The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that where alleged bogus sales through accommodation entry providers are established, the addition should be confined to a lump-sum gross profit (GP) estimation of 1% or the GP declared by the assessee in its books, whichever is higher, instead of applying a higher commission rate.
The bench of Satbeer Singh Godara (Judicial Member) and Sanjay Awasthi (Accountant Member) has observed that once the transactions had already been treated as bogus, there was no justification for applying an arbitrary commission percentage without adequate supporting evidence.
The cross appeals were filed by the assessee and the Income Tax Department relating to Assessment Years 2018-19 to 2021-22, arising from proceedings initiated under Section 153C of the Income-tax Act, 1961. The appeals challenged the orders of the Commissioner of Income Tax (Appeals), Delhi, dated October 9, 2025.
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The dispute originated from a search conducted under Section 132 in the M/s K.K. Spun Group. During the search, the Income Tax Department allegedly recovered incriminating material indicating that the assessee had obtained bogus sales entries through an organized accommodation entry network operated by the searched entities.
Based on the seized material, the Department initiated proceedings under Section 153C against the assessee and completed assessments on March 30, 2024, making additions by treating sales routed through the searched entities as accommodation entries.
Before the Tribunal, the assessee’s primary legal contention was that the entire assessment deserved to be quashed because no valid satisfaction note under Section 153C had been recorded before initiating proceedings.
The Tribunal, however, rejected this argument. It observed that both the Assessing Officer and the Commissioner (Appeals) had consistently recorded that the seized material pertained to the assessee and specifically related to alleged bogus sales transactions routed through the searched entities.
Since the material recovered during the search was found to relate directly to the assessee, the Tribunal upheld the initiation of proceedings under Section 153C and declined to interfere with the jurisdiction exercised by the tax authorities.
For Assessment Year 2018-19, the Assessing Officer found that the assessee had recorded sales of approximately ₹7.38 crore through entities belonging to the K.K. Spun Group.
Treating these transactions as accommodation entries, the Assessing Officer estimated the commission element at 6.9%, resulting in an addition of nearly ₹50.98 lakh. Similar additions were made for the remaining assessment years.
The Commissioner (Appeals) accepted that some addition was warranted but found the Assessing Officer’s commission rate of 6.9% to be excessive.
After considering judicial precedents where commission on accommodation entries had generally been estimated between 1% and 1.5%, and taking into account the assessee’s disclosed gross profit, the CIT(A) reduced the estimated commission to 3% of the disputed sales and directed recomputation of income accordingly.
The Tribunal agreed with the lower authorities that the material gathered during the search, coupled with subsequent inquiries, sufficiently established that the impugned sales routed through the K.K. Spun Group were accommodation entries.
Accordingly, it upheld the finding that the disputed sales were bogus in principle.
However, the Tribunal found that the 3% commission rate adopted by the CIT(A) was not supported by any proper segmental comparables or objective basis.
Taking into consideration the totality of facts and circumstances, the Bench concluded that a more reasonable approach would be to estimate the gross profit on such disputed sales.
The Tribunal accordingly directed that the addition should be restricted to 1% of the disputed turnover or the gross profit already declared in the books, whichever is higher.
The Bench also clarified that this estimation was made in the peculiar facts of the present case and should not be treated as a precedent for other matters.
The ITAT partly allowed all four appeals filed by the assessee, granting further relief by reducing the quantum of additions.
At the same time, it dismissed all four cross appeals filed by the Revenue, thereby rejecting the Department’s plea to restore the Assessing Officer’s higher addition based on a 6.9% commission estimation.
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