2017 (2) TMI 111 - AT - Income Tax

Tribunal upholds income estimation, emphasizes accurate bookkeeping and compliance

Disha Devang Kapasi Versus The ITO Ward 15 (3) (1), New Ward 27 (1) -4, Mumbai

The Tribunal partially allowed the appeal, directing the Assessing Officer to verify transactions and consider the appellant's explanations on income ... Estimating income of the appellant @2% of the value of the sales bills issued by the appellant in respect of supply of building materials as against 0.75% actually received - Held that:- AO would verify whether the cheques received from the parties were deposited in the bank accounts and cash was withdrawn immediately thereafter and handed over to the parties. If the assessee is able to prove the same before the AO, then the assessee’s claim of estimating net commission income on the gross value of the transportation fee at 0.5% + TDS shall be accepted. Also if the assessee is able to prove the above, the AO would accept the net commission income from the gross value of building material supply bills @ 0.75%. Accordingly we set aside the order of the ld. CIT(A) on this issue and restore the same to the file of the AO to follow the direction as given at para 7.2 here-in-above and pass a fresh assessment order as per the provisions of the Act after giving reasonable opportunity of being heard to the assessee. Thus ground number 1,2, 4(i)(ii) ,5 & 8 are allowed for statistical purpose. Allowance of expenses from the income earned by way of commission on providing accommodation entries - Held that:- Keeping the principle laid down in the above decision of the Hon’ble High Court instead of the Tribunal order in M/s Saroj Anil Steel Pvt. Ltd. (2012 (10) TMI 1133 - ITAT MUMBAI) the claim of the assessee to allow expenses from the income earned by way of commission on providing accommodation entries of transportation is rejected. Issues:1. Estimation of income based on sales bills2. Rejection of various expenses claimed by the appellant3. Rejection of rate of commission earned by the appellant4. Determination of net commission income5. Allowability of expenses claimed by the appellant6. Application of relevant legal principles in determining income7. Compliance with natural justice principles in enhancing assessed incomeAnalysis:Estimation of income based on sales bills:The appellant challenged the estimation of income by the ld. CIT(A) at different rates than what was actually received from sales bills. The appellant argued that the ld. CIT(A) erred in not considering the expenses incurred for business activities, leading to a substantial difference in the net commission income earned. The Tribunal directed the AO to verify the transactions and consider the appellant's explanations, setting aside the CIT(A)'s decision for further examination.Rejection of various expenses claimed by the appellant:The appellant contended that the expenses claimed in the Profit & Loss Account were disallowed by the ld. CIT(A) on the grounds of lack of genuine business activity. The Tribunal dismissed this ground, citing the principle that if books are not correct or complete, the AO may estimate income to the best of judgment, taking into account all deductions under section 29 of the Income Tax Act.Rejection of rate of commission earned by the appellant:The appellant disputed the rejection of the rate of commission earned in accommodation entries, arguing discrepancies between the admitted rates and those determined by the ld. CIT(A). The Tribunal upheld the decision to reject the claim based on the principle that expenses claimed from commission income were not allowable.Determination of net commission income:The Tribunal directed the AO to verify the appellant's claims regarding the handling of cheques received from parties, emphasizing the need for evidence to support the claimed rates of commission income. The Tribunal allowed certain grounds for statistical purposes, indicating a partial acceptance of the appellant's contentions.Allowability of expenses claimed by the appellant:The Tribunal considered the appellant's submissions regarding expenses incurred for business activities but ultimately rejected the claim based on the assessment of income in accordance with legal provisions. The decision emphasized the importance of accurate and complete bookkeeping for income computation.Application of relevant legal principles in determining income:The Tribunal referred to legal precedents and principles to guide the assessment of income, highlighting the need for adherence to statutory provisions and the rejection of claims not supported by sufficient evidence or compliance with the law.Compliance with natural justice principles in enhancing assessed income:The Tribunal addressed concerns regarding the enhancement of assessed income without proper notice or opportunity for the appellant to respond. The decision emphasized the importance of following natural justice principles in tax assessments to ensure fairness and transparency.In conclusion, the Tribunal partially allowed the appeal, directing further examination by the AO on specific issues while dismissing other grounds based on legal principles and evidentiary requirements.