2015 (1) TMI 313 - AT - Income Tax

Ascertaining Income from commission business - Addition of unaccounted cheque deposit - Held that - With respect to the addition of ₹ 3,84,734 and ₹ 3,98,750, the assessee had explained the transactions when a show-cause notice was issued to the assessee and had clearly brought to the notice of the AO about the nature of mistakes that were committed by the accountants of the assessee. The accountants had by oversight wrongly recorded the names of the firms from whom the assessee had received. As the assessee deals with a number of traders and the volume is large, the mistakes committed by the accountants of the assessee seem to be genuine. Further, mere wrong recording of names of the persons/firms who issued cheques does not ipso facto warrant addition thereof when the AO has enquired with M/s. Vamshi Parboiled Rice Mill and M/s. Manikanta Concerns. Since the errors committed by the accountants are clerical and inadvertent in nature, we delete the addition of ₹ 3,84,734 and ₹ 3,98,750. CIT(A) has observed that the sales and purchases effected by the assessee on which commission was earned was quantified at ₹ 8,53,68,651. However, the CIT(A) held that the amount which was taken as wrong credits in the books to the extent of ₹ 30,26,904 is to be increased and the turnover would be ₹ 8,83,95,556 and the gross turnover would be ₹ 8,83,95,556 on which the commission is to be calculated by at 3%. Taking note of the submissions of the learned counsel for the assessee that he had wrongly stated in the written submission that the rate of commission is at 2% of the turnover whereas actually it should be 0.2%, we are of the opinion that the order of the CIT(A) estimating the commission at 3% on the gross turnover cannot be accepted. We find the actual extract for the commission received in the present assessment year has been produced by the assessee at pages 31 to 62 of the Paper Book. We also find that the commission received is recorded in the statement is about 0.5%. Hence in these circumstances, we deem it fit to restore the issue to the file of the AO to factually verify the commission payment received & determine the rate of commission on the turnover as per the books of the assessee - Decided partly in favour of assesse.

Summary

Issues:
1. Disallowance of unaccounted cheque deposits in the bank.
2. Disallowance of unaccounted deposit in the bank.
3. Calculation of commission on unaccounted transactions.
4. Verification of commission percentage received.
5. Assessment of turnover and commission rate.

Analysis:
1. The assessee filed the return of income admitting an amount but faced additions/disallowances by the AO. The CIT(A) considered clerical errors and directed to calculate commission on unaccounted transactions at 3%.
2. The CIT(A) observed discrepancies in the recording of transactions but concluded that the errors did not impact the profits. The amounts were considered as unaccounted transactions for commission calculation.
3. The CIT(A) directed the AO to recompute the profit by calculating commission on the increased turnover due to the wrong credits in the books.
4. The assessee contended that the commission received was less than stated by the CIT(A). The Tribunal found discrepancies in the commission rate and ordered a factual verification by the AO.
5. The Tribunal allowed the appeal for statistical purposes, directing the AO to verify the commission payment received and determine the rate of commission on the turnover as per the books of the assessee.

This judgment highlights the importance of accurate recording of transactions, the impact of clerical errors on assessments, and the need for factual verification in determining commission rates. The decision emphasizes the role of the AO in verifying details and ensuring accurate calculations for fair assessments.