2019 (5) TMI 20 - AT - Income Tax

Scope of power of AO in remand proceedings - addition u/s 68 - Addition on account of commission to the extent of 2% - CIT-A deleted the addition - HELD THAT - It is settled principle of law that on remand of the proceedings by the Tribunal to the AO, no new source of income can be introduced so as to enhance the assessment by the AO and the AO can enhance the income only qua old sources of income which was subject matter of the appeal before the Tribunal. We are of the considered view that the AO has exceeded his powers during remand proceedings, made by the Tribunal by making addition u/s 68 on account of credit entries appearing in the bank statement and as such, the addition made by the AO is not sustainable, hence the CIT(A) has rightly deleted the addition. Consequently, question framed is answered in the negative. Applying the rate of commission at the rate of 2.25 % by the AO and reduced to 2% by the ld. CIT(A) is concerned, this issue has already been decided in the Group cases of Tarun Goyal vide 2019 (1) TMI 1266 - ITAT DELHI thereby AO has been directed to adopt the rate of commission @ 0.50% or 50 paise and computed the profit accordingly.

Summary

Issues Involved:
1. Addition on account of commission income.
2. Addition under section 68 of the Income-tax Act, 1961.
3. Determination of rate of commission.
4. Exclusion of intergroup entries for commission calculation.

Detailed Analysis:

1. Addition on Account of Commission Income:
The assessee challenged the orders passed by the Commissioner of Income-tax (Appeals) [CIT(A)], which upheld the addition made by the Assessing Officer (AO) on account of commission income. The CIT(A) had reduced the rate of commission from 2.25% to 2%, which was contested by both the assessee and the Revenue. The Tribunal noted that the issue of commission income was the sole subject matter of the first round of litigation and was remanded by the Tribunal for fresh adjudication. The Tribunal directed the AO to adopt a rate of commission at 0.50% or 50 paise, following the decision in the Group cases of Tarun Goyal.

2. Addition under Section 68 of the Income-tax Act, 1961:
The Revenue's appeal included the issue of addition under section 68, which pertains to unexplained cash credits. The Tribunal observed that in the first round of litigation, the AO and CIT(A) only dealt with the issue of commission income and not with the addition under section 68. The Tribunal held that the AO, during the remand proceedings, exceeded his powers by making an addition under section 68, which was not a subject matter in the first round of appeals. Citing precedents from the Hon’ble Supreme Court and various High Courts, the Tribunal concluded that no new source of income could be introduced in remand proceedings. Thus, the addition under section 68 was not sustainable and was rightly deleted by the CIT(A).

3. Determination of Rate of Commission:
The Tribunal addressed the issue of the appropriate rate of commission to be applied. The AO had applied a rate of 2.25%, which the CIT(A) reduced to 2%. The Tribunal, following its earlier decision in the Group cases of Tarun Goyal, directed the AO to adopt a rate of 0.50% or 50 paise for calculating the commission income. This decision was based on the recognition that in such clandestine activities, the rate of commission can vary, but a reasonable rate of 0.50% was considered appropriate to end the litigation.

4. Exclusion of Intergroup Entries for Commission Calculation:
In the cases of Bhawani Portfolio Pvt. Ltd. and Geefcee Finance Ltd., the assessee argued that the AO calculated commission income at 2.25% on the total of all credit entries in the bank account without excluding intergroup entries. The Tribunal noted that the remand order required the exclusion of intergroup entries to calculate the commission income accurately. Consequently, the AO was directed to exclude all intergroup entries and calculate the commission income at the rate of 0.50%.

Judgment Summary:
The Tribunal allowed the appeals filed by the assessee, M/s. Dwarka Impex Pvt. Ltd., for the assessment years 2004-05 to 2008-09. The appeals filed by the Revenue for the same assessment years were dismissed. The appeals filed by Tejasvi Investments (P) Ltd., Bhawani Portfolio Pvt. Ltd., and Geefcee Finance Ltd. were allowed for statistical purposes, directing the AO to adopt the decision of the Group cases of Tarun Goyal and compute the commission income accordingly. The Tribunal pronounced the order in open court on April 26, 2019.