ITAT Validates Commission Estimation on Funds Routed Through Banking Channels

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the addition of estimated commission income earned from facilitating accommodation entry transactions, holding that once an assessee is found to have acted as a conduit entity for routing funds, the income embedded in such transactions can be brought to tax. A Bench comprising Judicial Member Sandeep Gosain and Accountant Member Jagadish dismissed the appeals filed by Shrey Technologies Private Limited for AYs 2016-17 and 2017-18.

In the first round of litigation, the Tribunal restored the matter to the Assessing Officer with directions to examine the complete trail of transactions and verify the assessee’s claim that it was merely a conduit entity through which funds originating from Trimax were routed back to the same group through layered transactions.

During the set-aside proceedings, the Assessing Officer examined the fund trail and accepted the assessee’s contention that it was only an intermediary conduit entity. Consequently, the additions made under Section 68 were deleted. However, the Assessing Officer observed that the assessee had facilitated accommodation entries involving substantial funds and estimated commission income at 0.15% of the routed transactions, resulting in additions of Rs. 3 lakh and Rs. 2.03 lakh for the respective assessment years.

Before the Tribunal, the assessee argued that once the Section 68 additions were deleted, no fresh addition could be made in the remand proceedings, as the Assessing Officer had exceeded the scope of the Tribunal’s directions. It was contended that the estimation of commission income was a completely new issue that did not form part of the original assessment.

The Tribunal rejected the contention and held that the issue restored in the earlier round related to accommodation entry transactions and the assessee’s role therein. Therefore, examination of the income arising from such activities was intrinsically connected to the remand proceedings.

“Estimation of commission income for facilitating accommodation entries is intrinsically connected with the very issue restored by the Tribunal and cannot be said to be introduction of altogether new source of income.”

The Bench further observed that a private limited company would not ordinarily permit routing of large accommodation entries through its banking channels without deriving any financial benefit. Since the assessee admittedly acted as an intermediary for the movement of substantial funds through layered transactions, the inference that commission income was earned was reasonable.

The Tribunal also noted that the rate of 0.15% adopted by the Assessing Officer was based on judicial precedents relied upon by the assessee itself and, therefore, could not be regarded as arbitrary or excessive. “A private limited company cannot ordinarily permit routing of huge accommodation entries through its accounts without any monetary gain.”

Thus, finding no infirmity in the orders of the lower authorities, the Tribunal upheld the estimated commission additions and dismissed both appeals filed by the assessee.