2023 (6) TMI 603 - AT - Income Tax

Estimation of income - real income/commission income - Unexplained deposits in bank account - undisclosed income - assessee is engaged in the business of cheque discounting - as argued by assessee once the AO has himself accepted in the assessment order that the assessee is engaged in the business of cheque discounting and has also made a specific note of the mode and the manner in which the business was being carried out, then, only the income earned by way of commission on such cheque discounting business can be subject to tax in the hands of the assessee and not the entire cash deposits - HELD THAT - It would not be fair to treat the entire cash deposits as the undisclosed income of the assessee. We observe that AO himself, on the basis of documents unearthed during the course of search, has observed that the assessee is engaged in the business of cheque discounting and in the assessment order, the AO has also on sample basis given a finding as to the quantum of commission earned by the assessee on such cheque discounting on sample basis. Even before the Service Tax Department, the assessee had submitted that it is in the cheque discounting business and it has been also been accepted that the assessee is engaged in the business of cheque discounting in order to earn commission income. Therefore, in the instant set of facts, it would not be correct to bring to tax the entire cash deposits as the assessee s undisclosed income. As the assessee has submitted that he was operating through middlemen and does not know the name of beneficiaries in most of cases. However, most times, even the middlemen could not be contacted by the Department, since notices could not be served upon them as they were not available. Accordingly, in absence of details forthcoming from the assessee, a reasonable percentage may be arrived at, in the instant facts to arrive at the commission income earned by the assessee. It would be reasonable to take 0.25% of total deposits in the bank accounts owned/ operated by the assessee as commission income of the assessee for the assessment year under consideration. Assessee s claim of secret commission paid to other middlemen - As where the assessee has clearly submitted that he has no records of parties to whom such secret commission , but also considering the fact that the assessee submitted that payment of such commission helped in generating the cheque discounting business, we are directing that 50% of such secret commission may be allowed, in the interests of justice. Cash found during the course of search - assessee could not explain the source of such cash found - CIT-A accepted that cash found may be considered as application of income and the effect of telescoping may be give - Before us, assessee contented that while giving the benefit of telescoping, Ld. CIT(Appeals) erred in not giving a specific direction that this telescoping is required to be given against the corresponding income which was offered for taxation partly in the year under consideration and partly in the earlier years - HELD THAT - As in view of the submission of the counsel for the assessee, we are restoring this issue to the file of Ld. CIT(Appeals) for necessary verification. The DR has also not objected to this issue being restored to the file of Ld. CIT(Appeals).

Issues Involved:
1. Addition of unexplained credit deposits under Section 69 of the Income Tax Act.
2. Addition of cash found during the search as unexplained income.
3. Treatment of commission income in cheque discounting business.
4. Telescoping benefit for unexplained cash found.

Issue-Wise Detailed Analysis:

1. Addition of Unexplained Credit Deposits under Section 69:
The primary issue was the confirmation of additions made by the Assessing Officer (AO) under Section 69 of the Income Tax Act, treating aggregate deposits in the assessee's bank accounts as unexplained credit deposits. The AO relied on the Delhi High Court's judgment in CIT v. D.K. Garg, emphasizing that the assessee failed to identify beneficiaries with complete details, thus justifying the additions. The assessee argued that he was engaged in the "cheque discounting" business and only earned commission income, which should be taxed instead of the entire deposits. The Tribunal observed that the AO acknowledged the cheque discounting business and noted that only the commission income should be subject to tax. The Tribunal referred to various judicial precedents supporting the view that only the real income/commission income from cheque discounting should be taxed, not the entire deposits. Consequently, the Tribunal concluded that 0.25% of the total deposits should be considered as commission income for the assessment years under consideration.

2. Addition of Cash Found During the Search as Unexplained Income:
During the search, cash amounting to Rs. 28,30,100 was found, which the assessee could not explain. The AO added this amount as unexplained income, and the CIT(A) confirmed the addition but allowed the telescoping benefit, considering the cash found as an application of income. The Tribunal restored this issue to the CIT(A) for verification, ensuring that the telescoping benefit is given against the corresponding income offered for taxation in the relevant years.

3. Treatment of Commission Income in Cheque Discounting Business:
The Tribunal acknowledged that the assessee was engaged in the cheque discounting business, where he received cash in lieu of cheques and earned commission income. The assessee's contention was that only the commission income should be taxed, not the entire deposits. The Tribunal agreed, noting that the AO had recognized the cheque discounting business and the commission earned. The Tribunal directed that 0.25% of the total deposits in the bank accounts should be considered as commission income for the assessment years 2011-12 to 2017-18.

4. Telescoping Benefit for Unexplained Cash Found:
The CIT(A) allowed the telescoping benefit for the unexplained cash found during the search, considering it as an application of income. The Tribunal restored this issue to the CIT(A) for verification, ensuring that the telescoping benefit is appropriately given against the corresponding income offered for taxation in the relevant years.

Conclusion:
The Tribunal partly allowed the appeals for the assessment years 2011-12 to 2016-17, directing that 0.25% of the total deposits in the bank accounts should be considered as commission income. For the assessment year 2017-18, the appeal was partly allowed for statistical purposes, with the issue of telescoping benefit being restored to the CIT(A) for verification. The Tribunal emphasized the importance of identifying beneficiaries and maintaining complete records to substantiate the commission income claimed by the assessee.

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