Re-characterisation of commission income as unexplained cash credit leads to recomputation of business income and 30% tax rate applied

Re-characterisation of commission receipts as unexplained cash credits was sustained, but authorities failed to reduce the same amount from declared business income, producing a double addition; consequence: AO is directed to recompute business income after deducting the unexplained/unsubstantiated commission receipts. On quantum, the imposition of tax on such additions at 30% rather than 60% is endorsed insofar as the higher 60% levy is inapplicable prior to the statutory cutoff; this position is supported by relevant judicial precedent cited in the text.

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Issues: (i) Whether re-characterisation of commission receipts of Rs. 60,52,302/- as unexplained/unsubstantiated receipts under section 68 resulted in double addition and required reduction from declared business income; (ii) Whether the tax on the addition should be charged at 30% or 60% in view of the post-amendment Section 115BBE and its applicability cutoff.

Issue (i): Whether the re-characterised amount of Rs. 60,52,302/- should be reduced from the business income to avoid double taxation.

Analysis: The assessee had credited commission receipts in business accounts and the AO re-characterised portions as unexplained/unsubstantiated receipts under section 68 but did not reduce the declared business income by the same amount when computing total income, resulting in the same receipts being treated twice in the assessment computation.

Conclusion: The re-characterised amount of Rs. 60,52,302/- must be reduced from the declared business income and the AO is directed to recompute the business income after making the reduction in favour of the assessee.

Issue (ii): Whether the addition of Rs. 60,52,302/- should be taxed at 30% or 60%.

Analysis: Conflicting non-jurisdictional High Court decisions exist on the year of applicability of the enhanced rate under the post-amended Section 115BBE; the applicable statutory amendment is effective from transactions on or after 01/04/2017. In view of precedents favouring the assessee on cutoff applicability, the tax rate applicable to the subject receipts is the pre-amendment rate.

Conclusion: The addition of Rs. 60,52,302/- is to be taxed at 30% and not at 60%.

Final Conclusion: The appeal is allowed by directing recomputation of business income after reducing Rs. 60,52,302/- from declared business income and by directing taxation of the said addition at 30%.

Ratio Decidendi: Where amounts in business accounts are re-characterised as unexplained or unsubstantiated receipts under section 68, the re-characterised amount must be deducted from the declared business income to avoid double addition; additionally, the enhanced tax rate introduced by statutory amendment applies only from the amendment's effective date, and pre-effective transactions attract the earlier rate.

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