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Section 68 or Only Commission Income in case of entry operators - Bombay High Court

The Bombay High Court in its recent judgment in the case of PCIT Vs Alag Securities Pvt Ltd INCOME TAX APPEAL NO.1512 OF 2017 has held that once it is factually proved and undisputed fact that the Assessee is an entry operator and all the transactions of cash deposit into the bank account and then immediately issuance of cheques in lieu of the same, then entire amount cannot be added to the total income of the Assessee u/s 68 of the Act. Only a fair percentage can be added as commission income which is the real income earned by the Assessee in such types of the cases.

The relevant Para and finding of the Hon'ble Bombay HC is reproduced as under: -

20. We are in agreement with the view taken by the Tribunal. In a case of this nature Section 68 of the Act would not be attracted. Section 68 would come into play when any sum is found credited in the books of the assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not in the opinion of the Assessing Officer satisfactory. In such a situation the sum so credited may be charged to income tax as the income of the assessee of the relevant previous year. But that is not the position here. It has been the consistent stand of the assessee which has been accepted by the First Appellate Authority and affirmed by the Tribunal that the business of the assessee centered around customers / beneficiaries making deposits in cash amounts and in lieu thereof taking cheques from the assessee for amounts slightly lesser than the quantum of deposits, the difference representing the commission realized by the assessee. The cash amounts deposited by the customers i.e., the beneficiaries had been accounted for in the assessment orders of these beneficiaries. Therefore, question of adding such cash credits to the income of the assessee, more so when the assessee was only concerned with the commission earned on providing accommodation entries does not arise.

21. Coming to the percentage of commission, Tribunal had already held 0.1% commission in similar type of transactions to be a reasonable percentage of commission. Therefore Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee itself. This finding is a plausible one and it cannot be said that the rate of commission was arrived at in an arbitrary manner. The same does not suffer from any error or infirmity to warrant interference, that too, under Section 260-A of the Act.

The full judgment can be downloaded from the below link: -

Alag-Bogus Cash-Credits Bombay HC
Download PDF • 508KB

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