2008 (3) TMI 687 - AT - Income Tax

Addition on unexplained cash credits - credits in bank accounts - earned commission income at the rate of 0.15% - reasonable percentage of the commission on the total turnover? - HELD THAT - Having carefully examined the various Orders in the case of different assessees it has become amply clear that in these type of activities brokers are only concerned with their commission on the value of the transactions. The assessee has also made out a case that the customers do not come directly to him and they come through a sub-broker who also charge a particular share of commission. In all the judgments what has been stated is that an average percentage of commission is between . 15% to .25%. In the cases of Palresha Co. (supra) and Kiran Co. (supra) the Tribunal has considered reasonableness of percentage of commission to be earned on turnover was at .1%. The assessee himself has offered the percentage of commission at 0.15% which is more than the percentage of commission considered to be reasonable by the Tribunal in the cases of Palresha Co. (supra) and Kiran Co. (supra) in similar type of transactions. The theory of the Assessing Officer to treat the entire deposit as unexplained cash credits cannot be accepted in the light of assessment orders in the case of beneficiaries and also in the light of the fact that assessee is only concern with the commission earned on providing accommodation entries. We therefore of the view that since the assessee itself has declared the commission on turnover at 0.15% which is more than the percentage considered to be reasonable by the Tribunal in the cases of Palresha Co. (supra) and Kiran Co. (supra) the same should be accepted. We accordingly accept the commission declared by the assessee and set aside the Order of the CIT (A) in this regard. Disallowance on loss - sale of assets - HELD THAT - The assessee company was asked to submit the details of the same and in response thereto it was stated that the company was taken over by the assessee with assets and liabilities. At the time of take over it was decided that fixed assets and debtors were to be realized and out of such realization the creditors were to be paid. During the course of this process the company had suffered a loss of which details are given in para 10 of the assessment order. The assessee company was asked to produce the supporting bills for repairs and name and addresses of the parties on behalf of the company made transactions but the assessee did not file any details and the Assessing Officer has rejected the claim of the assessee. Similar was the position before the CIT (A) and the CIT (A) confirmed the disallowance. Before the Tribunal the assessee could not improve his case and we therefore find no merit in this ground. Accordingly we dismiss the same. In the result appeal of the assessee is partly allowed and that of the Revenue is dismissed.

Summary

Issues Involved:
1. Estimation of commission income.
2. Treatment of cash and other deposits in bank accounts.
3. Disallowance of loss on sale of assets.
4. Interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Estimation of Commission Income:
The assessee, a Private Limited Company engaged in dealing with shares and securities, declared a loss of Rs. 5,85,025/- in its return. The Assessing Officer (AO) scrutinized the return and determined the income at Rs. 26,61,25,050/-, treating cash and other deposits in the bank accounts as income from undisclosed sources. The AO noted that the assessee showed income from commission and brokerage of Rs. 4,99,000/- and professional fees of Rs. 55,000/-. The assessee calculated commission at 0.15% on transactions through the bank. The AO treated the deposits as income from undisclosed sources, adding Rs. 25,59,97,475/- to the income.

The CIT (A) re-examined the issue and directed the estimation of income at 2% of the turnover, which was challenged by both the assessee and the Revenue. The Tribunal referred to similar cases, such as ITO v. Palresha & Co. and Kiran & Co. v. ITO, where the commission was accepted at 0.1%. The Tribunal concluded that the commission declared by the assessee at 0.15% was reasonable and set aside the CIT (A)'s order, accepting the commission declared by the assessee.

2. Treatment of Cash and Other Deposits in Bank Accounts:
The AO treated the entire amounts of cash and other deposits in the bank accounts as income from undisclosed sources due to the assessee's failure to provide details of the transactions. The CIT (A) directed the estimation of income at 2% of the turnover, but the Tribunal found that the assessee, being a broker, was only concerned with the commission on the value of transactions. The Tribunal referred to similar cases and concluded that the entire deposit could not be treated as unexplained cash credits. The commission declared by the assessee at 0.15% was accepted as reasonable.

3. Disallowance of Loss on Sale of Assets:
The assessee claimed a loss of Rs. 6,49,788/- on the sale of assets, which was disallowed by the AO due to the lack of supporting details. The CIT (A) confirmed the disallowance. The Tribunal found no merit in the assessee's claim as no additional details were provided, and dismissed this ground.

4. Interest under Sections 234B and 234C:
The assessee contested the interest levied under sections 234B and 234C. The Tribunal deemed this ground as consequential in nature and did not require independent adjudication, thus rejecting the ground.

Conclusion:
The appeal of the assessee was partly allowed, accepting the commission declared at 0.15%, and the appeal of the Revenue was dismissed. The Tribunal emphasized that brokers are concerned with commission on transactions and not the entire deposit amounts. The disallowance of the loss on the sale of assets was upheld due to insufficient details, and the interest under sections 234B and 234C was considered consequential.