2025 (8) TMI 1680 - AT - Income Tax

Revenue appeal dismissed; 0.10% of turnover held as reasonable adjustment for undisclosed commission based on survey evidence

DCIT, Central Circle-4 (4), Kolkata Versus Odyssey Securities Pvt. Ltd.

ITAT KOLKATA - AT dismissed the revenue's appeal, upholding the CIT(A)'s adjustment of undisclosed commission income at 0.10% of turnover. The Tribunal ... Addition in respect of undisclosed commission income to 0.10% of the total turnover - statements recorded during a survey relied upon - relevancy of statement recorded on oath in which it was admitted that commission was @2% - HELD THAT:- CIT(A) upon perusal of the remand report as well as rejoinder noted that in the statement recorded during the course of Mr. Sanjay Bansal had stated that they used to receive commission in the range of 0.05% to 0.15% which is extracted in para 6.2 of the appellate order. CIT(A) relied on the decision of Aryav Securities Pvt. Ltd. [2023 (11) TMI 1390 - ITAT KOLKATA] wherein the AO initially charged the commission @2% but it was reduced to by the ld.CIT(A) to 0.01% on the basis of statement of deponent. No infirmity in the appellate order which is a very reasoned and speaking order. Revenue’s appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer may make an addition of undisclosed commission income at 2% of net premium based on statements recorded during a survey under Section 133A and Section 131, when parts of those statements were subsequently retracted. 2. Whether reliance on portions of a deponent's statement that admit commission in the range of 0.05%-0.15% justifies restricting an estimation of undisclosed commission to 0.10% of total turnover, rather than applying the 2% figure claimed in another part of the statement. 3. Whether an estimating addition based on a generalized percentage (2%) is sustainable where the assessee maintains that commission receipts are reflected in books and contends that imposition of the higher percentage would result in double taxation. 4. Whether a coordinate tribunal/prior decision on materially similar facts (reducing commission estimate to 0.10%) is a proper basis to uphold a reduced estimated addition in the present assessment. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of addition at 2% based on survey/131 statement (retracted) Legal framework: Survey proceedings under Section 133A and statements recorded under Section 131 are admissible and can form the basis for inquiries leading to reassessment under Section 147/148; however, statements may be retracted and must be considered in the factual matrix before forming an adverse inference. Precedent Treatment: The Court relied on prior coordinate-bench treatment where tribunal/citation reduced an assessing officer's estimation when statements recorded in survey proceedings contained admissions inconsistent with the assessing officer's estimate. Interpretation and reasoning: The Tribunal observed that although an initial portion of the deponent's statement admitted commission at 2%, other parts of the same statement (and subsequent retraction) indicated commission in the range of 0.05%-0.15%. The Assessing Officer adopted the 2% figure without adequately addressing the retraction or the inconsistent portions. The Assessing Officer also failed to engage satisfactorily with the assessee's rejoinder to the remand report and did not confront the specific explanations offered by the assessee. Ratio vs. Obiter: Ratio - an assessing officer cannot simply apply a higher percentage from survey statements without confronting inconsistent admissions and the assessee's specific explanations; evidentiary inconsistencies must be resolved before applying a heavy estimation. Conclusion: The AO's blanket application of 2% based on the survey/131 statement is not sustainable on the record; the Tribunal endorses the view that the inconsistent and retracted portions require limiting the estimation. Issue 2: Permissibility of estimating undisclosed commission at 0.10% based on parts of the statement and similar precedent Legal framework: Where income is to be estimated, the estimating authority must base estimation on relevant material, reasonable rationale and available contemporaneous admissions; estimations must not be arbitrary and ought to reflect the factual matrix. Precedent Treatment: The Tribunal expressly relied on a coordinate-bench decision where, on similar facts and the same assessing officer's approach, the estimating percentage was reduced from 2% to 0.10% after examining the deponent's statements and surrounding circumstances. Interpretation and reasoning: The Tribunal examined the entirety of the recorded statement and noted specific admissions that commission was earned at 5-15 paise per Rs.100 (i.e., 0.05%-0.15%). Given that range, the Tribunal found the CIT(A)'s selection of the mid-point-like figure of 0.10% to be reasoned, supported by the deponent's own words, and consistent with the coordinate-bench decision. The Tribunal also noted the AO's failure to address the assessee's rejoinder and to reconcile the disparate parts of the survey/131 statement before applying 2%. The Tribunal concluded that a reduced, quantifiable estimate drawn from the admitted range was a proper exercise of the estimation power and avoided arbitrary over-assessment. Ratio vs. Obiter: Ratio - where a recorded statement contains a specific range for commission, an estimating addition may properly be limited to a figure within that range (here 0.10%), especially when the AO fails to justify a higher arbitrary rate. Conclusion: The addition is to be restricted to 0.10% of total turnover; the AO's 2% estimate is excessive and unsupportable on the record. Issue 3: Double taxation argument and evidentiary burden regarding recording of commission in books Legal framework: If commission income is already reflected in books of account, making an addition without considering book entries may lead to double taxation; the AO must examine books and relevant entries before making an estimating addition. Precedent Treatment: The Tribunal noted that the assessing officer did not adequately deal with the assessee's contention that commission was recorded in books and that the rejoinder to the remand report was not addressed pointwise. Interpretation and reasoning: The Tribunal found that the AO's remand report and assessment order did not sufficiently consider or rebut the specific claim that commission income was accounted for. In absence of a clear demonstration that book entries were false or did not represent actual receipts, the Tribunal considered the assessee's contention material and relevant to the estimation exercise. The Tribunal therefore treated the AO's failure to engage with the recorded accounts and the rejoinder as a flaw in applying a higher estimation. Ratio vs. Obiter: Ratio - estimating additions should be made after due consideration of books where the assessee affirmatively states that the relevant receipts have been accounted for; unexplained disregard of such claims undermines the estimation. Conclusion: The AO should reconcile the books and the assessee's explanations; lacking that, the higher addition cannot be sustained and the reduced estimate is appropriate to avoid potential double taxation. Issue 4: Reliance on coordinate tribunal decision as guiding precedent Legal framework: Decisions of coordinate benches on materially identical facts can be persuasive and provide guidance in determining a reasonable estimate where similar evidence and admissions exist. Precedent Treatment: The Tribunal expressly relied on a coordinate-bench decision that reduced a 2% estimation to 0.10% after a similar analysis of survey statements and admissions; that decision was treated as supporting authority for adopting the lower rate. Interpretation and reasoning: Given the close factual similarity - same assessing officer, similar modus operandi, and comparable admissions in survey statements - the Tribunal found it appropriate to follow the coordinate-bench outcome. The Tribunal emphasized that the prior decision showed a consistent approach of not accepting an arbitrary higher rate when the deponent's own statement confined commissions to the low paise-per-Rs100 range. Ratio vs. Obiter: Ratio - in the facts presented, a coordinate-bench finding reducing the estimation is a proper and persuasive basis to uphold a similar reduction. Conclusion: The Tribunal upheld the reduction to 0.10% by reference to the coordinate decision and the specific admissions in the record; reliance on that precedent was appropriate. Overall Conclusion and Direction On the totality of the record - inconsistent and retracted survey/131 statements, the assessee's claim that commission was recorded in books, the AO's failure to address the rejoinder and reconcile accounts, and persuasive coordinate-bench precedent - the Tribunal upheld the appellate authority's restriction of the undisclosed commission addition to 0.10% of total turnover. The AO's addition at 2% is set aside to the extent it exceeds the 0.10% figure; the remainder of the higher addition is deleted.