V K Subramani – [2025] 178 taxmann.com 5 (Article)
Determination and consensus on computation of correct total income is a daunting task both for the taxpayers and the tax administration. We can say it is a never-ending debate. But the perseverance of all the stakeholders has to be lauded though it is concerned with money outflow for the payers and inflow for the tax gatherers. One of the dubious techniques used by the taxpayers is to introduce the undisclosed income by means of accommodation entries or book expenses to reduce the income-tax liability. The person getting the benefit of such accommodation entries when caught the provider or the facilitator of such crime is also caught by tracing the trail.
This refresher takes note of a recent decision in the case of CIT v. Buniyad Chemicals Ltd. [2025] 172 taxmann.com 462/304 Taxman 560 (Bom.) where the person providing accommodation entries was punished severely by the court.
1. Legal Provision – Cash Credit [Section 68]
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:
Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless, –
(a) the person in whose name such credit is recorded in the books of such assessee also offers explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be unsatisfactory:
Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.
2. Facts of Buniyad Chemicals Case
The assessee-company filed its ITR for the assessment year 2009-10 admitting ‘nil’ as total income. It was selected for scrutiny and a notice under section 142(1) was issued. On 28th December 2011, an assessment order under section 143(3) was passed assessing the total income of the assessee at Rs.1073.52 lakhs. In the said order, it was stated that the assessee had prepared profit and loss account and filed tax audit report. The total income assessed represented an addition under section 68 of the Act amounting to Rs.1073.52 lakhs under the head ‘Income from other sources’. The said addition was made on the ground that the credits appearing in the disclosed and undisclosed bank accounts of the assessee were unexplained, and since no details or explanation regarding the identity, source and genuineness of such deposits were submitted, the same were treated as unexplained cash credits.
During the assessment proceedings, the assessee admitted that it was merely an accommodation entry provider, and the receipts and payments which appear in the bank accounts relate to the customers from whom amounts were received for giving accommodation entries. However, from the assessment order, it is evident that no details of such customers were provided to the Assessing Officer.
3. Legal Precedents
In CIT v. Bhaichand N.Gandhi [1982] 11 Taxman 59/[1983] 141 ITR 67 (Bom) there was a credit in the bank account of the assessee and it was not reflected in the books of account of the assessee. The assessee contended that this amount credited in the bank account was not an amount credited in the books of account and therefore the pass book was not a book maintained by the assessee for applying section 68 of the Act. The court held that the passbook supplied by the bank is only a copy of its constituent’s account in the books maintained by it. It could not be regarded as a book of the assessee for the purpose of taxing the same under section 68 of the Act. It relied on the precedent in the case of Baladin Ram v. CIT [1969] 71 ITR 427 (SC).
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