Understanding Accommodation Entry

Definition

An accommodation entry is essentially a paper transaction designed to disguise unaccounted or unexplained money as legitimate income. It is a method often used to give a lawful appearance to funds that are otherwise undisclosed.

How It Works

• Entry operators act as intermediaries.
• They accept cash from the assessee (the person trying to conceal income).
• In return, they provide cheque, demand draft, or RTGS entries showing the money as if it came through banking channels.
• This creates the illusion of a genuine transaction, even though no real economic activity has taken place.

Key Characteristics

• No real substance: The transaction exists only on paper.
• Purpose: To convert unaccounted income into ostensibly legitimate receipts.
• Appearance of legality: Banking records make it look genuine, but the underlying reality is false.

Contrast With Genuine Transactions

In the ITAT Ahmedabad case (Soni):

• The assessee sold 350 grams of gold for ₹11,27,000, including service tax.
• The sale was supported by bill records, banking transactions, and service tax compliance.
• The tribunal noted that the transaction was genuine, routed through banking channels, and backed by documentation.
• Since the Revenue failed to produce contrary evidence, the addition under Sections 68/69A (which deal with unexplained cash credits and unexplained money) was deleted.

Why It Matters

Courts and tax authorities distinguish between:

• Accommodation entries → sham transactions used to launder undisclosed income.
• Genuine transactions → supported by verifiable records, banking channels, and compliance.

In this case, the ITAT concluded that the Revenue’s allegation of accommodation entry was unsupported, and the assessee’s appeal was allowed.