2023 (5) TMI 1186 - AT - Income Tax

ITAT Delhi reduces commission income assessment from 2% to 0.47% net rate after allowing operator expenses

ITAT Delhi reduced commission income assessment for accommodation entry operator from 2% to 0.47% net rate after allowing expenses. CIT(A)'s property ... Determination of commission income of the proven accommodation entry operator - CIT(A) restricted the rate of commission to 1.04% as against 2% computed by the AO - HELD THAT:- As per the explanation and submissions of the assessee, whole of the expenses incurred in earning commission income shall be allowed and accordingly the net rate of commission earned by the assessee i.e. 0.47% is the best which can be applied on the turnover of the accommodation entries after elimination of circular transactions. Thus the maximum addition which can be made in the hands of the assessee on account of commission earned on turnover of the accommodation entries worked out accordingly. Estimating the correct value of the property and expenses incurred thereon - Receipt of the valuation report of the DVO after 6 months after the reference - assessee owns 50% of the property - HELD THAT:- CIT(A) concurrently considered the provisions of Section 56(2)(vi ib) and Section 50C, report of the DVO and the stamp duty valuation (circle rates). CIT(A) held that the value as per the stamp duty valuation authority shall be taken as full value of the consideration and since the payment made by the assessee is as per the stamp value authorities determination, no addition is called for. Addition made on account of cost of construction CIT(A) held that there was no difference between the value in the cost of construction declared by the assessee and the value as considered by the AO, can be attributed owing to the variance being less than 10% of the accepted norms of variation. Having gone through the facts, we find no reason to interfere with the decision of the ld. CIT(A) who accepted the value of the land as per the circle rate and value of the construction within the acceptable range of variation. Protective Addition - As substantive addition has already been completed in the case of Sh. Naresh Kumar Jain and hence, no protective addition can be confirmed at this juncture in the case of the assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Validity of the assessment orders under Section 153A of the Income Tax Act, particularly in light of the alleged unlawfulness of the search and seizure operations.Whether the assessment orders were barred by limitation and whether statutory notices were properly served.Determination of the commission income of the assessee as an alleged accommodation entry provider, including the appropriate rate of commission to be applied.Exclusion of certain transactions from the turnover calculation, particularly those related to M/s Ambarnuj Finance & Investments Pvt. Ltd.Whether the expenses incurred in earning commission income should be fully allowed.Handling of protective additions and their validity.Validity of the DVO report and its impact on the valuation of the property for tax purposes.2. ISSUE-WISE DETAILED ANALYSISValidity of Assessment Orders under Section 153A- Legal Framework and Precedents: Section 153A pertains to assessments made pursuant to a search. The assessee argued that the search was unlawful, rendering the subsequent assessment invalid.- Court's Interpretation and Reasoning: The Tribunal did not find merit in the argument that the search was unlawful, as the assessment under Section 153A was conducted following statutory procedures.- Conclusion: The assessments were upheld as valid.Commission Income Determination- Legal Framework and Precedents: The determination of commission income involves assessing the rate applied to the turnover of accommodation entries.- Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer (AO) failed to eliminate circular transactions when computing the turnover. The CIT(A) corrected this by accepting the turnover after eliminating these transactions and applying a commission rate of 1.04% instead of the AO's 2%.- Key Evidence and Findings: The Tribunal relied on the 'short and excess account' in the Tally Data, which provided a detailed record of commission income and expenses.- Application of Law to Facts: The Tribunal accepted the CIT(A)'s approach to calculating the commission rate, which was based on the net commission income after deducting expenses.- Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument for a higher commission rate and found the CIT(A)'s method more reasonable.- Conclusion: The Tribunal directed the application of a 0.47% commission rate, reflecting the net commission income.Exclusion of Transactions Related to M/s Ambarnuj Finance & Investments Pvt. Ltd.- Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that transactions related to this entity should be excluded from the turnover calculation, as no adverse inference was drawn against it in its assessment.- Conclusion: The exclusion was upheld.Expenses Incurred in Earning Commission Income- Court's Interpretation and Reasoning: The Tribunal found the CIT(A)'s decision to restrict expenses to 30% of gross commission receipts to be arbitrary. It held that the entire expenses recorded in the seized data should be allowed.- Conclusion: The Tribunal directed that the full expenses be allowed, leading to a net commission rate of 0.47%.Protective Additions- Court's Interpretation and Reasoning: The Tribunal found that protective additions were not warranted as substantive assessments were completed elsewhere.- Conclusion: Protective additions were dismissed.DVO Report and Property Valuation- Legal Framework and Precedents: The valuation of property for tax purposes can involve a DVO report, but it must comply with statutory timeframes.- Court's Interpretation and Reasoning: The Tribunal upheld the CIT(A)'s decision that the DVO report was not fatal to the assessment since the assessment was completed within the statutory timeframe. The valuation was aligned with the stamp duty valuation, which was deemed appropriate.- Conclusion: The DVO report's valuation was not accepted as it exceeded the stamp duty valuation.3. SIGNIFICANT HOLDINGS- Core Principles Established: The Tribunal emphasized the importance of eliminating circular transactions in calculating turnover and ensuring that all expenses incurred in earning commission income are considered.- Final Determinations on Each Issue: The Tribunal directed the application of a 0.47% commission rate, upheld the exclusion of certain transactions, allowed full expenses, dismissed protective additions, and accepted property valuation based on stamp duty.- Verbatim Quotes: 'The contention of the appellant that expenses side represent the expense incurred by the appellant in arranging accommodation entries is found to be correct.' This highlights the Tribunal's acceptance of the necessity to consider expenses in full when determining net commission income.