Jaydev Mahadev Arya Vs ITO (ITAT Pune)
Entire Bank Deposits Cannot Be Taxed as Income – ITAT Restricts Addition to 2% in Renukamata Society Cases
In a significant ruling involving the controversial Renuka Mata Multi State Urban Co-operative Credit Society, the Pune ITAT held that entire deposits in bank accounts cannot automatically be treated as unexplained income, especially when the assessee appears to be merely a conduit or commission agent in a larger accommodation entry network.
The assessee, engaged in agricultural commission business, faced huge additions across three assessment years on account of cash deposits made in accounts maintained with the Renukamata Society. The AO treated deposits of ₹32.25 lakh, ₹99.70 lakh and ₹2.93 crore respectively as unexplained income after rejecting the assessee’s explanation that the amounts represented business-related advances and cash circulation connected with agricultural equipment transactions.
The Tribunal took note of extensive findings from Investigation Wing reports and earlier judicial decisions which revealed that the Renukamata Society was allegedly functioning on a typical “Angadia / accommodation entry” model, where accounts of persons with meagre means were used for routing large volumes of funds. The Investigation Wing itself had observed that many account holders were merely name lenders and not the real beneficiaries of the funds flowing through such accounts.
Relying upon earlier decisions of Ahmedabad and Mumbai Benches, the ITAT observed that taxing the entire deposits would be unjustified when there was no evidence of corresponding assets, lavish expenditure, or actual enrichment in the hands of the assessee. The Tribunal accepted the principle that, in such accommodation entry cases, only a reasonable commission/profit element can be brought to tax.
While several earlier decisions had adopted commission rates ranging from 0.15% to 0.5%, the Pune ITAT, considering the peculiar facts of the case and the assessee’s failure to disclose the bank transactions in audited books, directed the AO to estimate income at 2% of the total deposits instead of taxing the entire deposits.
FULL TEXT OF THE ORDER OF ITAT PUNE
