2012 (11) TMI 1197 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of commission income from demand drafts/pay orders.
2. Assessment of undisclosed investments.
3. Reasonableness of the commission rate applied.

Summary:

Issue 1: Treatment of Commission Income
The assessee contested the CIT(A)'s decision to treat commission income as 5% of the amount of drafts/pay orders. The Tribunal noted that the CIT(A) found the assessee instrumental in facilitating cash deposits and issuance of instruments, thus rejecting the assessee's claim of no connection with the demand drafts/pay orders. The Tribunal, however, deemed the 5% commission rate excessive and reduced it to 1%, stating that this rate would meet the ends of justice.

Issue 2: Assessment of Undisclosed Investments
A survey u/s 133A revealed that the assessee had undisclosed transactions with M/s. Durga Finance. The AO concluded that these transactions represented undisclosed investments, leading to significant additions for the years under consideration. The CIT(A) upheld the AO's findings but treated the transactions as commission income rather than direct purchases by the assessee.

Issue 3: Reasonableness of the Commission Rate
The Tribunal evaluated the reasonableness of the 5% commission rate applied by the CIT(A). It concluded that a 1% commission rate was more appropriate for the nature of the transactions involved. Consequently, the Tribunal directed the AO to restrict the addition to 1% of the amount of demand drafts/pay orders for each of the four years under consideration.

Conclusion:
The Tribunal partly allowed the appeals, reducing the commission income rate from 5% to 1% for the assessment years 1999-2000, 2000-01, 2003-04, and 2004-05. The order was pronounced in the open court.