Taxation of Accommodation Entry Providers: ITAT Restricts Additions to Commission Income, Rejects Gross Credit Inclusions
In a significant ruling concerning the taxation of individuals facilitating financial transactions, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has reinforced the principle of "Real Income." The Tribunal held that for an assessee acting merely as a facilitator or moderator of accommodation entries, tax liability should be confined to the commission earned on such transactions rather than the gross amount credited in bank accounts. This decision was rendered in the case of ACIT Vs Radhey Shyam Bansal, where the Tribunal dismissed the Revenue's appeal and upheld the appellate order limiting the addition to a commission rate of 0.50%.
Case Background and Procedural History
The dispute arose from search and seizure operations conducted under Section 132 of the Income Tax Act 1961 on 11.04.2011. The assessee is a practicing Chartered Accountant engaged in providing professional services such as auditing and return filing. Following the search, the Assessing Officer (AO) initially passed an assessment order under Section 143(3).
The matter eventually reached the Tribunal in a prior round of litigation. The Tribunal remanded the case back to the AO with specific directions. The AO was instructed to re-adjudicate the matter by considering the assessee’s admission under Section 132(4)—where he confessed to being a facilitator of accommodation entries—and to apply the legal principles established in CIT vs. Kabul Chawla.
Despite these directions, in the set-aside proceedings, the AO passed fresh assessment orders on 30.03.2023 for Assessment Years 2010-11 through 2012-13. The AO once again treated the gross credits found in various bank accounts (belonging to the assessee, relatives, and unrelated companies) and entries in seized diaries as unexplained income, resulting in substantial additions.