No Commission Taxable in Hands of Shell Entity When Assessed in Entry Operators’ Names

Assistant Commissioner of Income Tax vs. Purus Marketing Pvt. Ltd.

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that no separate addition for commission income can be made in the hands of a pass-through/shell entity when such income has already been taxed in the hands of key entry operators.

The decision relates to the appeals of the Revenue against Purus Marketing Pvt. Ltd., a company allegedly used by entry operators Shri Anand Kumar Jain and Shri Naresh Kumar Jain for providing accommodation entries through various layers of entities.

Background: What Triggered the Litigation?

• The assessee filed regular returns from AY 2012–13 to 2016–17, with low declared incomes.
• Based on search proceedings of entry operators, the AO invoked Section 153C and made protective additions of the entire bank credits in the assessee’s accounts, totaling over ₹91 crore across five years.
• Additionally, commission income @ 0.25% on those credits was taxed substantively in the hands of the assessee.

CIT(A)’s Findings Upheld by ITAT

The CIT(A) had deleted both the:

1. Protective additions of unexplained credits under Section 68
2. Substantive addition of commission income

The Tribunal affirmed this decision, highlighting:

• The assessee was merely a shell company used for routing accommodation entries.
• The AO had already identified beneficiary entities, and shared details with their AOs for taxing in their hands.
• Commission income was already taxed in the hands of the main entry operators (Jains).
• Taxing it again in the shell entity’s hands would amount to double taxation.

Precedents Relied Upon

The assessee’s counsel cited several cases, including:

• Zed Enterprises Pvt. Ltd. [ITA Nos. 208–212/Del/2022]
• Zen Tradex Pvt. Ltd.
• Naresh Kumar Jain [entry operator himself]
• Shiviji Garments, Round Square Exim, Nine Corporate Inception, etc.

The Tribunal held that the facts were identical and followed the same legal reasoning.

Key Ratio Decidendi

“Since the commission income has already been assessed in the hands of the entry operators, no separate addition can be made in the hands of conduit companies acting as pass-through entities.”

Final Verdict

• All 5 appeals by the Revenue — dismissed
• All 5 cross objections by the assessee — dismissed as not pressed
• The Tribunal held the CIT(A)’s reasoning correct and based on well-settled principles

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