ITAT Reduces 2% Commission Addition on Bank Credits to 1% in Accommodation Entry Matter [Read Order]

The Delhi Bench of the Income Tax AppellateTribunal (ITAT) has restricted the commission income addition made on account of alleged accommodation entries, while upholding the validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961. By doing so, the Tribunal partly allowed the assessee's appeal.

The appellant, Mikesh Enterprises Pvt. Ltd., was subjected to reassessment proceedings for the assessment year 2011-12. Based on allegations that the assessee was a beneficiary of accommodation entries routed through bank accounts, the Assessing Officer reassessed under Sections 147 read with 144 of the Income Tax Act, and determined total income of ₹1.88 crore against a returned loss of ₹16,901.

The reassessment order was affirmed by the Commissioner of Income Tax (Appeals), following which the assessee approached the Tribunal challenging both - reopening of assessment and the addition made at the rate of 2% on the total debits and credits in the bank accounts.

During the appellate proceedings, the assessee did not appear despite multiple opportunities, leading to the matter getting decided ex parte. The Revenue defended the reassessment by contending that the assessee was part of a well-orchestrated accommodation entry network linked to a particular group and estimation of commission income was justified in such circumstances.

The Tribunal, comprising Satbeer Singh Godara(Judicial Member) and Manish Agarwal (Accountant Member), examined the record and rejected the assessee’s contentions regarding invalid reopening, borrowed satisfaction, and lack of application of mind. It was noted that no material had been placed on record to establish that the reassessment proceedings were mechanical or based solely on borrowed opinion.

However, while dealing with the addition on account of commission income, the Tribunal observed that although the authorities had alleged accommodation entry activity, there was no discussion on comparable cases or segment-wise analysis to justify the application of a 2% commission rate.

As a result, taking an overall view of the facts and circumstances, the Tribunal held that a lump-sum addition at the rate of 1% of the accommodation entries would be just and proper.

The Tribunal clarified that the reduction in commission rate was being made in light of the facts of the case and should not be treated as a precedent. Accordingly, the appeal was partly allowed and the Assessing Officer was directed to recompute the income in accordance with the revised estimation.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates