Protective Addition Cannot Survive Once Substantive Addition Is Taxed Elsewhere: ITAT Grants Relief to Conduit Company

ACIT Vs B R R Securities Pvt. Ltd. (ITAT Delhi)

Protective Addition Cannot Survive Once Substantive Addition Is Taxed Elsewhere: ITAT Grants Relief to Conduit Company

The Delhi ITAT upheld the deletion of additions made in the hands of B R R Securities Pvt. Ltd., holding that where the Revenue itself treats a company merely as a conduit for routing accommodation entries and has already taxed the substantive income in the hands of the alleged entry operators, no separate protective addition can be sustained in the hands of the conduit company.

The case arose from a search conducted on the Jain Brothers group (Anand Kumar Jain and Naresh Kumar Jain). Based on seized tally data and other materials, the Assessing Officer alleged that B R R Securities Pvt. Ltd. was one of the entities used for providing accommodation entries. The AO treated credits aggregating to ₹4.12 crore received from various concerns as unexplained cash credits under section 68 on a protective basis and further added ₹1.03 lakh as commission income earned for providing such entries.

The CIT(A) found that the company was merely a conduit through which funds were routed from one party to another and that the actual beneficiaries had already been identified by the Investigation Wing. More importantly, the Revenue had already made and sustained substantive additions in the hands of Anand Kumar Jain and Naresh Kumar Jain, who were found to be controlling and operating these entities. Since the substantive income had already been assessed elsewhere, the protective addition in the company’s hands could not survive.

The Tribunal agreed with this reasoning and relied upon earlier decisions involving the same Jain group. It observed that once the Revenue itself accepts that the company acted only as a conduit and the substantive addition has attained finality in the hands of the persons actually controlling the accommodation entry operations, there remains no justification for taxing the same amount protectively in the hands of the conduit company.

The Tribunal also upheld the deletion of the commission addition, noting that the alleged commission income from accommodation entry activities had already been assessed in the hands of the Jain Brothers. Taxing the same commission again in the hands of the company would amount to duplication.

Accordingly, the Revenue’s appeals for AYs 2014-15 to 2017-18 were dismissed and the relief granted by the CIT(A) was affirmed.

FULL TEXT OF THE ORDER OF ITAT DELHI

The captioned appeals are filed by the Revenue and Cross-Objections are filed by the assessee against the different orders, all dated 26.03.2019 by Ld. Commissioner of Income Tax (A)-29, New Delhi [“Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of different assessment orders, all dated 19.12.2018 passed u/s 153C r.w.s. 153A/143(3) of the Act pertaining to Assessment Years 2014-15 to 2017-18 respectively.

2. The issues involved in all captioned appeals filed by the Revenue and Cross-objections filed by the assessee are common, therefore, they have been heard together and accordingly, adjudicated by a common order.

3. First, we take appeal of Revenue in ITA No. 4954/Del/2019 and Cross-objection of Assessee i.e. C.O.No.75/Del/2022 for AY 2014-15.

ITA No. 4954/Del/2019 & CO No.75/Del/2022 [AY 2014-15]

4. Brief facts of the case are that assessee company has filed its return of income on 24.09.2014, declaring income of INR 18,490/-. A search and seizure action was carried out in the case of Shri Anand Kumar Jain and Shri Naresh Kumar Jain (Jain Brothers) on 17.12.2015. During the course of search, from the possession of one Shri Kaushal Kumar, an employee of the Jain Brothers Annexure No.13, tally data (hard disk), ledger Name-AJ & Kt were found and seized. As the documents found during the course of search pertained to the assessee, therefore, satisfaction note was recorded by the AO of the person searched and on receiving the same, the AO of the assessee has recorded his satisfaction and on 29.12.2017 initiated the proceedings u/s 153C of the Act by issue of notice on 30.12.2017. In response, the assessee filed return of income on 12.01.2018, declaring the same income as was declared in the original return of income filed u/s 139(1) of the Act. The assessee is engaged in the business of non-banking financial company. The AO based on the documents found and seized during the course of search in the case of Jain Brothers concluded that the assessee has been used as one of the conduit for providing accommodation entries by Jain Brothers and various individuals and companies were identified as beneficiaries by the Investigation Wing. The funds were received by the assessee company from one of the company/individual managed and controlled by Jain Brothers and thereafter funds were transferred to various beneficiaries after charging commission. The AO accordingly, hold that the assessee has received funds of INR 4,12,37,962/- from 17 such companies which are paper companies managed and controlled by Jain brothers and therefore, credits so received remained unexplained and made the addition u/s 68 of the Act on protective basis. The AO further made addition of INR 1,03,095/- being commission @ 0.25% on the total credits as income of the assessee on substantive basis.

5. Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 26.03.2019, deleted the additions made by holding that the substantive additions have been confirmed in the hands of Shri Anand Kumar Jain & Shri Naresh Kumar Jain which are the persons admittedly, managed and controlled the assessee company and funds credited in the bank accounts of the assessee was actually pertained to them and further deleted the income added as commission by holding that the said commission was received and taxed in the hands of Shri Anand Kumar Jain & Shri Naresh Kumar Jain and thus, partly allowed the appeal of the assessee.

6. Aggrieved by the order of Ld. CIT(A), Revenue is in appeal before the Tribunal by taking various grounds of appeal mentioned in the appeal memo and assessee also filed cross objections.

7. Ground of appeal Nos. 1 & 2 raised by the Revenue challenging the deletion of addition of INR 4,12,37,962/- made on account of unexplained cash credit on protective basis and further deletion of addition of INR 1,03,095/- made as alleged commission income on substantive basis.

8. Heard the contentions of both parties at length and perused the material available on record. As per the submissions made by the Ld.AR for the assessee, identical facts were came up for consideration before the Co-ordinate Bench of Tribunal in the case of DCIT vs M/s. VKS Properties P. Ltd. in ITA No.8410 to 8412/Del/2019 and in O. Nos.100 to 104/Del/2022 wherein vide order dated 18.08.2023 the Co-ordinate Bench of the Tribunal has observed that the additions have been confirmed in the hands of the Shri Naresh Kumar Jain therefore, no protective addition is required to be made in the hands of the company. The Co-ordinate Bench further, observed that since the commission on such accommodation entries have already added in the hands of Shri Naresh Kumar Jain, no further addition could be made in the hands of the assessee. The relevant observations of the order of Co-ordinate Bench (supra) are as under:-

7. “We have heard the rival contentions and perused the case law cited by the Ld. AR for the assessee. We have gone through the impugned order of the Ld. CIT(A) and found that Ld. CIT(A) has elaborately discussed the issue in dispute and deleted the addition in dispute by observing as under:-

“….It is noticed that the appellant company has received funds from various concerns and transferred the same to the above mentioned companies/concerns immediately thereafter, and accordingly, appellant company is not beneficiary company. The above arrangement of funds is nothing but part of modus operandi of the accommodation entry provider to introduce the unaccounted funds of the beneficiaries in their respective bank accounts. Further, the AO also in the assessment order has observed that the appellant company was a conduit company operated by Sh. Naresh Jain and Anand Jain to provide accommodation entries to various beneficiaries. Accordingly, the addition in such cases can at best be that of commission earned on such accommodation entries. The commission income earned on providing accommodation entries through the appellant company have already been assessed by the AO in the hands of Sh. Anand Jain and Naresh Jain which has been confirmed by me in their respective appeals. Therefore, I am of the view that no further addition can be made in the hands of the appellant company under the facts as discussed above. Under the circumstances, the protective addition made by the AO of Rs. 12,63,58,536/- is directed to be deleted……. ”

7.1 From the above, it is noted that the commission income earned on providing accommodation entries through the assessee company have already been assessed by the AO in the hands of Sh. Anand Jain and Naresh Jain which has been confirmed by the Ld. CIT(A) in their respective appeals. Therefore, Ld. CIT(A) has rightly held that no further addition can be made in the hands of the assessee company and therefore, directed to delete the protective addition of Rs. 12,63,58,536/- made by the AO. We further find that the issue in the instant appeal is squarely covered by the Delhi Tribunal’s order dated 28.4.2023 passed in ITA No. 1318/Del/2019 (AY 2010-11) & Ors. in the case of Sh. Anand Kumar Jain vs. ACIT & Ors. wherein, on similar aspect and identical facts and circumstances, the Tribunal held that since the substantive addition has already been completed in the case of Sh. Naresh Kumar Jain, hence, no protective addition can be confirmed at this juncture in the case of the assessee i.e. Anand Kumar Jain in Revenue’s ITA No. 2890/Del/2019 (AY 2012-13) and accordingly dismissed the appeal of the Revenue.

7.2 In view of facts and circumstances of the present case and respectfully following the precedent, as aforesaid, we are of the considered view that Ld. CIT(A) has rightly decided the issue in favour of the Assessee and deleted the addition in dispute, after elaborately discussing the issue in detail, which did not require any interference on our part. Hence, we uphold the findings of the Ld. CIT(A) on the issue in dispute and accordingly reject the ground raised by the Revenue by dismissing the appeal of the Revenue.”

9. Ld. CIT(A) after appreciating these facts had deleted the additions by making following observations in Para 6 to 7.1 of its order which is reproduced as under:-

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10. Since the facts are identical which has been admitted by both the parties during the course of hearing before us and further considering the facts that the additions have been confirmed by Co-ordinate Bench in the case of Shri Naresh Kumar Jain on substantive basis thus there is no occasion to confirm the additions made in the hands of the assessee on Protective basis. Therefore, by respectfully following the order of Co-ordinate Bench of Tribunal in the case of DCIT vs M/s. VKS Properties P. Ltd. (supra), we find no error in the order of Ld. CIT(A) which is hereby, dismissed.

11. Since the assessee has not pressed Cross-objection, the same is hereby, also dismissed.

12. In the result, appeal filed by the Revenue and C.O filed by the assessee, both are dismissed.

ITA No.4955 to 4957/Del/2019 & C.O.No.76 to 78/Del/2022
[Assessment Year : 2015-16 to 2017-18]

13. In the above-mentioned paras, we decided the appeal of the Revenue in ITA No.4954/Del/2019 for Assessment Year 2014-15, under identical circumstances and find no error in the order of Ld. CIT(A) and dismissed the appeal of the Revenue. In these remaining appeals filed by the Revenue, both the parties fairly agreed that the facts in the captioned three appeals are similar to the facts in ITA No.4954/Del/2018 for AY 2014-15, thus, by following the aforesaid observations in ITA No.4954/Del/2018 for AY 2014-15 which are Mutatis Mutandis applicable to the facts of all these three captioned appeals filed by the Revenue. In view of the above, both Ground of appeal Nos. 1 & 2 raised by the Revenue in these captioned three appeals, are dismissed.

14. Since assessee company has not pressed captioned Cross-objections, the same are hereby, also dismissed.

15. In the result, all captioned 03 appeals filed by the Revenue and Cross Objections filed by the assessee, all are dismissed.

16. In the final result, all captioned appeals of the Revenue in ITA Nos.4954 to 4957/Del/2025 and all captioned Cross-objections of the assessee in C.O. Nos. 75 to 78/Del/2022, for Assessment Years 2014-15 to 2017-18] respectively, are dismissed.

Order pronounced in the open Court on 03.06.2026.