2018 (9) TMI 1989 - AT - Income Tax

Estimated commission of accommodation book entries - Addition @ 10% by AO - CIT(A) accepted contentions of the assessee but reduce estimation of income to @ 2% of total amount of accommodation entries - HELD THAT - We observe that the estimate provided by the appellant that from such alleged transactions of accommodation entries the assessee received @ .03% to 1% benefit was on very lower side looking into the activities and the risk undertaken by the assessee and thus the same was rightly dismissed by the ld. first appellate authority. Estimation of commission of 2% of total accommodation entries are concerned the ld. CIT(A) noted that the payer M/s. Rosy Royal Minerals derived benefit of 6.7% of total amount of alleged entries and taking a reasonable estimate of commission thereon CIT(A) reduced and restricted the addition to 2% of total amount which is quite reasonable and justified. In view of above we are in agreement with the observation and conclusion drawn by the first appellate authority and hence we are unable to see any valid reason to interfere with the same. Estimating of income of the assessee @ 2% as against 10% made by A.O. on the aggregate unexplained cash deposits in the bank accounts - AY 2011-12 - HELD THAT - We are of the view that the estimate adopted by the ld. CIT(A) @ 2% of total deposits is excessive and the contention of the ld. AR that income from these deposits is 0.15% is also on very lower side which is also not acceptable. Therefore taking a balancing and reasonable approach we direct the AO to estimate the commission income from these deposits which are mainly pertaining to the business of discounting of cheques/DD @ 0.50% of total deposits covering up all the possible leakages of Revenue in this regard. Conclusion drawn by the ld. CIT(A) is modified.

Summary

Issues Involved:
1. Estimation of commission income by CIT(A) at 2% versus 10% by AO.
2. Unexplained cash deposits and their treatment.
3. Rejection of books of accounts and estimation of income.
4. Credit for income shown against accommodation bills.
5. Estimation of commission for accommodation entries in civil construction work.
6. Estimation of income from draft/cheque discounting and RTGS facility.

Detailed Analysis:

1. Estimation of Commission Income by CIT(A) at 2% versus 10% by AO:
The Revenue challenged the CIT(A)'s decision to estimate the commission income of the assessee at 2% instead of 10% as determined by the AO. The CIT(A) had reduced the AO's estimation on the grounds that the 10% estimation was excessive and not a reasonable estimate. The CIT(A) observed that the nature of accommodation entries and the associated risk justified a lower commission rate. The tribunal upheld the CIT(A)'s decision, agreeing that the 2% estimation was reasonable and justified, considering the benefit derived by M/s. Rosy Royal Minerals.

2. Unexplained Cash Deposits and Their Treatment:
The Revenue contested the CIT(A)'s reduction of the AO's estimation of income from unexplained cash deposits in bank accounts from 10% to 2%. The AO had rejected the books of accounts and estimated the commission income from discounting cheques at 10%. The CIT(A) reduced this to 2%, considering the difficulty in computing the benefit from money transfer activities and the varying profit elements in different types of deposits. The tribunal found the 2% estimation excessive and directed the AO to estimate the commission income at 0.50% of total deposits, balancing the interests of both parties.

3. Rejection of Books of Accounts and Estimation of Income:
The AO rejected the books of accounts under section 145(3) of the Income Tax Act due to the assessee's failure to produce necessary documents. The CIT(A) and the tribunal upheld this rejection. The tribunal noted that the assessee did not challenge the rejection of books before the CIT(A), leading to the finality of the AO's findings. The tribunal agreed with the CIT(A)'s approach to estimate income based on comparable cases and the nature of the assessee's business.

4. Credit for Income Shown Against Accommodation Bills:
The assessee argued that the CIT(A) erred in not giving credit for income shown against accommodation bills for labor charges. The tribunal dismissed the assessee's cross-objection, aligning with the CIT(A)'s estimation and concluding that the credit for income was appropriately considered in the overall estimation.

5. Estimation of Commission for Accommodation Entries in Civil Construction Work:
The Revenue argued that the CIT(A) erred in estimating the commission at 2% for accommodation entries related to civil construction work, as opposed to the AO's 10% estimation. The CIT(A) had reduced the addition from ?1,21,87,000 to ?24,37,400, considering the nature of activities and the risk involved. The tribunal upheld the CIT(A)'s decision, finding the 2% estimation reasonable and justified.

6. Estimation of Income from Draft/Cheque Discounting and RTGS Facility:
The assessee contended that the CIT(A)'s estimation of income at 2% from draft/cheque discounting and RTGS facility was excessive. The tribunal considered the varying nature of deposits and the difficulty in segregating different types of activities. It found the 2% estimation excessive and directed the AO to estimate the commission income at 0.50% of total deposits, considering the predominant nature of the business and potential unaccounted turnover.

Conclusion:
The tribunal upheld the CIT(A)'s estimations in most respects but modified the estimation of commission income from unexplained cash deposits to 0.50% of total deposits. The appeals of the Revenue and the cross-objections of the assessee were dismissed, except for the partial allowance of the assessee's cross-objection regarding the estimation of income from draft/cheque discounting and RTGS facility. The tribunal directed the AO to re-compute the addition accordingly.