DCIT Vs Clubside Dealcom Private Limited (ITAT Kolkata)
Kolkata ITAT: Conduit/Shell Company Cannot Be Taxed on Entire ₹36.53 Crore Accommodation Entries – Only 0.15% Commission Income Taxable
The assessee had raised ₹36.53 crore by issuing 1,82,650 equity shares of ₹10 each at a premium of ₹1,990 per share to 39 subscribers. During assessment, it furnished names, addresses, PANs, audited financial statements and bank statements of the subscribers. All the subscribers also responded to notices under Section 133(6) and furnished details regarding their business, source of investment, ITRs, share applications, allotment letters and banking transactions.
However, the directors of the subscriber companies were not produced in response to summons under Section 131. The AO therefore held that identity, creditworthiness and genuineness were not established and added the entire ₹36.53 crore as unexplained cash credit under Section 68.
The CIT(A) noticed a fundamental contradiction in the Department’s stand. In assessments for AYs 2013-14 to 2019-20 under Sections 153C/143(3), the Department itself had characterised the assessee as a “Jama Kharchi/paper/shell company” and a pass-through entity providing accommodation entries, and had treated its share capital, premium, investments and loans/advances as NIL. Yet, for AY 2012-13, the Department sought to treat the very same company as the beneficiary of accommodation entries and tax the entire ₹36.53 crore in its hands.
The ITAT agreed that the assessee was essentially a conduit/accommodation-entry provider and not the ultimate beneficiary. It relied, inter alia, on the Delhi High Court ruling in PCIT v. Vijay Conductors India Pvt. Ltd., which held that Section 68 addition of the entire accommodation entry cannot be made in the hands of a conduit entity.
The Tribunal, however, disagreed with the CIT(A) to the extent that he had deleted the entire addition without bringing any commission income to tax. Since an accommodation-entry operator earns income for providing such entries, the appropriate course was to estimate the commission/brokerage element rather than tax the entire flow of funds.
Accordingly, the ITAT held that no Section 68 addition could be made in respect of the entire ₹36.53 crore because the assessee was not the beneficiary of those amounts. Instead, it directed the AO to estimate taxable commission income at 0.15% of the total share capital/share premium accommodation entries.
Thus, instead of taxing ₹36.53 crore, only approximately ₹5.48 lakh (0.15%) would be brought to tax as estimated commission income. The Revenue’s appeal was partly allowed.
Key takeaway: Where the Department itself treats an assessee as a “Jama Kharchi”/shell company merely providing accommodation entries, it cannot simultaneously treat that conduit as the beneficial owner of the entire funds routed through it. The gross accommodation entries cannot be taxed under Section 68 in the conduit’s hands; only the income actually earned from providing those entries—here estimated at 0.15% commission-is taxable.
Cases Discussed:
- Himanshu Verma Vs. DCIT (ITAT), ITA No. 1627 to 1629/DEL/2015 and Ors. vide order dated 15.03.2019
- PR COMMISSIONER OF INCOME TAX vs VIJAY CONDUCTORS INDIA PVT. LTD (Delhi High Court), ITA 683/2015 dated 29-09-2015
- M/s Omni Farms Pvt.Ltd., Vs. Deputy Commissioner of Deputy Commissioner of Income Tax (ITAT), ITA No.3477/Del/2013 dated 28-01-2015
- Sanjay Kumar Garg Vs. ACIT, (2011) 12 taxmann.com 294 (Del)
- K. Gupta, Income Tax Settlement Commission, Principle Bench, New Delhi
- Manoj Aggarwal Vs DCIT, (2008) 113 ITD 377 (Del)(SB)
- M/s Goldstar Finvest (P) Ltd. Vs. ITO, ITA No. 4625/Mum/2005 Vs ITO
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the Revenue against the order of the Commissioner of Income -tax (Appeals), Kolkata 26, (hereinafter referred to as the “Ld. CIT(A)”] dated 04.09.2025 for the AY 2012-13.
