2018 (2) TMI 1591 - AT - Income Tax

Estimation of profit on accommodation turnover - CIT-A confirming the addition @ 3% as against 0.57% declared by the assessee - contention of the assessee that commission estimation by the AO is on the higher side when compare to the nature of business and also his gross profit admitted in the earlier years wherein he has derived the GP of less than 1% - Held that - No merit in the arguments of the assessee for the reason that the assessee himself has admitted before the Investigation Wing that he is involved in providing accommodation entries to various beneficiaries. Though there is no mention of cash component of commission in the survey report, it is an admitted fact that in this kind of transactions the entry provider will derive certain benefits for issuing accommodation entries. AO has rightly estimated reasonable percentage of commission on total accommodation entries provided by the assessee. Though the assessee claims that the commission estimated by the AO is on higher side he failed to justify the gross profit declared in his business in the earlier years with any other comparable case. Therefore, we are of the view that the AO was right in estimating 3% commission on total accommodation entries - Decided against assessee.

Summary

Issues:
Estimation of profit on accommodation turnover @ 3% as against 0.57% declared by the assessee.

Analysis:
The appeal filed by the assessee was against the order of the CIT(A) pertaining to A.Y. 2010-11. The AO reopened the case under Section 147 of the Income Tax Act due to information received regarding bogus purchases. The AO estimated a 3% commission on total accommodation entries provided during the assessment year and added it to the total income. The CIT(A) upheld this addition, considering the nature of the business and the admission of illegality by the assessee. The CIT(A) found 3% to be a reasonable rate given the circumstances. The assessee contended that the commission estimation was high compared to the gross profit declared in previous years, citing a case where 1% commission was estimated. However, the Tribunal found no merit in the argument as the assessee admitted to providing accommodation entries. The Tribunal upheld the CIT(A)'s decision, stating that the AO's estimation was justified based on the facts and upheld the addition of 3% commission.

The Tribunal noted that the assessee's admission of involvement in providing accommodation entries was crucial. Despite the absence of a cash component in the survey report, the Tribunal recognized the benefits derived by the entry provider in such transactions. The Tribunal rejected the argument that the commission estimation was high, as the assessee failed to justify the gross profit declared in previous years with comparable cases. Therefore, the Tribunal upheld the CIT(A)'s decision affirming the addition made by the AO. The Tribunal concluded that the AO's estimation of 3% commission on total accommodation entries was reasonable, considering the admitted involvement of the assessee in providing accommodation entries. The appeal filed by the assessee was dismissed, and the findings of the CIT(A) were upheld.