ITAT Mumbai Slashes Commission Rate to 0.47% in Accommodation Entry Case — Section 153C Jurisdiction Upheld

Overview of the Case

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) rendered a significant ruling in the matter of Shirish Chandrakant Shah Vs DCIT (ITAT Mumbai), covering multiple assessment years from AY 2013-14 through AY 2018-19. The appeals arose from assessments framed under Section 143(3) read with Section 153C of the Income-tax Act, 1961. While the Tribunal upheld the jurisdictional validity of the Section 153C proceedings, it substantially reduced the commission rate applied on alleged accommodation entry transactions — from 1.75% down to 0.47% — following a consistent approach established in the assessee's own earlier case.

Background: How the Proceedings Were Triggered

Search and Section 153C Initiation

The Department conducted a search and seizure operation in the case of Shri Naresh Manakchand Jain. Incriminating documents allegedly connected to the assessee, Shirish Chandrakant Shah, were discovered during this operation. On this basis, the Assessing Officer initiated proceedings under Section 153C of the Income-tax Act, 1961, and issued a notice to the assessee on 24.12.2020.

The assessee had originally filed a return of income on 31.07.2014 declaring income of Rs. 1.94 Lakhs. Prior to the Section 153C proceedings, a Section 143(3) read with Section 153A assessment had already been completed on 19.12.2019, assessing income at Rs. 48.76 Lakhs. In response to the fresh Section 153C notice, the assessee again filed a return on 10.02.2021 at Rs. 1.94 Lakhs.

Additions Made by the Assessing Officer (AY 2013-14)

The Assessing Officer received information from the investigation wing on 05.04.2021 regarding a search at the premises of Shri Nishant Niyati, during which incriminating records relating to several persons, including those connected to the assessee, were recovered.

The following conduit entities were identified as being allegedly used by the assessee to facilitate accommodation entries:

  • M/s Secunderabad Healthcare Ltd. (SHL) — Transaction value: Rs. 3.85 Crores; Addition: Rs. 6,73,750/- at 1.75%
  • M/s L.N. Polyesters Ltd. (LNPL) — Transaction value: Rs. 52.66 Crores; Addition: Rs. 92.17 Lakhs at 1.75%
  • M/s Lakeview Land Private Ltd. (LLPL) — Transaction value: Rs. 436.06 Lakhs; Addition: Rs. 7.63 Lakhs at 1.75%
  • M/s Sally Real Estate Pvt. Ltd. — Addition: Rs. 78,652/- at 1.75%

The Assessing Officer concluded that these entities functioned as conduit companies controlled by the assessee, and that the underlying transactions were essentially structured to generate tax-free capital through mechanisms such as advancing and cancelling bayana amounts — forfeited amounts becoming unaccounted capital in the hands of beneficiaries.

The assessee mounted a robust challenge on both jurisdictional and merits-based grounds before the CIT(A) and subsequently before the ITAT.

Jurisdictional Objections