Assessee's income from marble trading facilitation taxed as commission not gross profit

ITAT Jaipur upheld CIT(A)'s decision that assessee's income should be taxed as commission rather than gross profit from marble trading. Assessee operated bank accounts facilitating transactions for marble traders, charging commission of Rs. 100-300 per lakh. AO initially agreed assessee was facilitator but later attempted to tax as marble trader without basis. ITAT found no evidence of trading establishment or infrastructure. However, ITAT rejected CIT(A)'s 25% expense allowance from commission income due to lack of supporting evidence or details.

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Issues Involved:

1. Whether the CIT(A) was right in modifying the G.P. addition made by the A.O. and assessing only net commission income.
2. Whether the CIT(A) was justified in not appreciating that the assessee failed to produce depositors and beneficiaries.
3. Whether the CIT(A) was correct in not appreciating that the assessee was engaged in marble trading and the deposits represented sale proceeds.

Summary of Judgment:

1. Modification of G.P. Addition:
The CIT(A) modified the G.P. addition made by the A.O. by holding that only net commission income of Rs. 225 per Rs. 1 lac could be taxed on the bank deposits. This decision was based on the lack of specific findings on the ownership of the deposits made in the bank accounts. The CIT(A) noted that the assessee acted as a facility provider for marble traders, earning a commission for facilitating cash deposits and withdrawals for these traders. The CIT(A) relied on the remand report, which confirmed that the assessee had no establishment, infrastructure, or registration necessary for conducting marble trading, thus supporting the conclusion that the assessee was not a marble trader but a commission agent.

2. Failure to Produce Depositors and Beneficiaries:
The CIT(A) acknowledged that the assessee failed to produce the depositors and beneficiaries or provide their names and addresses. However, the CIT(A) found that this failure did not justify treating the entire deposits as the assessee's own trading receipts. The CIT(A) emphasized that the assessment was reopened to tax commission income, not trading income. The CIT(A) also noted that the assessee had provided details of marble traders to the Investigation Wing, which was not disputed by the revenue.

3. Engagement in Marble Trading:
The CIT(A) rejected the A.O.'s conclusion that the assessee was engaged in marble trading. The CIT(A) pointed out that the assessee had no sales tax registration, excise registration, or power connection, and did not maintain any books of accounts, purchase and sales accounts, or show any debtors and creditors. These facts indicated that the assessee did not have the means to conduct marble trading. The CIT(A) concluded that the assessee was only earning commission income and not engaged in marble trading. This conclusion was supported by the remand report, which confirmed the absence of any infrastructure for marble trading.

High Court's Direction:
The High Court quashed the ITAT's order and directed the ITAT to decide the matter based on the material available on record, without being influenced by the High Court's order. The High Court instructed the ITAT to consider all issues raised before it and to provide an opportunity for both parties to submit necessary explanations and documents.

ITAT's Final Decision:
The ITAT, after considering the material on record and the submissions of both parties, upheld the CIT(A)'s decision to tax only the commission income. The ITAT noted that the revenue did not provide any additional evidence to counter the CIT(A)'s findings. The ITAT also emphasized that the assessment was reopened to tax commission income, and there was no basis to treat the deposits as trading receipts. The ITAT found that the assessee acted as a facility provider, earning commission for facilitating cash deposits and withdrawals for marble traders. The ITAT, however, disallowed the 25% expenses claimed by the assessee from the commission income due to lack of supporting evidence.

Conclusion:
The appeals of the revenue were partly allowed, with the ITAT upholding the CIT(A)'s decision to tax only the commission income but disallowing the 25% expenses claimed by the assessee. The ITAT's decision applied mutatis mutandis to all similar appeals.

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