HC Upholds Sec. 68 Additions on Company Providing Accommodation Entries as It Failed to Explain Source of Bank Deposits

Case Details: Principal Commissioner of Income-tax vs. Buniyad Chemicals Ltd. - [2025] 172 taxmann.com 462 (Bombay)

Judiciary and Counsel Details

• M.S. Sonak & Jitendra Jain, JJ.
• Suresh Kumar, for the Petitioner.
• Aditya Sharma & M.A. Narvekar, Advs. for the Respondent.

Facts of the Case

The assessee was a company formed and registered under the Companies Act. During the scrutiny proceedings, the assessee admitted that it was engaged in the business of providing accommodation entries. However, the details of the credits in the disclosed and undisclosed bank accounts of the assessee were not furnished. In response, the assessee contended that the credits in its bank accounts belong to the customers to whom the accommodation entries were given.

The Assessing Officer (AO) contended that the assessee failed to explain the credit in its bank account. Thus, it cannot be ascertained whether the credits belong to the customer of the assessee. The AO added to the assessee’s income and treated the same as unexplained cash credit under section 68. On appeal, CIT(A) reversed the order of AO and made additions only in the case of identified beneficiaries, and confirmed additions were made in the case of unidentified beneficiaries.

The Tribunal then reversed the order of CIT(A), and the matter reached the Bombay High Court.

High Court Held

The High Court held that Section 68 requires an assessee to explain the credits by providing the identity, creditworthiness, and genuineness. It was incumbent upon the assessee to give the details of these credits because unless the details of these credits are provided, it cannot be ascertained as to whether the credits appearing belong to the customer of the assessee.

Merely because the assessee states that he is only an accommodation entry provider and, therefore, the credits in the assessee’s bank accounts belong to the customers to whom the accommodation entries were given cannot absolve the assessee from its obligation to provide the details. It is one thing to boldly and even proudly admit that a racket for providing accommodation entries was being operated but quite another to evade statutory liability or taxes based upon such an assertion.

Even in the absence of provisions of Section 68, the credits appearing in the bank accounts of an assessee could be added as unexplained income if such an assessee fails to explain the details of the source from which such deposits are made. The submission of the assessee that, in the case of many deposits, he does not know the customer who has deposited money in his bank account is a submission that has to be rejected at the outset. Any law does not support such a contention and cannot appeal to the conscience of the Court.

Therefore, the assessee cannot act as a shield for beneficiaries by making such a submission and simultaneously refuse to pay taxes for the unexplained amounts in its bank accounts.

List of Cases Reviewed

• PCIT v. Alag Securities Pvt. Ltd. Income Tax Appeal No. 1512 of 2017
• CIT (Pune) v. Bhaichand H. Gandhi [1983] 141 ITR 67 (Para 26 and 32) distinguished.
• Sheraton Apparels v. CIT (2002) 256 ITR 20 (Para 33) followed.
• Order of the Income-tax Appellate Tribunal in Appeal No.7447/M/2012. dated 30-5- 2017 partly reversed.

List of Cases Referred to

• CIT (Pune) v. Bhaichand H. Gandhi (1983) 141 ITR 67 (para 12)
• Sheraton Apparels v. Asstt. CIT [2002] 123 Taxman 238/256 ITR 20 (Bombay) (para 33)
• Arunkumar J. Muchhala v. CIT [2017] 85 taxmann.com 306/250 Taxman 362/399 ITR 256 (Bombay) (para 36).