2019 (5) TMI 1268 - AT - Income Tax

Appeal Partially Allowed: Assessing Unexplained Deposits & Burden of Proof

The ITAT partially allowed the appeal by adjusting the profit rate for commission income but upheld the addition of unexplained deposits due to the ... Computation of commission income - entry operator - from 2% to 0.50% - HELD THAT:- Since in the case of the assessee in subsequent years as referred to above and in the case of group assessees the Tribunal has considered 0.50% as reasonable rate of profit/commission and directed the AO to adopt the same figure for computing the profit on account of commission, we following the same order set aside the orders of the authorities below and direct the AO to adopt profit rate of 0.50% instead of 2% for estimating the commission income accordingly. These grounds of appeal of the assessee are allowed partly. Unexplained deposit in the bank account of assessee - HELD THAT:- The authorities below have rightly followed the directions of the ITAT issued in first round of proceedings. Assessee cannot take a new plea to challenge the addition u/s 68 of the Act when the first order of the Tribunal has reached finality. Since there is a cash credit appearing in the books/bank account of the assessee, therefore, burden was upon the assessee to explain the same to the satisfaction of the AO as per directions of the Tribunal. Even before us Ld. Counsel for assessee was not able to demonstrate as to how the peak addition could be made in the case of the assessee. We, therefore, do not find any justification to interfere with the orders of the authorities below. Addition of ₹ 4,50,000/- is confirmed. These grounds are, therefore, dismissed. Issues:1. Addition of unexplained commission and cash credits during assessment proceedings.2. Burden of proof on the assessee regarding bank deposits and transactions.3. Application of profit rate for computing commission income.4. Challenge against addition of unexplained deposit in the bank account.Analysis:1. The case involved a search and seizure operation under section 132 of the Income Tax Act, where documents related to the assessee company were found and seized. The assessment was completed, adding unexplained commission and cash credits. The AO observed a modus operandi involving accommodation entries by another individual. The CIT(A) confirmed the additions, but the ITAT set aside the assessment order, directing a fresh adjudication for each company separately, emphasizing the burden of proof on the assessee to establish identity, creditworthiness, and genuineness of transactions.2. Upon fresh adjudication, the AO noted the failure of the assessee to provide details on fund flow and chain of transactions related to accommodation entries. The assessee could not demonstrate the source of cash receipts, layering of funds, or the ultimate beneficiaries. Consequently, the AO made additions based on unexplained investments and cash credits, as the assessee failed to comply with the Tribunal's directions, leading to the dismissal of the appeal by the CIT(A).3. The assessee challenged the computation of commission income at a profit rate of 2%, citing a previous ITAT order that directed a lower rate of 0.50% for similar cases. Following the precedent, the ITAT directed the AO to adopt the lower profit rate for estimating commission income, partially allowing the appeal on these grounds.4. Regarding the addition of unexplained deposits, the assessee argued that since cash deposits were part of the accommodation entry business, no separate addition should be made. However, the ITAT upheld the authorities' decisions, emphasizing the assessee's failure to comply with directions to explain the bank entries and peak credits, leading to the confirmation of the addition of Rs. 4,50,000.In conclusion, the ITAT partially allowed the appeal by adjusting the profit rate for commission income but upheld the addition of unexplained deposits due to the assessee's inability to provide necessary explanations and comply with the Tribunal's directions.