Registered NBFC Can’t Be Treated as Accommodation Entry Provider: ITAT

The assessee, The Index Securities & Research Pvt. Ltd., an RBI-registered NBFC, filed its return for AY 2016-17, declaring a business loss. The assessment was reopened based on information from the Investigation Wing alleging that the assessee was involved in providing accommodation entries linked to an entry operator.

The Assessing Officer treated the assessee as an entry provider, estimated commission income at 2% on alleged transactions of Rs. 4.97 crore, and also disallowed bad debts of Rs. 2.75 crore, besides another small addition.

The CIT(A) deleted the additions relating to commission income and bad debts, holding that the assessee was carrying on genuine NBFC business with substantial interest income in earlier and subsequent years. Aggrieved, the Revenue filed an appeal before the ITAT.

Issue Raised: Whether the assessee could be treated as a paper company providing accommodation entries justifying estimation of commission income, and whether the bad debts written off were liable to be disallowed.

ITAT Decided: The ITAT dismissed the Revenue’s appeal. It held that the assessee was a registered NBFC earning substantial interest income over several years and its audited business results had consistently been accepted by the Department. Merely because directors were described as “paper directors” or shareholders exercised control, the company could not be branded as a paper entity providing accommodation entries. The Tribunal also relied on earlier coordinate bench and High Court decisions where the genuineness of the assessee and connected entities had already been upheld.

The Tribunal noted that the assessee had furnished PAN, addresses and other details of debtors and that the CIT(A)’s findings were supported by record. Thus, deletion of additions towards commission income and bad debts was upheld, and the Revenue’s appeal was dismissed.

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