RISHWAM PATEL,AHMEDABAD vs. WARD 3(2)(1), AHMEDABAD, INCOME TAX DEPARTMENT, VEJALPUR

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ITA 1617/AHD/2026Status: DisposedITAT Ahmedabad01 September 2026AY 2020-216 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the AO was correct in rejecting the books of accounts, he was not entirely correct in disallowing all expenses related to commission income. The Tribunal directed the AO to re-compute the commission income by allowing 50% of the receipt as per Section 44ADA.

What were the facts?

The assessee failed to file his return of income for AY 2020-21. The AO initiated reassessment proceedings based on information about cash deposits and commission income. The AO rejected the assessee's books of accounts and made additions.

What were the issues?

Whether the commission income should be treated as business income or income from other sources, and whether business expenses are allowable against commission income.

Which sections of the Income-tax Act were involved?

Section 147,Section 144,Section 148A,Section 148,Section 44AD,Section 44ADA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: SHRI NARENDRA PRASAD SINHA & SHRI TAPAS RAM MISRA

For Appellant: Shri B T Thakkar, AR
For Respondent: Smt. Deeba Farhat, SR-DR
Hearing: 10.08.2026Pronounced: 01.09.2026

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal is filed by the Assessee against order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 05.03.2026 for the Assessment Year (A.Y.) 2020-21 in the proceeding u/s 147 r.w.s. 144 of the Income Tax Act [hereinafter referred as “the Act”].

2.

The brief facts of the case are that the assessee did not file his return of income for A.Y. 2020-21. The AO had received an information that the assessee had made cash deposits of Rs. 32,61,949/- in his bank account and also received commission/brokerage of Rs. 33.50 lakhs on which

ITA No.1617/Ahd/2026 Rishwam Patel Vs ITO, AY- 2020-21 2 TDS was deducted. The AO had, therefore, initiated proceeding u/s. 148A(b) of the Act on 29.01.2024 and a notice u/s. 148 of the Act was issued on 28.02.2024 after passing an order u/s. 148A(d) of the Act. In response to the said notice, the assessee had filed his return of income on 28.05.2024 showing income of Rs. 6,53,250/-. In the course of assessment, the AO had noticed that the total credits appearing in the bank account of assessee was Rs. 1,28,13,403/- and income thereon was not properly disclosed in the return. As regarding commission of Rs. 33.50 lakhs received from M/s. Narshidas Morarji Wadia, neither any copy of agreement was brought on record nor the nature of services rendered by the assessee were explained. The AO had, therefore, treated the entire commission of Rs. 33.50 lakhs as income of the assessee from other source. Regarding balance credit of Rs. 1,02,88,403/- appearing in the bank account, the AO had estimated income thereon at the rate of 8%, after rejecting the books of accounts and accordingly addition of Rs. 8,23,075/- was made. The assessment was completed u/s. 147 r.w.s. 144 of the Act on 12.03.2025 at total income of Rs. 41,73,075/-.

3.

Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. Th

4.

Now, the assessee in second appeal before us. The following grounds have been taken in this appeal:

1.

CIT(A) has erred in law and facts in confirming the commission income as income from other source instead of income from business.

ITA No.1617/Ahd/2026 Rishwam Patel Vs ITO, AY- 2020-21 3 2. CIT(A) has erred in law and facts in not granting deduction of business expenses of Rs. 26,55,672/- from commission income. 3. CIT(A) has erred in law and on facts in confirming the rejection of books, where AO has rejected the books without finding any defects, the book rejection be treated as unlawful and returned income be accepted. 4. Your appellant prays to add/alter/delete the grounds of appeal.

5.

Shri B T Thakkar, the Ld. AR of the assessee explained that the assessee was carrying on proprietary business in the name and style of Keshava Retails INC. During the year, the assessee was approached by M/s Narshidas Moraji Wadia to represent them before Gujarat State Disaster Management Corporation for undertaking certain projects. Accordingly, the assessee has received commission of Rs. 33.50 lakhs for procuring work order and execution of the project. The Ld. AR explained that the assessee had employed skilled worker for this purpose and had incurred expenses towards earning of commission of income. Therefore, the AO was not correct in treating the entire commission amount as income of the assessee from other source. He submitted that the AO was also not correct in rejecting the books of accounts of the assessee without pointing out any defect in the books of accounts. According to the Ld. AR, the assessee had incurred expense of Rs. 26,55,672/- towards earning of commission income.

6.

Per contra, Smt. Deeba Farhat, the Ld. SR-DR submitted that the assessee had disclosed sales of Rs. 4,43,302/- only in his P&L account as against total credit of Rs. 1,02,88,403/- in the bank account (after excluding commission received during the year). Thus, the books of accounts were not reliable and were rightly rejected by the AO. She further submitted that the expenses incurred by the assessee were in respect of

ITA No.1617/Ahd/2026 Rishwam Patel Vs ITO, AY- 2020-21 4 regular business activity and the assessee has not brought on record any evidence regarding incurring expense of Rs. 26,55,672/- towards earning of commission income. She, therefore, strongly supported the order of the lower authorities.

7.

We have considered the rival submissions. The fact that the total credit appearing in the bank account of the assessee was to the extent of Rs.1,28,13,403/- has not been disputed. This amount included commission of Rs. 25,25,000/- received during the year. The balance amount of commission of Rs. 8,25,000/- was outstanding and was received in the succeeding year. The assessee had, however, accounted for the entire commission of Rs. 33.50 lakhs as income of this year following the mercantile system of accounting. As against the total credit of Rs. 1,02,88,403/- in the bank account, the assessee has disclosed sales of Rs. 4,43,302/- only in his P&L account. No explanation was given regarding the balance credits as appearing in the bank accounts. The AO had, therefore, rightly rejected the books of accounts of the assessee and estimated profit @ 8% on the credits of Rs. 1,02,88,403/- as appearing in the bank account. As regarding commission of Rs. 33.50 lakhs received from M/s Narshidas Moraji Wadia, the assessee has neither furnished copy of the agreement nor explained the nature of services rendered by him for earning of this income. There was no justification given by the assessee for claim of business expense of Rs. 26,55,672/- towards earning of this commission income. In fact, the details of business expense of Rs. 26,55,672/- is appearing in the P&L account under the head ‘indirect expense’. It is noticed therefrom that these expenses were in respect of account fee, advertising expenditure, bad debts, depreciation, electricity bills and repairing, professional fee, rent expense,

ITA No.1617/Ahd/2026 Rishwam Patel Vs ITO, AY- 2020-21 5 salary, transportation and travelling etc., which could not have been exclusively towards the earning of commission income. Most of the expenses are found to be in respect of regular business of the assessee. At the same time, the AO was not correct in holding that no expenditure was incurred at all by the assessee towards earning of commission income. When the AO had applied the presumptive provision of section 44AD of the Act for working out of the business income, he could have applied the presumptive provision of section 44ADA of the Act for computing the profit and gain out of commission income. The fact that the assessee had incurred commission income was not disputed by the AO. To meet the end of justice, we direct that the income out of the commission receipt should be worked out @ 50% of the receipt, in accordance with the provision of section 44ADA of the Act. Accordingly, the AO is directed to re-compute the income from the commission receipt, as directed above. In the result, the ground taken by the assessee is partly allowed.

8.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the Court on 01/09/2026 at Ahmedabad.

Sd/- Sd/- (TAPAS RAM MISRA) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Dated – 01st September, 2026 (True Copy) Neelesh, Sr. PS आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड� फाईल /Guard file.

ITA No.1617/Ahd/2026 Rishwam Patel Vs ITO, AY- 2020-21 6

आदेशानुसार/BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार पंजीकार (Dy./Asstt.Registrar) उप उप/सहायक उप उप सहायक सहायक पंजीकार सहायक पंजीकार पंजीकार आयकर आयकर अपीलीय आयकर आयकर अपीलीय अपीलीय अिधकरण अपीलीय अिधकरण अिधकरण, अहमदाबाद अिधकरण अहमदाबाद अहमदाबाद / ITAT, Ahmedabad अहमदाबाद

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