2022 (7) TMI 590 - AT - Income Tax

Undisclosed turnover - taxability of commission income - Rejection of books of accounts - NP determination - assessee has failed to furnish party ledgers and the details of the persons to whom cash payments were made. Hence, the AO by rejecting the books of accounts, proceeded to determine the profit @ 2% on the total turnover - whether the assessee be treated as kachha arahtias or pacca arahtias and whether the commission income or the total purchases be treated as the turnover of the assessee? - HELD THAT - Since, it is a primary question to determine the taxability of commission income or otherwise, it needs to be established what is the relation between the Allana Group and the assessee, it needs to be examined what is the margin allowed by the Allana Group to the assessee, the leverage the assessee has in payment made to the shepherds, the nature of relationship of the principle-agent between the assessee and the Allana Group, how the monies have been transferred from the Allana Group to the assessee such as withdrawals of cash of cash receipts and also the cash payments in relation to provisions of Section 44AB and 40A. Hence, in the interest of justice to both the parties to deem it fit to remand the matter back to the file of the AO to examine and determine the real turnover of the assessee. Needless to say that the AO shall afford an opportunity being heard to the assessee and the assessee shall abide by the requirements and the details called for by the revenue authorities.appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Determination of turnover and net profit for the assessee engaged in the business of dealing in fresh meat.
2. Rejection of books of accounts by the Assessing Officer and estimation of net profit at 2% on total turnover.
3. Interpretation of the relationship between the assessee and the Allana Group as either kachha arahtias or pacca arahtias.
4. Applicability of Circular No. 452/1986 of CBDT in determining the turnover for the purpose of section 44AB.

Analysis:

1. The appeal was filed by the Assessee against the order of the Ld. CIT(A) regarding the determination of turnover and net profit. The Assessee contended that the turnover should be considered as commission income, not the total live stock purchased. The Assessee argued that he acted as an agent of the exporter and not as a principal, therefore, the turnover should reflect the commission received.

2. The Assessing Officer rejected the books of accounts due to the inability of the Assessee to provide details of cash purchases. Consequently, the AO estimated the net profit at 2% of the total turnover. The Ld. CIT(A) upheld this decision, emphasizing that the Assessee's involvement in negotiating with various parties justified the rejection of books of accounts and the estimation of net profit at 2%.

3. The crux of the matter revolved around determining whether the Assessee should be classified as kachha arahtias or pacca arahtias. The Circular No. 452/1986 of CBDT provided guidance on this distinction. The circular highlighted that kachha arahtias' turnover only includes gross commission, while pacca arahtias' turnover comprises total sales/turnover. The relationship between the Assessee and the Allana Group needed to be examined to ascertain the nature of their association.

4. The Circular was relied upon in previous judgments to determine the classification of the Assessee. It was observed that the fee received by the Assessee could not be equated to turnover directly. The Circular's guidelines were crucial in categorizing the Assessee as a kachha arahtia, thereby impacting the determination of turnover for the purpose of section 44AB.

In conclusion, considering the complexity of the relationship between the Assessee and the Allana Group and the significance of correctly determining turnover and net profit, the Tribunal decided to remand the matter back to the AO for further examination. Both parties were instructed to cooperate, and the appeal of the Assessee was allowed for statistical purposes.