2016 (12) TMI 1546 - AT - Income Tax

Reopening of assessment - Disallowance at 2% of net commission of assessee out of a total receipts shown by the assessee being sales made - Held that - We find from the order of the AO that the assessee is unable to prove the amounts credited in the bank A/c in cash as well as other credit entries and the persons to whom accommodation bills were provided. The assessee could not provide the details of beneficiaries it means that no sale has been affected by the assessee. The CIT(A) has totally gone on wrong premise by treating the unaccounted sale on which net commission of 2% is to be charged as profit of the assessee but according to us the assessee is unable to prove the sales as he is unable to prove the beneficiaries. First of all, the assessee has to prove the beneficiaries to whom these accommodation entries are given and in case he is able to provide information in relation to beneficiaries and beneficiaries admit that they have paid only net commission, only then the commission is added otherwise the entire deposits to be added in the hands of the assessee. But, before that the compete verification of facts are required because none of the authorities below have brought on record the facts of the case. Even otherwise, the assessee has to provide details of beneficiaries so that the AO can verify and finalize the assessment as per the provisions of the Act. Accordingly, both the appeals, of Revenue as well as assessee, are allowed for statistical purposes and matter is remanded back to the AO. The orders of lower authorities are set aside.

Summary

Issues:
- Disallowance of commission on undisclosed sales
- Assessment based on search action under section 132 of the Income Tax Act, 1961

Issue 1: Disallowance of commission on undisclosed sales
The judgment involves cross-appeals by the Revenue and the assessee arising from the CIT(A)'s order restricting the disallowance at 2% of the net commission of the assessee out of total receipts shown by the assessee as sales to a specific company. The AO had added the entire amount of sales to the total income of the assessee as undisclosed sales, leading to an appeal by the assessee before the CIT(A). The CIT(A) observed that similar issues regarding commission income were raised in cases related to Mukesh Choksi and his corporate entities in previous assessment years, where only a percentage of commission was assessed. The CIT(A) restricted the addition to 2% of net commission based on previous tribunal decisions and the AO's treatment of the appellant as part of a specific group. However, the Tribunal found that the assessee failed to prove the sales by not providing details of beneficiaries, leading to a remand back to the AO for further verification.

Issue 2: Assessment based on search action under section 132
The judgment details a search action under section 132 of the Income Tax Act, 1961, conducted in the case of a group of companies engaged in fraudulent activities. The search revealed incriminating material related to the assessee, leading to an assessment under section 153C of the Act. Subsequently, the AO added the undisclosed sales amount to the total income of the assessee, which was challenged before the CIT(A) and further appealed. The Tribunal emphasized the need for the assessee to prove the beneficiaries of accommodation entries to establish the sales, highlighting the lack of evidence presented during the proceedings. The judgment underscores the importance of verifying facts and ensuring compliance with the provisions of the Act before making additions to the income of the assessee.

In conclusion, the judgment addresses the disallowance of commission on undisclosed sales and emphasizes the necessity of providing evidence to support claims during assessment proceedings. The decision highlights the significance of thorough verification of facts and adherence to legal provisions in determining additions to an assessee's income.