The Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘E’ concluded a significant tax dispute on August 3, 2022, in the case numbered ITA 5065/DEL/2019, which dealt with accusations against Mahanivesh Stock & Shares Pvt Ltd by the Income Tax Officer (ITO) of Ward 16(2), New Delhi. The case revolved around the substantial deposits in the assessee’s bank account and their tax implications.
During the assessment year 2010-11, the ITO discovered unusual large deposits amounting to Rs.33.47 crores in the assessee’s Axis Bank account. The assessee, Mahanivesh Stock & Shares Pvt Ltd, faced scrutiny under section 68 of the Income Tax Act, which pertains to unexplained cash credits.
The revenue’s main grievance was the nature of the transactions recorded in the assessee’s bank account. The assessee, on the other hand, argued that they are in the business of providing accommodation entries, claiming that only the commission income earned from these transactions should be considered for taxation, rather than the full amount of the deposits.
The case was initially decided by the CIT(A)-37, which agreed with the assessee’s contention, drawing from precedents set in similar cases. The ITAT upheld this decision, emphasizing the Delhi High Court’s rulings on similar matters. The tribunal directed the assessing officer to restrict tax additions to 0.5% of the commission on accommodation entries provided to parties outside their business group.
This judgment is crucial for understanding the legal framework surrounding accommodation entries and their implications for corporate taxation. It sets a precedent on how commissions from such entries should be taxed, providing clarity for businesses engaged in similar activities.
The ITAT’s decision in ITA No. 5065/DEL/2019 provides significant insights into the treatment of large financial transactions and their tax implications, especially concerning accommodation entries. This case is a landmark in elucidating the boundaries of taxable income derived from non-standard business operations.
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