2025 (6) TMI 716 - AT - Income Tax

Addition in respect of accommodation entry taken by the assessee - HELD THAT - PCIT had given a categorical finding that the transactions made with AEL during this year were genuine transactions. In fact the case of Shri Dhiren C. Shah for the A.Y. 2012-13 was also reopened u/s 147 of the Act on the basis of the same information on which the case of the assessee was reopened for this year. Department had accepted the genuineness of the transactions made by Sh. Dhiren C Shah with AEL in the A.Y. 2012-13 and no addition in respect of any accommodation entry was made in his case. Similarly the Revenue had also accepted genuineness of the transactions with AEL in the assessee s own case in the A.Y. 2013-14 which was also reopened on the basis of the same information. Considering the fact that AEL was a group concern and the transactions made with this company was accepted as genuine in the assessee s own case in the subsequent year as well as in the case of Shri Dhiren C. Shah we are of the considered opinion that the Revenue was not correct in treating the total transactions made by the assessee with AEL in the current year as accommodation entry. The assessee had duly explained that all the transactions were internal group transactions and there was no iota of evidence to hold them as accommodation entry. Therefore the addition on account of accommodation entry in respect of transactions with AEL is deleted.

Summary

The core legal questions considered in this appeal pertain to the validity of reopening assessment proceedings under Section 147 of the Income Tax Act, 1961, and the correctness of additions made on account of alleged accommodation entries through share trading transactions. Specifically, the issues are:

1. Whether the initiation of reassessment proceedings under Section 147 was justified on the basis of information received from the Directorate of Income Tax (Investigation) (DDIT Inv.).

2. Whether the addition of Rs. 1,30,96,000/- as unexplained income, alleged to be accommodation entries, was justified.

3. Whether the transactions conducted with M/s Arihant Enterprise Ltd. (AEL) were indeed bogus or genuine business transactions.

4. Whether the fact that AEL was a group company controlled by the assessee's family during the relevant period was adequately considered.

5. Whether the involvement of certain individuals alleged to be accommodation entry providers was correctly attributed to the assessee's transactions.

6. Whether documentary evidence including bank statements, confirmations, audit reports, and financial statements submitted by the assessee were properly considered.

7. Whether the addition of Rs. 1,30,96,000/- comprising total credit and debit transactions was justified without allowing set-off of debit and credit transactions.

Issue-wise Detailed Analysis

1. Validity of Reopening under Section 147

The reopening of assessment was challenged on grounds that it was initiated solely on the basis of information received from the DDIT (Inv.) and without proper verification. However, this ground was not pressed by the appellant during hearing and was dismissed. The Court noted that the Assessing Officer had recorded reasons for reopening, but the procedural correctness was not contested further.

2. Addition of Rs. 1,30,96,000/- as Accommodation Entry

The Assessing Officer relied on information received from a search in the case of an alleged accommodation entry provider, Shri Jignesh Shah, who had admitted to running multiple concerns providing accommodation entries, including AEL. The AO treated the entire credit and debit transactions between AEL and the assessee's proprietorship concern as accommodation entries and added the amount as unexplained income.

The assessee's representative argued that AEL was a group company controlled by the assessee's family until FY 2014-15, with the husband being a director till 16.07.2014. The transactions were internal group transfers, genuine in nature, and not accommodation entries. It was submitted that accommodation entries cannot be taken from a group concern. Additionally, the assessee pointed out that in the subsequent year (AY 2013-14), reopened on similar grounds, no addition was made, and the returned income was accepted. Further, proceedings under Section 263 against the husband for transactions with AEL were dropped after a finding that AEL was a group concern during the relevant period.

The Revenue contended that the lower authorities' orders were correct and relied on the affidavit of Shri Jignesh Shah.

The Court examined the submissions and noted that the Assessing Officer had reopened the case mechanically without verifying since when Shri Jignesh Shah was providing accommodation entries through AEL. The AO had erred in making additions for both debit and credit transactions without proper scrutiny.

The Court relied on the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 in the husband's case for AY 2013-14, which concluded that during the year under consideration, AEL was managed by the assessee's family and not by Shri Rajiv Shah, an alleged entry operator. The PCIT held that the foundation of reopening on the basis of accommodation entry allegations was inoperative and the proceedings were dropped.

The Court also noted that in the husband's case for AY 2012-13, reopened on the same information, no addition was made. Similarly, in the assessee's own case for AY 2013-14, reopened on the same basis, no addition was made. These facts demonstrated inconsistency in the Revenue's approach.

Given that AEL was a group concern during the relevant year and the transactions were accepted as genuine in other related assessments, the Court held that the addition of Rs. 1,30,96,000/- as accommodation entry was not justified.

3. Nature of Transactions with Arihant Enterprise Ltd.

The assessee submitted extensive documentary evidence including bank statements, confirmations, audit reports, and financial statements to establish the genuineness of the transactions. It was contended that all transactions were through account payee cheques and internal group transfers.

The Court observed that the Assessing Officer had failed to consider this evidence adequately and had treated the transactions as bogus merely on the basis of information received from the investigation wing without independent verification.

The Court emphasized that the transactions were genuine business dealings within the group, and no material was brought on record to prove otherwise.

4. Treatment of Competing Arguments and Consistency in Revenue's Approach

The Court highlighted the inconsistency in the Revenue's stand, noting that the same transactions were accepted as genuine in the husband's case and in the assessee's subsequent year's assessment. The PCIT's order dropping proceedings under Section 263 was a significant finding affirming the genuineness of the transactions.

The Court rejected the Revenue's reliance on the affidavit of Shri Jignesh Shah as a sole basis for addition, especially when the management and control of AEL during the relevant year were with the assessee's family.

5. Set-off of Debit and Credit Transactions

The assessee argued that the AO erred in making additions on the gross of debit and credit transactions without allowing set-off. The Court agreed that the total credit and debit transactions should be considered in net terms, particularly when they represent internal group transfers.

Conclusions

The Court concluded that the reopening under Section 147 was not pressed and therefore dismissed. The addition of Rs. 1,30,96,000/- as unexplained income on account of accommodation entries was not sustainable, given the evidence of genuine group transactions and the acceptance of such transactions in related assessments. The Court held that the Assessing Officer erred in mechanically treating transactions with AEL as bogus without proper verification and in ignoring documentary evidence.

The Court allowed the appeal in part by deleting the addition of Rs. 1,30,96,000/-.

Significant Holdings

"The Assessing Officer was not correct in reopening the case of the assessee for the A.Y. 2012-13 without verifying as to since when Shri Jignesh Shah was providing accommodation entries through this company. The Assessing Officer had mechanically reopened the case and made the addition without carefully considering the facts and the submissions of the assessee."

"Considering the fact that AEL was a group concern and the transactions made with this company was accepted as genuine in the assessee's own case in the subsequent year as well as in the case of Shri Dhiren C. Shah, we are of the considered opinion that the Revenue was not correct in treating the total transactions made by the assessee with AEL in the current year as accommodation entry."

"The addition of Rs. 1,30,96,000/- on account of accommodation entry in respect of transactions with AEL is deleted."

Core principles established include the necessity for the Assessing Officer to verify the basis and timing of information before reopening assessments under Section 147, the importance of considering documentary evidence and consistency in Revenue's approach across related assessments, and the inadmissibility of treating genuine group transactions as accommodation entries without substantive proof.