Taxation of Bank Credits: limit tax to real commission income; special tax provision applies from its effective date.

Disputed bank credits were treated on the basis that tax applies to real income not gross receipts; where receipts correspond to broking/commission activity and suppliers/payments exist, the taxable amount was restricted to commission income estimated on a net-profit basis, and an amount already assessed in the hands of the principal was disallowed against the conduit. The special tax provision for computation was held applicable from its effective date and the tax is to be computed accordingly, resulting in a partly allowed appeal by restricting additions and dismissal of the revenue's challenge on that point.

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Issues: (i) Whether additions of Rs. 1,37,69,087 under section 69A of the Income-tax Act, 1961 in respect of bank credits are sustainable or require restriction to taxable profit/commission; (ii) Whether section 115BBE of the Income-tax Act, 1961 applies with effect from 15.12.2016 to the disputed transactions.

Issue (i): Whether additions of Rs. 1,37,69,087 under section 69A are sustainable against the assessee who claimed the credits arose from broking/commission transactions and that part of the receipts (Rs. 55,00,000) has already been assessed in the hands of another person.

Analysis: The Tribunal examined bank records, statements and the reassessment findings in the hands of the employer (who was held to have opened, controlled and operated the proprietary concern and its bank account), noting circulation of funds and transfers ultimately to the employer. The Tribunal applied the principle that tax is on real income and not on gross receipts, and considered precedents where net profit rates or commission rates were applied to disputed receipts where corresponding payments/suppliers existed. The Tribunal also applied the principle of avoidance of double taxation where identical additions had already been made in the hands of the main person.

Conclusion: The Tribunal held that the addition of Rs. 55,00,000 cannot be sustained against the assessee as that amount has already been assessed in the hands of the employer; and in respect of the remaining credits of Rs. 1,37,69,087 the Tribunal restricted the taxable amount to commission income estimated at 2% (Rs. 2,75,381.74), thereby partly allowing the assessee's appeal.

Issue (ii): Whether section 115BBE is applicable with effect from 15.12.2016 for computing tax on the disputed transactions.

Analysis: The Tribunal considered the authorities relied upon and the coordinate bench decisions interpreting the effective date of applicability of the amended penal provision. In absence of contrary material, the Tribunal followed the consistent view in cited decisions that section 115BBE applies with effect from 15.12.2016.

Conclusion: The Tribunal held that section 115BBE applies w.e.f. 15.12.2016 and directed computation accordingly (tax calculated at 30% as adopted by the CIT(A) in line with the cited decisions), and dismissed the department's appeal on this issue.

Final Conclusion: The appeals are disposed of so that the assessee's appeal is partly allowed by restricting the addition on disputed bank credits to commission income estimated at 2%, and the revenue's appeal is dismissed; the deletion of Rs. 55,00,000 stands where that amount has already been assessed in the hands of the main person.

Ratio Decidendi: Where disputed bank receipts are shown to have corresponding payments/turnover and the assessee demonstrates brokerage/commission activity such that only a profit margin is realistically earned, tax may be restricted to the real income (net profit/commission) rather than treating gross receipts as taxable income; identical additions already assessed in hands of the principal cannot be sustained again against the conduit/name-lender.

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