ITAT Directs Lumpsum 8% Tax Rate on Unexplained Cash Receipts and Payments for Alleged Accommodation Entry Business [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) directed a lumpsum of 8% tax rate on unexplained cash receipts and payments for alleged accommodation entry business considering the excessive amount of addition by the lower authorities.

Purushttam Lal Soni (assessee) a search and seizure operation conducted under Section 132 and electronic data was seized from several computers and hard disks which revealed extensive cash transactions not recorded in the regular books of account.

The Assessing Officer (AO) noted that the "Tally" records found in the seized devices contained different entries across various computers. For the lead Assessment Year 2011-12, the AO made significant additions based on this data: unexplained cash receipts amounted to ₹1,67,95,74,275, unexplained unsecured loans of ₹2,13,40,250 and commission on loans of ₹4,26,805.

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The AO contended that the assessee failed to explain the nature and source of these transactions or prove the creditworthiness and identity of the lenders. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

The CIT(A) upheld these additions and noted that the transactions appeared to be circulatory in nature, involving family members and employees who admitted to having no role in such activities. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The two-member bench, comprising Satbeer Singh Godara (Judicial Member) and Manish Agarwal (Accountant Member), noted that the assessee had not filed any specific material to rebut the correctness of the seized data.

The tribunal observed the following regarding the nature of the business that it appeared the assessee was carrying out an accommodation entry business by receiving and paying cash at a commission rate.

The tribunal noted that there was no evidence on record indicating a specified commission income or comparable instances for this segment. The tribunal noted that assessing the entire gross amount of receipts and payments as unexplained income would be excessive in the context of a commission based activity.

The tribunal directed that the additions for unexplained cash payments, receipts, unsecured loans, and commission be assessed at a lumpsum rate of 8% only. The bench clarified that this 8% rate shall not be treated as a precedent for other cases.

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The tribunal concluded that while the source was unexplained, the taxable element in an accommodation entry business was the commission earned rather than the principal sums. The appeals of the assessee were partly allowed.

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