Facts of the Case

The present appeals were filed by the Revenue challenging the order dated 23rd January 2019 passed by the Income Tax Appellate Tribunal (ITAT). The case pertains to the respondent-assessee, M/s Bhawani Portfolio Pvt. Ltd., whose bank account credits were treated as accommodation entries by the Assessing Officer due to failure in providing satisfactory explanations and supporting confirmations.

The Assessing Officer treated all such credit entries as income and estimated commission income at the rate of 2.25%. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the assessment order.

However, the ITAT partly allowed the assessee’s appeal and set aside the orders, holding that a uniform commission rate could not be applied to all transactions and that no profit element could be attributed to inter-group transactions.

Issues Involved

  1. Whether the ITAT erred in rejecting the uniform application of commission rate (2.25%) on accommodation entries.
  2. Whether all credit entries in bank accounts, including inter-group transactions, could be treated as income.
  3. Whether any substantial question of law arose under Section 260A of the Income Tax Act, 1961.

Petitioner’s Arguments (Revenue)

  • The respondent had failed to discharge its burden to establish the nature and source of credit entries.
  • The assessee had admitted to providing accommodation entries.
  • The Assessing Officer was justified in treating all bank credits as income.
  • The application of a 2.25% commission rate was reasonable and supported by the assessment findings.
  • The ITAT erred in ignoring material evidence and wrongly setting aside the assessment and CIT(A) orders.

Respondent’s Arguments (Assessee)

  • The ITAT rightly held that no uniform commission rate could be applied to all transactions.
  • Commission rates vary and cannot be generalized merely based on selective evidence such as loose sheets.
  • Inter-group transactions do not involve any profit element.
  • The estimation made by the Assessing Officer was arbitrary and excessive.

Court’s Findings / Order

The Delhi High Court upheld the ITAT’s decision and dismissed the Revenue’s appeals with the following observations:

  • The ITAT correctly recognized that although the assessee provided accommodation entries, a uniform commission rate could not be applied across all transactions.
  • The Tribunal relied on precedents where commission rates ranged between 0.15% to 0.50% in similar cases.
  • The Tribunal, being the final fact-finding authority, is entitled to adopt a reasonable estimation or “ballpark” figure.
  • The findings of the ITAT were not perverse and did not warrant interference under Section 260A.
  • No substantial question of law arose in the present case.

Accordingly, the appeals were dismissed.

Important Clarification

  • Estimation of commission income in accommodation entry cases cannot be standardized.
  • The ITAT has discretionary authority to determine reasonable commission rates based on facts and precedents.
  • High Courts will not interfere unless findings are perverse or raise substantial questions of law.
  • Inter-group transactions may not necessarily involve profit elements.

Sections Involved

  • Section 260A, Income Tax Act, 1961 – Appeal to High Court
  • Section 68, Income Tax Act, 1961 (implicit) – Unexplained cash credits

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2030-DB/MMH12072021ITA1582020_145506.pdf


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