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2019 (3) TMI 1535 - AT - Income TaxDisallowance on account of M.O. Commission paid and Cessation of liability u/s 41 - partially rejection of books - estimation of profit being 2% of total sales - trading Addition - HELD THAT:- It is nowhere mentioned that the AO can reject the books of accounts partially. It is also an undisputed fact there was a single set of books of accounts maintained by the assessee. The income shown by the assessee in the instant case can be bifurcated without much effort i.e. trading business and the commission business. But when the issue comes to bifurcate the expenses which have been incurred combinedly for both the sources of income, we find that it is not easy rather impractical to bifurcate the expenses. Assessee did not earn commission income just by making any reference or it was not just the brokerage income earned by arranging a deal between two parties. The assessee to earn commission income has to put continuous efforts by employing a lot of resources of workforce, infrastructure facilities etc. Therefore, it can be inferred that the gross commission income does not represent its full income or major income. AO has treated all the expenses claimed by the assessee against the commission income. Thus the overall position shows that the assessee has to incur expenses against the commission income. We are of the view that the books of accounts of the assessee cannot be rejected partially. It is because the assessee incurred the expenses for it’s both the activities and there were no separate books maintained by the assessee separately for it’s both sources of income. Thus we are of the view that the books of accounts of the assessee cannot be rejected partially in the given facts & circumstances. However, if the books of the accounts are rejected then the income from both the sources needs to be estimated. As there is no dispute that both the sources of income of the assessee, as discussed in the preceding paragraph, cannot fetch the same rate of profit in the event of the rejection of the books of accounts. It is because the nature of both the sources of income is different and distinct from each other. Thus the question arises what should be the rate of profit in the case of commission business. For this purpose we deem it fit to restore this issue to the file of AO for fresh adjudication in the light of the above discussion and as per the provisions of law. Also find pertinent to direct the AO to estimate the income in respect of commission business at the gross commission income declared in the form 26AS as discussed above. The AO will not make any separate addition for the commission income directly paid by Binani Ltd to Shiv & Associates. Also direct that there will not be any separate addition under the provisions of section 41(1) of the Act as made by the AO in the assessment proceedings. It is because the assessee has not written off its liabilities in its books of accounts. Once the books got rejected, then there will not be any separate addition under section 41(1) of the Act. Decided partly in favour of assessee for statistical purposes.
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