Addition for Accommodation Entry Deleted as Sales Were Genuine and Taxes Paid

Addition for Accommodation Entry Deleted as Sales Were Genuine and Taxes Paid

Issue

Whether the Assessing Officer (AO) can treat sales proceeds of Rs. 2.68 Crores received from a customer (M/s IINFC Ltd.) as an “accommodation entry” (unexplained income) solely based on third-party search information alleging bogus purchases by the customer’s group, even when the assessee has recorded the sales in books, received payment via banking channels, and furnished VAT/Sales Tax evidence.

Facts

• Reopening: The assessment for AY 2011-12 was reopened u/s 147 based on information from the Investigation Wing regarding a search on the Indiabulls Group.

• Allegation: The search revealed that Indiabulls group entities (including M/s IINFC Ltd.) booked bogus purchases. The assessee had sold material worth Rs. 2.68 Crores to IINFC Ltd. The AO treated this as a suspicious “accommodation entry” provided by the assessee.

• Assessee’s Defense:

  • The transaction was recorded as Sales in the books of accounts and offered for tax.

  • Payments were received through banking channels.

  • Documentary evidence included invoices, ledger extracts, bank statements, VAT returns, C-Forms, and VAT assessment orders.

• AO’s Action: Despite the evidence, the AO added the amount to the assessee’s income because the assessee failed to produce a confirmation from the purchaser (IINFC Ltd.).

• CIT(A)’s Order: The Commissioner (Appeals) deleted the addition, noting that the AO relied solely on third-party information without independent verification, did not reject books of accounts, and ignored the fact that sales were already taxed.

Decision

• The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal and upheld the deletion of the addition.

• Double Taxation: The Tribunal noted that the assessee had already treated the transaction as revenue (sales) and paid tax on it. Adding the same amount again as an accommodation entry would amount to impermissible double taxation.

• Evidence vs. Suspicion: The assessee provided robust evidence (VAT returns, C-Forms, bank statements) establishing the movement of goods and genuineness of sales. The AO failed to rebut this with any evidence of a cash trail or independent inquiry.

• Third-Party Default: No adverse inference can be drawn against the seller merely because the buyer (Indiabulls group) admitted to bogus purchases in their settlement application or failed to provide confirmation, especially when the seller’s documentation is complete.

Key Takeaways

• Sales cannot be taxed twice: Once a transaction is recorded as sales and offered to tax, the same amount cannot be added again as an unexplained cash credit/accommodation entry under sections like 68 or 69.

• Statutory Forms as Proof: Possession of statutory forms like C-Forms and VAT assessment orders is strong evidence of the genuineness of sales, which the Revenue cannot easily discard based on third-party allegations.

• AO’s Duty to Investigate: The AO cannot rely blindly on Investigation Wing reports. They must conduct independent verification (e.g., establishing a cash-back trail) to prove an accommodation entry.

• Buyer’s Confession Irrelevant: A buyer’s admission of bogus purchases before the Settlement Commission does not automatically implicate the seller if the seller can prove the transaction was genuine from their end (goods delivered and paid for).

IN THE INCOME TAX APPELLATE TRIBUNAL
“B” BENCH, CHANDIGARH
ITO
Sector-2
Parwanoo-173220
Himachal Pradesh
बनाम/
Vs.
M/s Saboo Tor Private Limited
Trilokpur Road, Kala Amb
Dist: Sirmour-173030
Himachal Pradesh