2022 (9) TMI 695 - AT - Income Tax

Estimation of commission income on the receipts debited in bank account of the assessee - rate of commission applied on accommodation entry bills - AO applied commission income @ 2% on the deposits found in the bank accounts - contention of the assessee is that Hon ble Bombay High Court for assessment year 2003-04 has restricted the commission income @ 0.15% of the turnover - HELD THAT - We find that no stay has been obtained by the Department on the operation of the order of the Tribunals in other cases including the finding of Hon ble High Court in the case of the assessee for assessment year 2003-04 2016 (11) TMI 1668 - ITAT MUMBAI and 2020 (6) TMI 304 - BOMBAY HIGH COURT wherein @ 0.15% of the commission income has been upheld. We respectfully following the finding of the Hon ble Bombay High Court, the Assessing Officer is directed to restrict the commission income @ 0.15% of the total turnover of the assessee. Reducing the transfer entries amount in bank account out of gross receipts for estimating the commission income - We find that during the assessment proceedings, the Assessing Officer asked the assessee to provide necessary evidence in support of the claim that no commission was charged in case of said transfer entries. However, the assessee failed to provide any such evidence before the Assessing Officer. The assessee has neither filed any such evidence before the Ld. First Appellate Authority nor before us and therefore in such circumstances, the claim of the assessee cannot be accepted the ground raised by the assessee is accordingly dismissed. Allowance of 50% of the expenses claimed by the assessee in the return of income - assessee has also filed Nil return of income and claimed expenses against the revenue shown from the business income - Since, the facts and circumstances of the assessee are identical in the other group cases wherein also addition for commission income from accommodation entry income has been assessed therefore, respectfully following the finding of the Tribunal 2016 (11) TMI 1668 - ITAT MUMBAI we direct the AO to allow 50% of the expenses against the commission income. The ground of the appeal of the assessee is accordingly allowed.

Issues Involved:

1. Determination of the income of the appellant.
2. Compliance with the principles of natural justice.
3. Ignoring precedents set by the Bombay High Court.
4. Application of 2% income on entire bank deposits.
5. Ignoring ITAT directions on income calculation.
6. Estimation of income on gross receipts without reducing transfer entries.
7. Allowance of 50% expenses against income.

Detailed Analysis:

1. Determination of the Income of the Appellant:
The appellant contested the determination of income at Rs. 1,12,12,150/- by the Assessing Officer (AO) and the CIT(A). The AO had assessed this income following a search operation under section 132(1) at the premises of the 'Mahasagar Group' (now 'Alag Securities Pvt. Ltd.'), which was involved in providing accommodation entries. The AO estimated the income from commission at 2% of the credit entries in the bank accounts, which was upheld by the CIT(A).

2. Compliance with the Principles of Natural Justice:
The appellant claimed that the AO and CIT(A) had erred in law and in facts by passing the order without complying with the principles of natural justice. However, this issue was not specifically adjudicated upon by the Tribunal as it was considered general in nature.

3. Ignoring Precedents Set by the Bombay High Court:
The appellant argued that the AO and CIT(A) ignored the Bombay High Court judgments, which had decided in favor of the appellant, stipulating that the income should be taken at 0.15% of the turnover with 50% of expenses allowed against the income. The Tribunal found that the AO had applied a 2% commission rate based on the Department's pending appeal against the Tribunal's decisions in other group cases. However, since no stay had been obtained on these orders, the Tribunal directed the AO to restrict the commission income to 0.15% of the total turnover, following the Bombay High Court's decision.

4. Application of 2% Income on Entire Bank Deposits:
The AO applied a 2% commission rate on the entire bank deposits, which the appellant contested, arguing for a 0.15% rate based on precedents. The Tribunal ruled in favor of the appellant, directing the AO to apply the 0.15% commission rate as upheld by the Bombay High Court.

5. Ignoring ITAT Directions on Income Calculation:
The appellant contended that the AO and CIT(A) ignored the ITAT's directions that income should be calculated at 0.15% of the net turnover after deducting transfer entries. The Tribunal reiterated its direction for the AO to apply the 0.15% commission rate, consistent with the Tribunal's and Bombay High Court's findings.

6. Estimation of Income on Gross Receipts Without Reducing Transfer Entries:
The appellant claimed that the AO and CIT(A) erred by estimating income on gross receipts without reducing the transfer entries amount in the bank account, which were transfers to sister concerns with no income earned. The Tribunal found that the appellant failed to provide evidence to support the exclusion of transfer entries and upheld the AO's decision to include these in the gross receipts.

7. Allowance of 50% Expenses Against Income:
The appellant sought the allowance of 50% of the expenses claimed against the income. The AO had disallowed these expenses, arguing that the commission income was estimated on a net basis, and allowing further expenses would result in nil or minimal income. The Tribunal, following its decision in the case of Goldstar Finvest Pvt. Ltd. (a group concern), directed the AO to allow 50% of the expenses against the commission income.

Conclusion:
The Tribunal partly allowed the appeal for assessment year 2005-06 and directed the AO to:
- Restrict the commission income to 0.15% of the total turnover.
- Allow 50% of the expenses against the commission income.

The grounds raised for assessment years 2008-09 to 2010-11 were decided in line with the findings for 2005-06, resulting in a partial allowance of the appeals for these years as well. The order was pronounced in open court on 26/08/2022.

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