Cash credits – Section 68 – Assessee entry provider to customers making deposits in cash in lieu of cheques for lower amounts – Cash deposits accounted for in assessment orders of beneficiaries – Restriction of addition to difference between amounts deposited and cheques issued only as commission income as disclosed by assessee – Provisions of section 68 not attracted

11. Principal CIT vs. Alag Securities Pvt. Ltd. [2020]
425 ITR 658 (Bom) Date
of order: 12^th June, 2020 A.Y.:
2003-04

Cash credits – Section 68 – Assessee entry
provider to customers making deposits in cash in lieu of cheques for lower amounts – Cash deposits accounted for in
assessment orders of beneficiaries – Restriction of addition to difference
between amounts deposited and cheques issued only as commission income as
disclosed by assessee – Provisions of section 68 not attracted

The assessee
provided accommodation entries to entry seekers. For the A.Y. 2003-04, the A.O.
held that the identity of the parties involved and the genuineness of the
transactions were not proved by the assessee and added the amount of cash
deposits to the income u/s 68.

The Commissioner
(Appeals) held that only 0.15% of the total deposits were to be treated as
income and restricted the addition to 0.15% of the total deposits as commission
in the hands of the assessee. The Tribunal upheld the order passed by the
Commissioner (Appeals) and dismissed the appeal of the Department.

On appeal by the
Revenue, the Bombay High Court upheld the decision of the Tribunal and held as
under:

‘i)  The provisions of section 68 would not be
attracted. The assessee had admitted that its business was to provide
accommodation entries. In return for the cash credits it issued cheques to its
customers and beneficiaries for smaller amounts, the balance being its
commission. Moreover, the cash credits had been accounted for in the respective
assessment of the beneficiaries.

ii)  Section 68 would be attracted only when any
sum was found credited in the books of the assessee and no explanation was
offered about the nature and source thereof or the explanation offered was not
in the opinion of the A.O. satisfactory. But it had been the consistent stand
of the assessee which had been accepted by the Commissioner (Appeals) and the
Tribunal that the business of the assessee centred around the customers and
beneficiaries who made the deposits in cash amounts and in lieu thereof took cheques from the assessee for amounts slightly lower
than the quantum of deposits, the difference representing the commission
realised by the assessee.

iii)  The assessee had never claimed the cash
credits as its income. The cash amounts deposited by the customers, i.e., the
beneficiaries, had been accounted for in the assessment orders of those
beneficiaries. Therefore, the question of adding such cash credits to the
income of the assessee, especially when the assessee was only concerned with
the commission earned on providing accommodation entries, did not arise.

iv) On the issue of the percentage of commission,
the Tribunal had already held 0.1% commission in similar types of transactions to be a reasonable percentage of commission and
therefore had accepted the percentage of commission at 0.15% disclosed by the
assessee itself. This finding was a plausible one and the rate of commission
was not arrived at in an arbitrary manner.

v)  The order of the Tribunal did not suffer from
any error or infirmity to warrant interference u/s 260A. No question of law
arose.’