2018 (11) TMI 951 - AT - Income Tax

Estimation of commission income derived from hawala transactions - certain incriminating materials were found in the premises of the assessee and further, one of the employees has stated that the company is involved in hawala transactions - Held that - AO has made protective addition in the hands of the assessee towards estimated commission income derived from hawala transactions on the ground that certain incriminating materials were found in the premises of the assessee and further, one of the employees has stated that the company is involved in hawala transactions. It is also an admitted fact that substantive addition made in the hands of Shri Vishal Kalantri has attained finality in view of the order of ITAT, where the addition made by the AO has been examined in the light of incriminating material found during the course of search. Once, the substantive addition has been considered by the appellate authorities in the hands of Shri Vishal Kalantri, the protective addition made towards commission income in the hands of the assessee could not be sustained. CIT(A), after considering relevant submissions, has rightly deleted addition made in the hands of the assessee for all assessment years under consideration. We do not find any error in the findings of CIT(A) and hence, we are inclined to uphold the findings of Ld.CIT(A) and dismiss the appeals filed by the revenue for AYs 2007-08 to 2013-14. - Decided against revenue.

Summary

Issues:
- Appeal against deletion of undisclosed income addition
- Application of extrapolation principle in income estimation
- Validity of protective addition in hawala transaction case

Analysis:
1. Deletion of Undisclosed Income Addition: The appeals were filed by the revenue against the deletion of undisclosed income addition by the Commissioner of Income-tax (Appeals) for the assessment years 2007-08 to 2013-14. The revenue contended that the assessing officer rightly estimated the income based on cash found during a search operation. The primary issue was whether the deletion of the undisclosed income addition was justified.

2. Application of Extrapolation Principle: The revenue argued that the Commissioner of Income Tax (Appeal) erred in ignoring the principle of extrapolation of income as laid down by the Hon'ble Supreme Court. The key point of contention was whether the extrapolation principle should have been applied in estimating the income.

3. Validity of Protective Addition: The main issue revolved around the validity of the protective addition made by the assessing officer towards estimated commission income derived from hawala transactions. The revenue challenged the deletion of this addition by the Commissioner of Income Tax (Appeal) for all assessment years under consideration.

4. Judgment Analysis: The Tribunal observed that the substantive addition made in the hands of the Managing Director had been partially deleted by the ITAT. Considering this, the protective addition made in the hands of the assessee could not be sustained independently. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeal) to delete the addition made in the hands of the assessee for all assessment years. The Tribunal found no error in the Commissioner's findings and dismissed the appeals filed by the revenue for the relevant assessment years.

In conclusion, the Tribunal upheld the decision to delete the protective addition in the hawala transaction case, considering the finality of the substantive addition made in the hands of the Managing Director. The judgment provided clarity on the application of the extrapolation principle and the validity of protective additions in such cases.