2022 (6) TMI 550 - AT - Income Tax

Addition of commission income for providing accommodation entries - Double addition - HELD THAT - We find that the very same sum has been already added in the hands of Shri Bhanwarlal Jain on substantive basis, on which fact, there is absolutely no dispute. We find that in the assessments framed in the hands of the assessee herein pursuant to search for Asst Years 2008-09 to 2014-15, similar protective addition on account of commission income for providing accommodation entries was deleted by the ld. CIT(A) in the hands of the assessee and the revenue did not even challenge the same further before this tribunal. We further find that the ld. AO had emphatically mentioned that all the activities during the previous year relevant to the block period are identical to that of the assessee s activities during the previous year under consideration. While this is so, there is no reason for the ld. CIT(A) to take a divergent stand of confirming the protective addition of commission income in the hands of the assessee herein for the Asst Year 2015-16. Moreover, for the same block period pertaining to Asst Years 2008-09 to 2014-15, we find that this tribunal in ITA No. 2669/Mum/2018 dated 6.8.2021 had estimated the commission income in the hands of Shri Bhanwarlal Jain on substantive basis. Hence consistently, the substantive addition has always been made only in the hands of Shri Bhanwarlal Jain for this commission income. Hence there could be no confusion that would lie in the mind of the revenue, as to in whose hands this commission income should be assessed, in order to justify its protective addition. Hence we direct the ld. AO to delete the protective addition of commission income made in the hands of the assessee herein for the Asst Year 2015-16. Addition of Gross profit made on account of alleged low gross profit declared by the assessee - HELD THAT - AO had estimated the gross profit of the assessee by taking a view without prejudice to the addition of alleged undisclosed commission income. This addition was solely made on the basis that the assessee had shown less gross profit as compared to the other alleged concerns of Shri Bhanwarlal Jain. We find that the very same issue was subject matter of adjudication by this tribunal in the case of Rose Impex 2022 (3) TMI 1384 - ITAT MUMBAI - Thus we delete the addition made on account of Gross profit of Rs 4,01,58,089/- in the hands of the assessee herein for the Asst Year 2015-16. Addition towards commission income being 0.075% of total sales turnover was converted from protective to substantive basis by the ld. CIT(A) - HELD THAT - We find that the ld. AO had sought to add commission income @ 0.075% on this turnover on the premise that no addition of commission income has been made for accommodation entry of sales. We find from the perusal of the assessment order that the ld. AO had already estimated the commission income on this sales figure also which is very much evident from the table prepared by the ld. AO in para 12 of his order. Commission on bogus sales is already added by the ld. AO and the said figure is duly included in the total commission income figure made by the ld. AO on protective basis. Hence adding the very same sum again would only result in double addition and hence directed to be deleted herein. CIT(A) had sought to make this addition on substantive basis. In our considered opinion, conversion of protective addition into substantive addition would tantamount to enhancement of income made by the ld. CIT(A), which could be done only after issuance of enhancement notice to the assessee. Admittedly, no such enhancement notice in terms of section 251(2) of the Act has been given to the assessee by the ld. CIT(A). On this count itself, this addition made on substantive basis in the sum towards commission on bogus sales is deleted. In any case, the substantive addition of commission income has already been made in the hands of Shri Bhanwarlal Jain and the similar addition was also confirmed in his hands during the block period also. Hence there cannot be any further addition in the hands of the assessee herein even on protective basis. Accordingly, the same is deleted.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under Section 147 of the Income Tax Act.
2. Addition of alleged commission income on protective basis.
3. Addition of gross profit on estimation basis.
4. Conversion of protective addition to substantive addition without notice.
5. Legality/validity of reassessment proceedings.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) under Section 147 of the Income Tax Act:
The assessee contended that the jurisdiction assumed by the AO was invalid as the conditions for initiating reassessment proceedings under Section 147 were not fulfilled. However, this issue was rendered academic and not adjudicated upon since the appeal was allowed on merits.

2. Addition of Alleged Commission Income on Protective Basis:
The AO added Rs. 19,78,180/- as undisclosed commission income on a protective basis, alleging that the assessee provided accommodation entries for purchases and loans on behalf of a third party. This sum was also added substantively in the hands of the third party. The Tribunal noted that similar protective additions for earlier assessment years (2008-09 to 2014-15) were deleted by the CIT(A) and not contested further by the revenue. Consistently, substantive additions were made in the hands of the third party. The Tribunal directed the AO to delete the protective addition of Rs. 19,78,180/- for the assessment year 2015-16.

3. Addition of Gross Profit on Estimation Basis:
The AO estimated the gross profit at Rs. 4,01,58,089/- (11.93% of the total turnover) due to alleged low profit shown by the assessee. The Tribunal referenced a similar case (Rose Impex vs ACIT) where it was held that the revenue cannot treat the assessee as both an accommodation entry provider and a genuine trading concern simultaneously. Following this precedent, the Tribunal deleted the addition of Rs. 4,01,58,089/-.

4. Conversion of Protective Addition to Substantive Addition Without Notice:
The CIT(A) converted a protective addition of Rs. 2,65,830/- (0.075% of total sales turnover) to a substantive addition without issuing a show-cause notice, violating Section 251(2) of the Act and principles of natural justice. The Tribunal found that this amount was already included in the protective addition of Rs. 19,78,180/- and thus its separate addition would result in double taxation. Moreover, the Tribunal noted that the CIT(A) incorrectly concluded that the Tribunal's order in the third party's case did not consider the commission on sales. The Tribunal directed the deletion of the Rs. 2,65,830/- addition.

5. Legality/Validity of Reassessment Proceedings:
Given that the appeal was allowed on merits, the Tribunal did not adjudicate the issue of the legality/validity of the reassessment proceedings, leaving the matter open.

Conclusion:
All additions made in the hands of the assessee were deleted. The Tribunal's decision in the lead case applied mutatis mutandis to other assessees with similar facts, except for differences in figures. Consequently, all appeals of the assessee were allowed.