2015 (10) TMI 791 - AT - Income Tax

Assessment of commission income of providing accommodation entires - CIT(A) estimated the income @5% out of Hawala transactions - - Held that - The Assessee was receiving some commission for providing accommodation entries. He has also noted that Assessee as well as Shri Ashish Patel of Radhe group had claimed that Assessee was entitled for commission at 1.5% of the bills raised. Before us, no material has been brought on record by either of the parties to controvert the aforesaid findings of CIT(A). We also find that CIT(A) has concluded that Assessee must have earned something more that was admitted during the search proceedings and the Assessee was a Hawala giver and in such Hawala transactions, the normal commission charged by Hawala was 5% of the value of such transactions. We find that CIT(A) has not brought on record any material to arrive at the basis for working out the commission at 5% and at the same time the Assessee and the Revenue has also not brought on record any material to support their respective contentions. In view of the aforesaid and considering the totality of the facts, we are of the view that the ends of justice shall be met if an estimation of income earned by the Assessee is made in the present case. We are of the view that an estimate of 2.5% of the total amount receipts received by the Assessee would meet the ends of justice. We thus direct accordingly and thus these grounds of the Assessee and Revenue are partly allowed - Decided partly in favour of assessee. Penalty under section 271(1)(c) - CIT(A) giving relief of 95% of penalty imposed - Held that - CIT(A) has held that for levy of penalty it should be found that all the conditions of section 271(1)(c) must exist before levy of penalty and that it is for the Revenue to establish that such conditions exist. We find that there is no such finding recorded by CIT(A) in the impugned order passed by him that all the conditions for levy of penalty were fulfilled before levy of penalty in this case and that Revenue has established that such conditions exist. We find that the only finding recorded by CIT(A) for confirming the penalty in this case was that Assessee was abating in tax evasion. The act of abatement in tax evasion for some other person could not be made the basis for levy of penalty u/s. 271(1)(c) on the Assessee. We further find that CIT(A) has passed a cryptic order. On these facts of the case, we are of the view that the impugned order could not be sustained. However in the interest of justice to both the parties, we consider that it shall be appropriate to restore the issue of penalty u/s. 271(1)(c) to the file of A.O to pass a de novo order in accordance with law after providing reasonable opportunity of hearing to the Assessee and A.O shall record a clear finding on the issue that the conditions for levy of penalty u/s. 271(1)(c) exists and proved in this case - Decided in favour of revenue statistical purpose.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Search operation and findings.
3. Role of the Assessee in the transactions.
4. Addition of income and disallowance of expenses.
5. Penalty under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Delay in Filing the Appeal:
The Registry informed that there was a delay of 2 days in filing the appeal. The Assessee made an application for condonation of delay and filed an affidavit explaining the reason for the delay. Considering the submissions, the delay was condoned and the appeals were admitted.

2. Search Operation and Findings:
A search operation under Section 132 of the Income Tax Act was conducted in the Radhe group of cases, including the Assessee. Various documents were seized, revealing that Shri Ashish Patel of Radhe group was a mediator for the Sahara group in acquiring land. The methodology involved Sahara group sending cheques/DDs to Shri Ashish Patel, who would then pay part of the amount to landowners and claim the remaining as land development or Banakhat expenses. It was discovered that no actual development work was done, and the Assessee firm was one of the entities created to claim these bogus expenses.

3. Role of the Assessee in the Transactions:
The Assessee firm was found to be a "hawala giver," providing accommodation entries for siphoning funds under the guise of development expenses. The Assessee received payments for land development but immediately withdrew the same amount in cash, indicating no actual work was done. The CIT(A) concluded that the Assessee was merely a paper entity receiving commission for providing these entries.

4. Addition of Income and Disallowance of Expenses:
The Assessing Officer (AO) considered the entire amount of Rs. 2,05,09,754/- as the Assessee's income and disallowed all claimed expenses as bogus. The CIT(A) partially upheld the AO's decision but reduced the taxable income to 5% of the total receipts, considering it a reasonable commission for the Assessee's role. The Tribunal further reduced this estimation to 2.5%, finding it more appropriate given the circumstances.

5. Penalty under Section 271(1)(c) of the Income Tax Act:
The AO levied a penalty of Rs. 7,19,32,874/- under Section 271(1)(c) for the quantum additions made. The CIT(A) upheld the penalty but reduced it to 100% of the tax sought to be evaded. The Tribunal found that the CIT(A) did not record a clear finding that all conditions for penalty were met and remitted the issue back to the AO for a de novo order, directing the AO to provide a clear finding on the existence of conditions for penalty.

Conclusion:
The appeals were partly allowed, with the Tribunal directing an estimation of 2.5% of the total receipts as the Assessee's income. The penalty issue was remitted back to the AO for a fresh decision. The Tribunal's decision was based on a thorough examination of the facts, search findings, and the roles of the parties involved.