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Mr. Narendra R. Shah, Versus ACIT, CC-13, Mumbai and Vica-Versa

2016 (5) TMI 638 - ITAT MUMBAI

Estimation of rate of commission earned on the accommodation cheques - Held that:- as a result of search and survey, the AO has found that assessee was engaged in giving accommodation entry on which assessee has earned commission income of 5 to 7%. Accordingly the AO estimated assessee’s income in the form of commission @5% on the amount of cheques issued. In an appeal filed by the assessee before CIT(A), the CIT(A) after consideration entire seized material as well as statement of various perso .....

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ll be fair and reasonable. Nothing was brought on record so as to persuade us to deviate from the findings recorded by CIT(A) for arriving at this conclusion. Accordingly, we do not find any reason to interfere in the order of CIT(A) for upholding the net commission to the income of 2.4%. In view of the above, ground taken by the assessee with regard to estimation of commission rate are hereby dismissed. - ITA No.2637 to 2644/Mum/2011, ITA No.2833 to 2840/Mum/2011 - Dated:- 6-4-2016 - SHRI R.C.S .....

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nt and at his request case was adjournment to 25-5-2015. On 25-5-2015 none appeared on behalf of the assessee, therefore, once again case was adjourned to 10-12-2015. The assessee was issued notice by RPAD, however, none appeared on the date fixed for hearing i.e. on 10-12-2015. Accordingly, the bench decided to dispose the appeal after hearing the ld. DR and going through the material placed on record. 3. Common grievance of both assessee and revenue pertains to estimation of rate of commission .....

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d by the Dy. Director of Income Tax (Investigation). The statements of the assessee were recorded on various dates in the course of search and in post search inquiries. During the course of the said search and seizure actions the assessee admitted before the DDIT(Inv) that he was engaged in providing various financial accommodation entries to the needy persons. These accommodation entries included providing speculation profit, artificial long term capital gains providing share application money, .....

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addresses of some beneficiaries who availed the financial accommodation 'entries for long term capital gains, speculation profit, share application money, gifts / donations etc. The assessee furnished the returns of income u/s.153A and u/s.l39(1) for A.Y. 2000-01 to 2007-08, after search action for various years as under:- Sr.No. Assessment Year Date of filing of return Total income declared (Rs) Income assessed (Rs.) 1 2000-2001 28.04.2008 1,51,424 28,05,247 2 2001-2002 28.04.2008 1,09,273 .....

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s of various bank accounts of various entities fully controlled by the assessee and the summary of cheques issued from the bank accounts were prepared and the aggregate amount of cheques issued was quantified for the purpose of applying the rate of commission for giving accommodation entries and in this manner the income of the assessee was estimated for the various assessment years involved. At the same time the A.O. worked out the amount of cheques deposited in the bank accounts of the assesse .....

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tail in the assessment order for various years and briefly stated the same was that the beneficiaries through penny stock entry providers/middlemen approached the assessee for taking financial accommodation entries for artificial speculation profit, artificial long term capital gains etc. The assessee used to receive the amount from those persons and the same were deposited in the bank accounts from where the cheques were issued to the beneficiaries. Sometimes the amount was transferred from' .....

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observing as under :- 7.1. I have carefully and dispassionately considered various submissions of the appellant on various disputed issues. I have perused the assessment order and the reasons given by the A.O. for estimating the gross commission @5% of the amount of cheques issued from the bank accounts for various financial accommodation entries. The basis of the A.O is that department has got information that in this type of activity prevailing rate was 5% of the amount of cheque issued. For .....

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.Niraj Kanthilal Shah to the effect that only 2% was paid by him to the appellant. The appellant produced this middlemen before the A.O. All these facts are narrated in the assessment order by the A.O. The assessing officer further admits in the assessment order that J ayant B.Patel has admitted to have obtained the long term capital gains through the middlemen Niraj Kantilal Shah In the cross examination also Jayant B.Patel was stated to have paid 2 to 3% as commission for obtaining the artific .....

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fact. The seized materials also point to this fact. The modus operandi of the appellant, as detected by the Investigation Wing and the Assessing Officer further confirm the involvement of sub-brokers and middlemen. It is also not disputed that middlemen would take their part of commission and whole amount would obviously not be paid to the appellant by them. Thus even if the statements of Narottam Shah and Sunil Pachigar are taken to be correct, then out of such 5% the middlemen would pocket nor .....

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lant's commission was 5i'o minus middlemen commission of about 2%. In the statement recorded u/s.131 on oath before the DDIT, the appellant admitted to have earned commission for providing long term capital gains @2 to 3% subject to the claim of expenses. Considering the totality of the circumstances, various evidences brought on record, the seized material which, contain the rate of commission charged by the appellant, I am of the view that it would be fair and reasonable to adopt the & .....

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from various banks and on that basis the appellant prepared the summary of cheques issued and worked out the amount of gross commission which was substantially higher. It is an admitted fact on record that the appellant was not maintaining any books of account 'and therefore the expenses were claimed on adhoc estimation and the gross commission was also estimated on adhoc percentage basis. The whole things are based on estimation. The A.O. increased the estimation of gross commission by taki .....

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ses @25% of the gross commission. The A.O estimated 'the commission income @1% but did not allow any expenses. The ITAT considering the claim of expenses reduced the final estimation of income @ 0.5% of the bank deposits. The said assessee was also found to be involved in giving bogus hawala entries by issuing cheques and depositing the amount in bank accounts. Viewing the facts collectively I am of the view that claim of expenses on adhoc basis of the gross commission needs to be upheld and .....

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50% of the gross commission is allowable. Firstly, the appellant has not given any bifurcation of the turnover and the cheques issued for the purpose of long term capital gains and for speculation profit etc. It is for the appellant to give such bifurcation and substantiate the same which has not been done in this case. I have no other option but to reject this claim of 50% of expenses. Having regard to facts and circumstances it would be fair and reasonable if the claim of expenses @ 20% of gr .....

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ect to verification of facts and figure by the A.O). NARENDRA R.SHAH Sl. No. Assessment Year Turnover of cheques issued amount (Rs.) Gross commission @3% of bank deposits or cheuqes issued 20% of gross commission (i.e.0.6%) Net income(Rs.) 1 2000-2001 35,856,633 1,075,699 215,139 860,560 2 2001-2002 21,765,767 652,973 130,594 522,379 3 2002-2003 205,218,139 6,156,544 1,231,308 4,925,236 4 2003-2004 204,456,366 6,133,690 1,226,738 4,906,952 5 2004-2005 179,636,035 5,389,081 1,077,816 4,311,265 6 .....

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of CIT(A) both assessee and revenue are in appeals before us. 7. In all the appeals, the assessee is aggrieved by the action of CIT(A) for not accepting the commission @0.4% as offered by the assessee and for confirming the commission rate of 2.40%. However, the revenue is aggrieved by the action of CIT(A) directing to adopt rate of commission at 3% as against 5% applied by AO, merely relying on only one confirmation without appreciating other documentary evidence confirming the payment of commi .....

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mission @5% on the amount of cheques issued. In an appeal filed by the assessee before CIT(A), the CIT(A) after consideration entire seized material as well as statement of various persons recorded during search came to the conclusion that assessee has earned commission income of 3%. Thereafter by applying the ratio laid down by coordinate bench in the case of Sumermal R. Jain (supra), the CIT(A) also allowed expenses of 20% of gross commission, thus, arrived at net commission of ₹ 2.6% as .....

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