2023 (5) TMI 1186 - AT - Income Tax

Determination of commission income of the proven accommodation entry operator - CIT(A) restricted the rate of commission to 1.04% as against 2% computed by the AO - HELD THAT - As per the explanation and submissions of the assessee, whole of the expenses incurred in earning commission income shall be allowed and accordingly the net rate of commission earned by the assessee i.e. 0.47% is the best which can be applied on the turnover of the accommodation entries after elimination of circular transactions. Thus the maximum addition which can be made in the hands of the assessee on account of commission earned on turnover of the accommodation entries worked out accordingly. Estimating the correct value of the property and expenses incurred thereon - Receipt of the valuation report of the DVO after 6 months after the reference - assessee owns 50% of the property - HELD THAT - CIT(A) concurrently considered the provisions of Section 56(2)(vi ib) and Section 50C, report of the DVO and the stamp duty valuation (circle rates). CIT(A) held that the value as per the stamp duty valuation authority shall be taken as full value of the consideration and since the payment made by the assessee is as per the stamp value authorities determination, no addition is called for. Addition made on account of cost of construction CIT(A) held that there was no difference between the value in the cost of construction declared by the assessee and the value as considered by the AO, can be attributed owing to the variance being less than 10% of the accepted norms of variation. Having gone through the facts, we find no reason to interfere with the decision of the ld. CIT(A) who accepted the value of the land as per the circle rate and value of the construction within the acceptable range of variation. Protective Addition - As substantive addition has already been completed in the case of Sh. Naresh Kumar Jain and hence, no protective addition can be confirmed at this juncture in the case of the assessee.

Summary

Issues Involved:
1. Legality of the assessment order under Section 153A.
2. Validity of the search operation.
3. Service of statutory notices.
4. Incriminating material found during the search.
5. Calculation of commission income.
6. Protective additions.
7. Valuation of immovable property.

Summary:

1. Legality of the Assessment Order under Section 153A:
The assessee contended that the assessment framed under Section 153A/143(3) was in violation of statutory conditions and procedures, making it invalid. The CIT(A) rejected this contention, and the Tribunal upheld the CIT(A)'s decision, confirming the assessment's legality.

2. Validity of the Search Operation:
The assessee argued that the search operation was unlawful and invalid, thus making the subsequent assessment order invalid. The CIT(A) and Tribunal both rejected this argument, confirming the legality of the search operation.

3. Service of Statutory Notices:
The assessee claimed that the assessment was made without proper service of statutory notices. The CIT(A) dismissed this claim, and the Tribunal upheld the CIT(A)'s decision, confirming that the statutory notices were properly served.

4. Incriminating Material Found During the Search:
The assessee argued that no incriminating material was found during the search. The CIT(A) and Tribunal both rejected this argument, confirming that incriminating material was indeed found during the search, justifying the assessment.

5. Calculation of Commission Income:
The AO calculated the commission income at 2% of the turnover, while the CIT(A) restricted it to 1.04%, considering 30% of the gross commission receipts as expenses. The Tribunal found the CIT(A)'s decision to restrict expenses on an ad-hoc basis to be unjustified. The Tribunal applied a net commission rate of 0.47% after allowing for all expenses, directing the AO to adjust the assessment accordingly.

6. Protective Additions:
The CIT(A) deleted the protective addition of Rs. 37,95,000/- made by the AO, as the amounts were received on account of repayment of advances. The Tribunal upheld the CIT(A)'s decision, confirming that no protective addition was necessary.

7. Valuation of Immovable Property:
The AO made an addition based on the DVO's valuation of an immovable property. The CIT(A) deleted this addition, holding that the valuation should not exceed the stamp duty valuation. The Tribunal upheld the CIT(A)'s decision, confirming that the valuation was within acceptable norms and no addition was warranted.

Conclusion:
The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals, directing the AO to adjust the assessment based on a net commission rate of 0.47% and confirming the deletion of protective additions and valuation-based additions.