The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) reduced the income assessment to 0.3% of the total credits received, considering a similar assessment in the subsequent year.
New Edge Shares & Securities,appellant-assessee,was a private company engaged in trading shares for commission. It did not file a return for Assessment Year 2011-12 and was struck off the Registrar of Companies on 13.03.2012. During a search on 17.12.2015, the Income Tax Department discovered that Shri Anand Kumar Jain and Shri Naresh Kumar Jain ( Jain Brothers ) were involved in providing accommodation entries through paper companies.
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The Assessing Officer ( AO ) found that the appellant had received accommodation entries of INR 98,20,055/- from these entities. Based on this, proceedings under sections 147/148 were initiated, and a notice was issued on 26.03.2018.
The assessment was completed ex-parte under sections 144/147, and the assessee’s income was assessed at INR 1,41,50,800/-, with the following additions: INR 98,20,000/- under section 68 for unexplained credit, and INR 43,30,800/- estimated as business income at 8% based on bank credits.
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], but the CIT(A) upheld the additions of INR 98,20,000/- under section 68 and INR 43,30,800/- as business income.
The assessee raised legal grounds and argued it had a strong case on merits. The AO found that the assessee had received INR 98,20,055/- from entities linked to the Jain brothers and additional credits of INR 5,41,35,000/-. The AO treated INR 98,20,000/- as unexplained credits under section 68 and applied an 8% profit margin on the other credits.
The assessee argued it was simply a conduit for the Jain brothers, passing funds to other entities. It requested that a nominal commission, like the 0.3% used in the next assessment year, be applied to the total amount of INR 6,39,55,000/-. The counsel also noted that the assessment lacked jurisdiction but was willing to withdraw this point if the additions were reduced to 0.3% to avoid further litigation.
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The two member bench comprising Vimal Kumar ( Judicial Member ) and Pradip Kumar Kedia ( Accountant Member ) reviewed the submissions and found that the assessee had received INR 6,39,55,000/- in credits from Jain Group entities, with INR 6,39,50,000/- being passed to other entities in the accommodation entry scheme.
The assessee argued it was a conduit for the Jain brothers in this process. It also noted that in a similar case for Assessment Year 2012-13, the AO applied a 0.3% commission on credits from the Jain Group, resulting in income of INR 4,83,000/-.
Considering the similarities, the tribunal accepted the assessee’s argument to apply a 0.3% commission on the credits. The CIT(A) order was set aside, and the AO’s additions were modified to apply 0.3% to the total credits received.
In conclusion,the appeal filed by the assessee was partly allowed.
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