Lack of Motive behind Allegation of Assessee taking Accommodation Entries to Reduce Taxable Income: ITAT dismisses Revenue's Appeal [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, on finding that there is lack of motive behind the allegation of the taking accommodation entries to reduce taxable income, dismissed the Revenue’s appeal.

The aforesaid observation was made by the Delhi ITAT, when appeals were filed before it by the Revenue, as against two separate orders of the CIT(A), New Delhi, dated 12.07.2022, pertaining to Assessment Year 2015-16.

The grounds of the Revenue’s appeal being that the CIT(A) has erred on facts and in law, in allowing the appeal of the assessee by holding the statement of Sh. Naresh Kumar Aggarwal, Director of M/s Rajlaxmi Commodities, to be unreliable, by holding his statement as inconsistent and contradictory in various parts, the brief facts of the case were that a search and seizure, and survey operation under Section 132/133A of the Income-tax Act, 1961 ,were conducted by the Investigation Wing of the department on 07.04.2017 in Sharp group of cases, and the premises of the assessee were also covered, with statutory notices being accordingly issued and served upon the assessee.

During the course of survey operation under Section 133A of the Income Tax Act, conducted at the premises of M/s Rajlaxmi Commodities Pvt Ltd on 29.12.2015, it was found that M/s Rajlaxmi Commodities Pvt Ltd had allocated different User IDs to different persons including Sharp Group, in the name of Shri Babu Lal Jangid as User ID USR-3.

The Assessing Officer recorded that on the direction of Shri Sanjay Singhal, Managing Director of Sharp Group of Companies, Shri Naresh Aggarwal, director, allocated User ID USR -3 to Shri Babu Lal Jangid, who is employee of Sharp Group of cases for making commodity trading in the name of 3 Sharp Group under direct supervision of Shri Sanjay Singhal.

The Assessing Officer further recorded that Shri Naresh Aggarwal has stated in his statement recorded on 31.12.2015, that during the F.Y. 2014-15, Shri Sanjay Singhal has earned profit/loss of Rs. 11,35,85,032/- by using User ID USR-3 in the name of his employee Shri Babu Lal Jangid.

The Assessing Officer extracted the statement of Shri Naresh Aggarwal at pages 8 to 26 of his assessment order, and thereby taking a leaf out of the statement of Shri Naresh Aggarwal recorded on 31.12.2015, made strong assertions that the assessee had opened User ID USR 3 for commodity trading in the name of his employee Shri Babu Lal Jangid, made huge commodity trading on MCX/NCDEX during F.Y. 2014-15, with a loss of Rs. 11.35 crores, which is not recorded in the books of account in any of Sharp group of companies or in the hands of the assessee Shri Sanjay Singhal.

The Assessing Officer further alleged that the loss earned by the assessee Shri Sanjay Singhal had been covered up by him, by making payment to M/s Rajlaxmi Commodities Pvt Ltd, which had not been accounted for in the books of account neither in the Sharp group of companies nor in the hands of Shri Sanjay Singhal, based on which the assessee was show caused to explain the entire transaction.

 The assessee filed detailed reply, which had been extracted by the Assessing Officer in his assessment order at pages 29 to 32, wherein the reply of the assessee was simply rubbished by the Assessing Officer, who proceeded by making strong allegation based upon his surmises and conjectures, thus coming to the conclusion that provisions of section 69A are applicable in the case of the assessee . He therefore proceeded by making substantive addition of Rs. 11,35,85,032/- in the hands of Shri Sanjay Singh. To protect the interest of the revenue, protective addition was made in the hands of Sharp group under Section 69A r.w.s 115BBE of the Income Tax Act.

Additions were challenged by the assessee , before the  CIT(A), wherein the first challenge was in respect of assessment framed under Section 153A r.w.s 143(3) on the ground that a completed assessment could not have been reopened, as no incriminating material was found during the course of search.The second challenge was in respect of invoking provisions of section 69A of the Income Tax Act. Evidentiary value of statement of Shri Naresh Aggarwal was also challenged.

After considering the facts and submissions, the CIT(A) found that the assessment order was based on the statement of Shri Naresh Aggarwal and transaction sheet USR -3 which was obtained during the course of survey at the premises of M/s Rajlaxmi Commodities Pvt Ltd on 29.12.2015, whereas the date of search was 07.04.2017, which meant that the statement relied upon by the Assessing Officer was recorded almost two years prior to the date of search.

The CIT(A) therefore, on the facts of the case, raised strong objections on the veracity of the statement of Shri Naresh Aggarwal and came to the conclusion that the same cannot be relied upon.

In so far as transaction sheet USR-3 was concerned, the CIT(A) was of the firm belief that ownership of the transaction does not depend as to who executed the transaction at the Exchange or who has access to User ID, which is normally the broker, his employee or approved user, and held the opinion that the transaction neither belonged to the user nor the person who has executed the transaction on the Exchange as they all are working on the instructions of their client.

He added that if the client code of M/s Rajlaxmi Commodities Pvt Ltd was used at the time of executing the transactions at MCX, then the profit/loss would belong to M/s Rajlaxmi Commodities Pvt Ltd and not to any other person.

The CIT(A) thus, categorically held that the transactions as per transaction sheet USR 3 code, cannot be considered as unaccounted, as income from the same transaction for the A.Y under consideration had been accepted by the department as income of M/s Rajlaxmi Commodities Pvt Ltd. He thus was of the views that, therefore, this sheet itself cannot be considered as incriminating material.

The allegation of accommodation entry had also been dismissed by the CIT(A), who found that there was no motive behind taking accommodation entry.

The CIT(A) was of the opinion that generally assessees take accommodation entry either to reduce his taxable income or to bring back his unaccounted income into business, whereas in the case in hand, the assessee had not filed his return of income declaring any loss.

 The CIT(A) thus concluded by holding that since the transactions were not in the name of the assessee, the assessee cannot claim the benefits arising from such transactions.

The allegation by the Assessing Officer that there was cash transaction between the broker and the assessee was also rejected by the CIT(A), who found that during the course of search on 07.04.2017 and also during the course of survey on 30.12.2015 in the premises of the assessee and broker, no such evidence indicating cash receipt or payment was found.

The CIT(A) finally concluded by holding that addition of Rs. 11,35,85,032/- cannot be made on substantive basis in the hands of Shri Sanjay Singhal nor on protective basis in the hands of Sharp Group. And, it is being aggrieved by the same, that the Revenue has preferred the instant appeal before the Tribunal.

Hearing the opposing contentions of both sides as presented by Shri Vinod Bindal, CA and Ms. Rinki Sharma, ITP, on behalf of the assessee, and by Shri H.K. Choudhary, the CIT- DR, on behalf of the Revenue, as well as perusing the materials available on record, the ITAT observed:

“The undisputed fact is that income from the same transaction USR 3 for A.Y under consideration has been accepted by the department as income of M/s Rajlaxmi Commodities Pvt Ltd. Therefore, there appears to be no motive behind the allegation that the assessee Shri Sanjay Singhal has taken accommodation entries to reduce his taxable income as he has never claimed any loss in his return of income.”

“The undisputed fact is also that transactions are not in the name of the assessee and therefore, the assessee cannot claim benefits arising from such transactions in his return of income. Considering the totality of facts from all possible angles, we do not find any reason to interfere with the findings of the ld. CIT(A)”, the coram of Astha Chandra, the Judicial Member and N.K Billaiya, the Accountant Member added.

Finally, the ITAT held:

“In the result both the appeals of the Revenue in ITA Nos. 2421 & 2422/DEL/2022 are dismissed.”

To Read the full text of the Order CLICK HERE

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