2022 (12) TMI 253 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, restricts additions on cash credits & commission income.

The Tribunal upheld the CIT(A)'s decisions on all issues, dismissing the revenue's appeal and the assessee's cross-objection. The additions made on ... Unexplained cash credits u/s 68 - assessee had failed to furnish satisfactory explanation with regard to the identity of the parties, sources thereof, and genuineness of the transactions - CIT-A restricted addition to 0.15% - HELD THAT:- AO has taken note of the information received from the sales tax/DGIT(Inv.) as well as the statement of Shri Abhishek Morarka (director of assessee’s group of companies) to the sales tax department, wherein he admitted that the assessee company is also engaged as an entry operator for beneficiaries in lieu of commission (not into genuine purchase/sales of any goods/products). Based on this information and the infirmities pointed out elaborately (point wise) by AO at para 10 and relying on judicial precedents V Pinto & Co. [2005 (2) TMI 751 - ITAT BANGALORE] and the ratio of case law of Hon’ble Jurisdiction High Court in Ratanlal Omprakash [1981 (4) TMI 82 - ORISSA HIGH COURT] AO found fault with the accounts maintained by the assessee and held it to be incorrect and incomplete. And for the elaborate reason AO rejected the books of accounts for AY. 2011-12 which action has been confirmed by the CIT(A) cannot be faulted since we completely agree with the reasoning given by AO to have rejected the books. So no separate reasons of our own are not given (refer Hon’ble Supreme Court order in CIT Banglore Vs. K. Y. Pilliah and Sons [1966 (10) TMI 35 - SUPREME COURT]. Therefore, ground no. 1 of the assessee’s (CO) fails. Coming to the action of the CIT(A) restricting the commission at 0.15% of the sales rather than 1% of the total purchases we find the action to be a plausible view and so we uphold the same. Therefore, the ground no. 1 of the revenue fails and ground no. 2 of the assessee to further restrict the commission at 0.10% is rejected. Addition by estimating the commission earned @ 1% on purchase and sales of investment transaction made during the year by treating the said transaction as accommodation entry - HELD THAT:- CIT(A) noted that the assessee failed to prove the correctness of the transactions in the purchases and sale of shares. So he confirmed the action of AO. Before us even though the assessee has filed the CO, it has not been filed any material to take a different view other than the view taken by AO/Ld. CIT(A). Therefore, we uphold the action of the Ld. CIT(A) and dismiss this ground of appeal of the assessee’s CO. Disallowance of expenditure treated to the profit and loss account - books of the accounts has been rejected and the AO has resorted to estimate the income, [one percent of sales & purchases] - HELD THAT:- CIT(A) has dismissed this ground of appeal of the assessee because once the books of the accounts has been rejected and the AO has resorted to estimate the income, [one percent of sales & purchases] according to him, the AO has rightly not separately allowed the expenditure claimed in the P&L Account which impugned action of the Ld. CIT(A) is in consonance with settled position of law; and on the very same reasoning, we uphold the action of AO in not separately allowing this expenditure because he rejected the books and resorted to estimation of income; and therefore Ld CIT(A) rightly confirmed the AO’s action on this issue, which does not merit any interference from our side. So we uphold the impugned action of Ld. CIT(A) and therefore this ground of assessee is dismissed. Issues Involved:1. Restriction of addition made on account of unexplained cash credits.2. Estimation of commission income.3. Reliance on a pending High Court decision.4. Rejection of books of account.5. Addition of commission income based on net sales.6. Addition of commission income on purchase and sale of investment transactions.7. Disallowance of expenses debited to the profit and loss account.Detailed Analysis:Issue 1: Restriction of Addition Made on Account of Unexplained Cash CreditsThe revenue questioned whether the CIT(A) erred in restricting the addition made on account of unexplained cash credits under Section 68 of the Income-tax Act, 1961, to 0.15%. The AO had initially determined a commission income of Rs.1,15,91,346/- at 1% of both purchases and sales. The CIT(A) restricted this to 0.15% of sales only, based on the Tribunal's decision in the case of M/s. Goldstar Finvest Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision, finding it a plausible view.Issue 2: Estimation of Commission IncomeThe AO estimated the commission income at 1% on both purchases and sales, totaling Rs.1,22,77,812/-. The CIT(A) reduced this to 0.15% of sales only, following the Tribunal's precedent. The Tribunal agreed with the CIT(A) that the net profit should be estimated only on sales and upheld the restriction to 0.15%.Issue 3: Reliance on a Pending High Court DecisionThe revenue argued that the CIT(A) relied on a decision in the case of Gold Star Finvest Pvt. Ltd., which was pending before the High Court. The Tribunal did not find any infirmity in the CIT(A)'s action, as it was based on a similar case precedent.Issue 4: Rejection of Books of AccountThe assessee contended that the CIT(A) erred in upholding the AO's rejection of the books of account under Section 145(3). The AO had rejected the books due to discrepancies and the statement of the director admitting to providing accommodation entries. The Tribunal agreed with the AO and CIT(A) that the books were rightly rejected due to being incorrect and incomplete.Issue 5: Addition of Commission Income Based on Net SalesThe CIT(A) restricted the commission income to 0.15% of net sales, amounting to Rs.7,36,776/-, instead of the AO's addition of Rs.1,15,91,346/-. The Tribunal upheld this restriction, finding it consistent with the Tribunal's earlier decisions.Issue 6: Addition of Commission Income on Purchase and Sale of Investment TransactionsThe AO added Rs.6,86,466/- by estimating the commission earned at 1% on purchase and sale of investment transactions, treating them as accommodation entries. The CIT(A) upheld this addition, noting the assessee failed to prove the genuineness of the transactions. The Tribunal also upheld this decision, as the assessee did not provide any material to challenge the AO and CIT(A)'s findings.Issue 7: Disallowance of Expenses Debited to the Profit and Loss AccountThe CIT(A) upheld the AO's disallowance of Rs.60,09,088/- in expenses, as the books were rejected and income was estimated. The Tribunal agreed with this reasoning, noting that separate allowance of expenses was not warranted once the books were rejected and income estimated.Conclusion:The appeal of the revenue and the cross-objection of the assessee were both dismissed. The Tribunal upheld the CIT(A)'s decisions on all issues, finding no merit in the arguments presented by either party. The order was pronounced in the open court on 31/10/2022.