2016 (4) TMI 1042 - AT - Income Tax

Determination of income - assessee is a commission agent derived income from real estate activities - Held that - From the record, it is clear that no commission agent or even the person dealing with the real estate can earn @ 25% as income from the business. On careful evaluation of the return of income, assessee had offered to tax 25% as net income from the commission earned from real estate activities and not from gross receipts. First we need to arrive what will be the income earned from the real estate business as commission. AO has treated 25% as commission, which cannot be proper in the normal course of business. Moreover, the assessee has used the joint account to carry out the business, activities of accepting money from purchasers and paying to the sellers and the net balance shown as commission income. The similar business activities were also carried by his wife, who has shown commission income. We are not in a position to allocate the funds movements in business activities of assessee and his wife. In principle, there is movement of funds in the bank account of assessee as well as joint account. We are of the view that we need to determine the reasonable of income from the real estate i.e. the line of business activities of the assessee. In our view, AO should estimate the income of the assessee after evaluation of the business of the assessee and similar business in the real estate. Such percentage can be adopted to determine the gross income of the assessee and arrive at net taxable income @ 25% of the gross income by giving proper opportunity of being heard to assessee. Accordingly, we direct the AO to arrive the net income along with the other declared income as taxable income - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Explanation of deposits in the assessee's bank accounts.
3. Estimation of income by the Assessing Officer (AO).
4. Admission of additional evidence under Rule 46A.
5. Determination of unexplained cash deposits under Section 69 of the Income Tax Act.

Detailed Analysis:

1. Condonation of Delay:
The appeal was filed with a delay of 24 days. The assessee requested condonation of delay, stating that he was attending to his 80-year-old mother suffering from cancer in Guntur. The Tribunal accepted the explanation and condoned the delay, admitting the appeal for hearing and adjudication.

2. Explanation of Deposits:
The assessee, a commission agent, filed his return of income for AY 2007-08 declaring an income of Rs. 2,32,206/-. During scrutiny, the AO noted significant deposits in two bank accounts:
- ICICI Bank Account No. 030401503633: Total deposits of Rs. 1,10,35,116/-.
- ICICI Bank Account No. 030401502265 (jointly held with wife and son): Total deposits of Rs. 79,61,107/-.

The assessee explained that these deposits were related to his activities as a mediator in real estate transactions. However, the AO rejected this explanation due to lack of documentary evidence and clarity on the transactions.

3. Estimation of Income:
The AO estimated the income at 25% of the unexplained deposits:
- For Account No. 030401503633, the AO considered Rs. 72,09,792/- as gross receipts and estimated income at 25%.
- For Account No. 030401502265, after certain deductions, the AO considered Rs. 48,21,120/- as gross receipts and estimated income at 25%. Additionally, an interest income discrepancy of Rs. 85,028/- was added.

4. Admission of Additional Evidence:
The assessee filed additional evidence under Rule 46A, which was considered by the CIT(A) after obtaining a remand report from the AO. The AO's remand report and the assessee's response were examined, but the CIT(A) found the explanations and evidence insufficient to fully justify the deposits.

5. Determination of Unexplained Cash Deposits:
The CIT(A) observed that the assessee failed to satisfactorily explain the deposits and adopted the peak balance method to determine unexplained cash deposits under Section 69. The peak balance was calculated as Rs. 25,22,408/-.

Tribunal's Decision:
The Tribunal noted that the AO's estimation of 25% income from gross receipts was not justified given the nature of the assessee's business. It directed the AO to re-evaluate the income by estimating a reasonable percentage of commission income from real estate activities, taking into account the business practices and providing a proper opportunity for the assessee to be heard.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions to the AO to re-determine the net income from the assessee's real estate commission activities and adjust the taxable income accordingly. The other grounds were dismissed as not pressed. The decision was pronounced on 16th March 2016.

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