MCW Infotech Private Limited vs DCIT, Central Circle-26 Delhi

PER MANISH AGARWAL, AM:

Both appeals are filed by the assessee against the separate order(s) of the Ld. Commissioner of Income Tax (Appeals)-25, Delhi [‘CIT(A)’ in short], both dated 02.02.2026 in Appeal No. CIT(A), Delhi-29/11159/2015-16 and Appeal No. CIT(A), Delhi-29/10786/2016-17 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) arising out of the assessment order dated 20.02.2024 passed u/s 143(3)/153C of the Act for Assessment Years 2016-17 and 2017-18 respectively.

As the facts in both the appeals are identical which fact is fairly admitted by both the parties and therefore, both the appeals are heard together and decided by a common order for sake of convenience.

First we take the appeal of the assessee for AY 2016-17 in ITA No. 7120/Del/2026.

Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of operating Two LPG Bottling Plants, one at Mirzapur, Uttar Pradesh for Hindustan Petroleum Corporation Limited and one at Samastipur, Bihar for Bharat Petroleum Corporation Limited and has filed its return of income under section u/s 139(1) of the Act declaring total income at Rs. 65,013/- on 31.03.2017. A search and seizure proceeding under section 132 of the Act was carried out on the Alankit Group, Sh. Alok K Agarwal, his son Ankit Agarwal and some of the close associates and key employees of Sh. Alok K Agarwal on 18.10.2019, and certain documents were found and seized containing certain entries related to the assessee. Based on such material, AO of the person searched has recorded the satisfaction and handed over the material to the AO of the assessee who than recorded his satisfaction and issued the notice u/s 153C of the Act. In response to notice issued u/s 153C of the Act, the assessee has filed its return of income for the year under consideration on 30.07.2022 at income of Rs. 1,43,524/-. As per the seized material, it is clearly established that Sh. Alok K Agarwal, has facilitated acquisition of shares of several shell entities for benefit of his own group as well as his known associates and clients. He has received and provided accommodation entries and also facilitated bogus short-term capital loss to set off long-term capital gains to various persons through several entities managed and controlled by him and his associates. The Ld. AO was of the view that the assessee had taken accommodation entry against unaccounted cash or otherwise as tabulated below for the years under consideration:

The AO treated the above transactions as unexplained money u/s 69A of the Act and made the addition of Rs. 1,37,32,990. The AO further held that the assessee has paid 3% commission for obtaining such accommodation entries which comes to Rs. 4,11,990 paid out of unaccounted sources and therefore treated the same as unaccounted Expenditure U/s 69C of the Income Tax Act and added the same in total income.

Against the said order, the assessee preferred first Appeal before the ld. CIT(A) who dismissed the appeal filed by the assessee.

Aggrieved with the order of learned CIT(A), the assessee is in present appeal before the Tribunal by taking following grounds of appeal:

Before us, Ld. AR contended that cash transactions of Rs. 61,45,320/- and Rs. 75,87,670/- alleged as carried out by the assessee did not pertain to the assessee. The AO ignored the fact that one entry is in debit side of the ledger and the other entry is in credit side of the ledger and incorrectly held that the assessee company has accepted /given the cash loan from Alankit Group through Pushpinder Goel and added both the debit and credit entries together as unexplained money u/s 69A of the Act. The AO himself has stated that assessee has accepted loans from Alankit Group and even if the said loan remains unproved, it cannot be treated as the Unexplained Money of the assessee. He further stated that incidentally in the subsequent year, the account of the assessee is debited by Rs. 14,42,350/- and if both these debit entries are added, it comes to 75,87,670/- and matches with credit entry of Rs. 75,87,670/- and the net balance is zero. However, the AO on his own whims and fancies had clubbed together the debit and credit entries and made the unlawful addition of Rs. 1,37,32,990/- as unexplained money u/s 69A of the Act. Ld. AR submits that the most important fact which has skipped attention of the AO was that for unexplained cash entry, the modus operandi is Corresponding RTGS or Capital Gain which is missing in the present case. He thus prayed for the deletion of the addition made.

Per Contra, the Ld. Sr. DR relied upon the order of the lower authorities and submits that the proceedings were initiated u/s 153C of the Act based on the material found in possession of third party and assessee has not denied this fact. He thus requested to confirm the orders of lower authorities.

Having heard both the parties and perused the material available on record, we find merit in the contentions raised by the learned AR for the assessee. The AO has made the addition of Rs.1,37,32,990/- u/s 69A of the Act by simply aggregating the debit entry of Rs 61,45,320/- and credit entry Rs 75,87,670/- appearing in the ledger found/seized from the possession of Sh. Pushpendra Goel. This mechanical approach of adding up both sides of a running ledger account cannot be sustained. In any account or cash book, the entries represent a continuous flow of transactions where funds are either received or paid back. Aggregating both the receipts and payments leads to double taxation of the same funds, which is fundamentally flawed. If the ledger is to be relied upon to tax the assessee, it must be looked at in its entirety. The peak credit or the net difference between the total debits and credits represents the actual peak investment or unexplained quantum, if any.

In the present case, the difference between the total credit entries of Rs.75,87,670/- and total debit entries of Rs.61,45,320/- is of Rs.14,42,350. Therefore, even if the seized ledger is taken as true and correct, the maximum addition that could logically be contemplated is restricted to this net difference of Rs.14,42,350/- and definitely not the gross total of both sides.

Where a seized document reflects both receipts and payments, the entire peak or the net balance should be considered for addition, rather than the gross aggregate of all entries. Consequently, the action of the AO in clubbing the debit and credit entries together to arrive at an addition of Rs.1,37,32,990 is legally untenable. We, therefore, direct the AO to delete the gross addition and restrict the addition, to the net difference of Rs. 14,42,350/-. As a natural corollary, the consequential addition of Rs.4,11,990 made under Section 69C towards alleged commission at 3% also stands proportionately reduced and restricted to the net difference amount.

In the result appeal of the assessee is partly allowed.

Now we take the appeal of the assessee for AY 2017-18 in ITA NO. 2828/De/2026.

The assessee has raised following grounds f appeal:

Before us both the parties fairly admitted that the facts of this year are identical and based on the same ledger account the AO has made the addition in this year also where the debit and credit entries have been taken together. Since the debit entry represent the credit entry of preceding year and the differential amount of 14,42,350/-has already be upheld in preceding year which is the credit entry in this year. Therefore, we though uphold that the assessee has entered into the transactions of accommodation entries, however, no separate or further addition is required to be for the captioned assessment year and the same is telescoped out of the addition made in preceding year. Accordingly, we deleted the addition made this year. All grounds of the appeal are partly allowed.

In the final result both the appeals of the assessee are pertly allowed.