a search was carried out on September 11, 2018, in the case of Jignesh Shah and Sanjay Shah. Authorities seized ₹19.37 crore in unaccounted cash and found digital records showing bogus transactions, including fake long-term capital gains and cash movements through angadiyas. It was found that the Shahs controlled several shell companies used to provide fake entries like unsecured loans and bogus gains.

Dummy directors admitted these companies were not running any real business. Other evidence like chats, files, and account books supported the findings.

The AO observed that the assessee earned brokerage income and was also in the medicine business. However, it failed to provide any records to prove that it had no dealings with the Shahs. The firm also didn’t give details of payments made to group concerns, which it had claimed in its reply.

Based on this, the Officer concluded that the firm had received accommodation entries worth ₹2.02 crore and used them to bring unaccounted money into its books. These transactions were treated as fake and meant to avoid taxes. The Officer relied on a Supreme Court ruling to hold that since the firm couldn’t explain the source of the funds, the amount should be taxed under Section 69.

The appeal filed before the Commissioner of Income Tax(Appeals)[CIT(A)] was dismissed, and the addition was confirmed.The  CIT(A) said the assessee repeated the same arguments. The assessee, as a sub-broker, had to keep records but did not provide any during assessment or appeal to show no business with Jignesh Shah, Sanjay Shah, or their companies. The CIT(A) said the assessee gave a false explanation to hide unexplained money deposited during demonetization and agreed with the AO’s decision.

The two member bench comprising Dr.BRR Kumar(Vice President) and Suchitra Kamble(Judicial Member) examined the information, the AO’s order, and the CIT(A)’s decision. It found that the authorities failed to present any primary evidence. The search findings at Mr. Jignesh Shah’s and Mr. Sanjay Shah’s premises were not properly used by the AO, leading to a weak case. The AO claimed that accommodation entry providers used synchronized trading to create fake Long Term Capital Gains(LTCG) against cash.

However, there was no proof showing which companies or stocks were involved, or the dates of these transactions. Without any solid evidence, the lower authorities made an addition that could not be supported.

To Read the full text of the Order CLICK HERE

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