2023 (4) TMI 1337 - AT - Income Tax

Estimation of commission income - assessee submitted that the AO has not brought anything on record, including comparable evidences to prove that the commission income earned by the assessee is @8% - CIT(A) made addition of commission income @ 1% of total receipts in bank account - HELD THAT - We observe that in the instant facts, despite ample opportunities, the assessee has not been able to furnish any details of parties from whom such deposits have been received, the modus operandi as to how commission income is earned by the assessee, the details of the parties from whom commission income has been received and has simply relied on judicial precedents in support of his contention that the commission income should be restricted to 0.1% to 0.15% of the total deposits/ credits in the bank account. We observe that the assessee is not maintaining any books of accounts and has no supporting documents/evidence to prove that he is earning commission income and if so, at what rate the same is being earned. In the instant facts, we observe that the assessee has submitted that it has earned commission income, however, no details regarding the commission income earned by the assessee was furnished to the Department during the course of assessment or appellate proceedings. As held in various judicial precedents highlighted above, if the assessee is submitting that he is liable to be taxed only on the commission income so earned, then the onus is on the assessee to provide the basis as to how such commission income has been arrived at and also to provide list of beneficiaries and other details so that whether the correct amount of commission income has been offered to tax may be verified by the Department. As assessee has not maintained any books of accounts, has not maintained cash book and bank book, he has not submitted any details of parties from whom the commission income has been earned, the assessee has not given any supporting documents to corroborate the correct rate at which commission income may be computed and the assessee has also not provided details/ list of parties who have made deposits to the tune of 158 crores in the bank accounts held by the assessee. The assessee has not come up with any details to substantiate its stand that the commission income may be restricted to 0.1% to 0.15%. Accordingly, looking into the instant facts, in the interests of justice, it would be reasonable to restrict the net commission income @0.25% of the total deposits in the bank account held by the assessee. In the result, ground number 1 of the assessee s appeal is partly allowed. Addition on account of cash deposit in the bank account - HELD THAT - We find force in the argument of the assessee that if the commission income has been separately determined on a percentage basis of the cash deposits appearing in the account of the assessee, then the aforesaid deposit of ₹ 3,21,730/- may be considered as part of income of ₹ 4,55,650/- declared by the assessee in it s return of income. Accordingly, this addition is hereby directed to be deleted.

Summary

Issues Involved:

1. Determination of the appropriate commission rate for the assessee's income.
2. Addition of unexplained cash deposits in the assessee's bank account.

Summary:

Issue 1: Determination of the appropriate commission rate for the assessee's income

The assessee filed a return of income for AY 2016-17 declaring total income of Rs. 4,55,650/-. The AO observed voluminous financial transactions in the assessee's bank accounts amounting to Rs. 157.98 crores. The assessee claimed to earn commission income at 0.05% from cheque discounting. However, the AO estimated the commission income at 8% due to lack of supporting evidence and added Rs. 12,65,84,000/- as commission income u/s 44AB. The CIT(A) reduced this rate to 1%, considering judicial precedents and the absence of detailed records from the assessee. The ITAT, upon review, noted the assessee's failure to provide necessary details and supporting documents and deemed a commission rate of 0.25% reasonable. Thus, the commission income was recalculated at 0.25% of the total deposits, partially allowing the assessee's appeal.

Issue 2: Addition of unexplained cash deposits in the assessee's bank account

The AO added Rs. 3,21,730/- as unexplained cash deposits u/s 68, which the CIT(A) upheld. The assessee argued that this amount should be considered part of the declared income of Rs. 4,55,650/-. The ITAT found merit in this argument, directing the deletion of the addition, thus allowing the assessee's appeal on this ground.

Department's Appeal:

The Department's appeal, primarily challenging the reduction of the commission rate from 8% to 1%, was dismissed. The ITAT's decision to compute the commission income at 0.25% rendered the Department's appeal moot.

Conclusion:

The assessee's appeal was partly allowed, and the Department's appeal was dismissed. The commission income was recalculated at 0.25% of the total deposits, and the addition of unexplained cash deposits was deleted.