2020 (2) TMI 653 - AT - Income Tax

Commission income - cash recovered during survey / search - estimation of daily turnover / monthly turnover for 207 days - The working of 207 days has been taken by the learned CIT(A) from the day when the assessee-firm came into existence by execution of the partnership deed. It came into existence on 7th May 2008 and ended on 4th December 2008. - HELD THAT - To our mind, the commission income of the assessee was to be estimated for the period during which the firm remained in existence for the relevant accounting year, i.e. for the number of days relating to Assessment Year 2009-10 it remained into existence. Its existence has been worked out for 207 days. Once, after taking into consideration the turnover, the commission income has been worked out at a sum of ₹ 25 lakhs, then how the commission income already accounted for by the firm at ₹ 27.50 lakhs could not be set off. We could appreciate the case of the Revenue, if after taking into the average commission income for three days, the learned CIT(A) worked out the commission income of 207 days at ₹ 27.50 lakhs plus ₹ 25 lakhs. In that situation, the stand of the Revenue not to give set off of ₹ 27.50 lakhs could be justified. But in the present situation, the only method which could be adopted is to work out total commission income for 207 days by whatever method, then debit that commission income from the amount already disclosed by the assessee plus expenditure and the remaining will be taxable. The disclosure made by the assessee at ₹ 27.50 lakhs is more the ultimate estimated income worked out by the learned CIT(A); therefore, no further addition is required. Accordingly, the addition of ₹ 18,20,407/- is deleted and the appeal of the assessee is partly allowed. Penalty u/s 271AAA(2)(ii) - HELD THAT - The conditions enumerated in sub-section (2) are that penalty under Section 271AAA would not be leviable upon assessee if the assessee, during the course of search, has admitted the undisclosed income; specified the manner in which such income has been derived; substantiated the manner in which the undisclosed income was derived and paid the taxes together with interest, if any, in respect of the undisclosed income. As submitted by the assessee, it has not firstly admitted the cash recovered during the course of search at ₹ 27.50 lakhs. Therefore, it does not fulfill the conditions enumerated in sub-section (2) of Section 271AAA of the Act. Even copy of the statement recorded under Section 132(4) has not been placed before us. After going through the record, we are of the view that the assessee failed to fulfill the conditions of Section 271AAA. It, therefore, deserves to be visited with penalty. However, the penalty is to be restricted qua 10% of the additions we have confirmed. We have already deleted ₹ 18,20,407/-; therefore, 10% of this is to be excluded. The penalty is, therefore, restricted to ₹ 2,75,000/-, instead of ₹ 4,57,041/- imposed by the Assessing Officer. In the result, the appeal of the assessee is partly allowed.

Summary

Issues:
1. Appeal against addition of income in Assessment Year 2009-10.
2. Appeal against penalty imposed under Section 271AAA of the Income-tax Act.

Issue 1: Appeal against Addition of Income (ITA No. 1708/Ahd/2011)

The assessee appealed against the addition of income amounting to ?18,20,407 confirmed by the learned CIT(A) for Assessment Year 2009-10. The case originated from a survey under Section 133A where ?27.57 lakhs was found at the business premises. Initially, the assessee claimed it belonged to clients for Angadiya services, later changing it to commission income. The Assessing Officer estimated commission income at ?25 lakhs, resulting in a taxable income of ?53,89,840. The learned CIT(A) partly upheld this order. The dispute centered around whether the ?27.50 lakhs should be considered as commission income. The tribunal found that the disclosure made by the assessee already covered the estimated income worked out by the CIT(A), hence no further addition was necessary. Consequently, the addition of ?18,20,407 was deleted, and the appeal was partly allowed.

Issue 2: Appeal against Penalty (ITA No. 1169/Ahd/2013)

The appeal challenged the penalty of ?4,57,041 imposed under Section 271AAA(2)(ii) for undisclosed income of ?27,50,000 and ?18,20,407. The tribunal noted that the penalty was calculated at 10% of the total undisclosed income of ?45,70,407. The conditions under Section 271AAA(2) required admission of undisclosed income, specifying its derivation, substantiating it, and paying taxes with interest. As the assessee did not admit the ?27.50 lakhs as undisclosed income during the search, it failed to meet these conditions. The penalty was, therefore, upheld but restricted to 10% of the confirmed additions, resulting in a revised penalty of ?2,75,000 instead of the original ?4,57,041. Consequently, the appeal against the penalty was partly allowed.

In conclusion, both appeals by the assessee were partly allowed by the tribunal, with the addition of income being deleted in the first issue and the penalty being reduced in the second issue. The detailed analysis of each issue provided clarity on the legal aspects and reasoning behind the tribunal's decisions.