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Facts
The assessee filed an appeal against an ex parte order of the CIT(A) which dismissed the appeal for non-prosecution. The additions sustained by the lower authorities included cash deposits, investment in BMA Commodities, and professional receipts. The assessee challenged these additions.
Held
The Tribunal held that the CIT(A)'s ex parte order was not sustainable as it failed to adjudicate issues on merits. On merits, the Tribunal deleted additions related to cash deposits and BMA Commodities investment, restricted the addition on professional receipts to 10% of gross receipts, and deleted the addition on brokerage income.
Key Issues
Whether the CIT(A) order passed ex parte without deciding on merits is sustainable, and whether the additions made by the AO on account of cash deposits, investment, professional receipts, and brokerage income are justified.
Sections Cited
250(6), 69A
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order of the NFAC, Delhi vide order dated 27/06/2024 in DIN No.ITBA/NFAC/S/250/2024- 25/1066141596(1) for the assessment year 2012-13.
This appeal by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), which has been passed ex parte. The assessee has challenged the various additions sustained by the authorities below. We have heard the learned Authorised Representative for the assessee as well as the learned Departmental
Page 2 of 6 Representative and perused the materials available on record including the paper book filed.
At the outset, it is noticed that the order of the learned CIT(A) has been passed without deciding the issues on merit. The appeal has been dismissed for non-prosecution on the reasoning that despite several notices, the assessee failed to appear. The learned CIT(A) relied upon various precedents to hold that law aids those who are vigilant and not those who sleep upon their rights. In effect, the appeal was dismissed ex parte without examination of the additions on merit. In our view, this approach is contrary to section 250(6) of the Act, which mandates the appellate authority to pass a speaking order stating points for determination, decisions thereon and reasons for such decisions. Therefore, it becomes necessary for us to examine the additions on the basis of the materials available on record.
The first addition relates to cash deposits of ₹9,22,100. The Assessing Officer was of the view that the assessee had failed to explain the source of cash deposits in the bank account. Accordingly, he treated the same as unexplained money under section 69A of the Act. The assessee, however, had pointed out that the AO himself recorded in the order that there was cash withdrawal of ₹14,00,000 from the same account.
The Authorised Representative submitted that the withdrawal sufficiently explains the subsequent deposit.
On the other hand, the learned DR relied upon the order of the Authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. We find that when the withdrawal is accepted, it is not open to the AO to disregard the same while considering the deposit, unless there is material to show that the withdrawn amount was spent elsewhere. In the absence of such material, the deposit of ₹9,22,100 stands explained. Therefore, this addition is directed to be deleted.
The next issue concerns the addition of ₹3,00,000 relating to investment in BMA Commodities Private Limited. The AO treated the same as unexplained investment. The assessee submitted that the investment was made through banking channels and the source was the bank loan of ₹20 lakhs availed from Corporation Bank. This fact was also acknowledged by the AO in the assessment order. The learned DR submitted that the assessee had not correlated the loan with the investment. We note that when the investment is routed through banking channels and there is an undisputed loan of ₹20 lakhs, the nexus cannot be brushed aside. The investment of ₹3,00,000 is thus explained. The addition sustained by the AO is deleted.
The next ground relates to mismatch in professional receipts amounting to ₹2,30,540. Only. The AO brought the entire amount to tax on gross basis. The AR contended that the said receipts represent business turnover and cannot be treated as income in entirety. It was .
Page 4 of 6 submitted that justice will be served if only a reasonable percentage is treated as profit.
The ld. DR submitted that the assessee failed to reconcile the receipts fully and therefore the AO’s action was justified.
We have heard the rival contentions of both the parties and perused the materials available on record. On careful consideration, we are of the view that since the receipts are revenue in nature, the correct approach is to estimate the income embedded therein. In the facts of the case, we hold that 10% of the gross receipts should be treated as income. Accordingly, the addition is restricted to that extent.
11.1 The last issue relates to addition of ₹5,85,282 alleged to be brokerage income. The AO noted certain transactions relating to multi- commodity exchange and treated 1% of such transaction amounting to ₹5,85,282 as brokerage earned. The learned AR submitted that no brokerage income was earned; instead, brokerage was incurred on trades in the Multi Commodity Exchange. It was pointed out from the profit and loss account that a loss of ₹3 lakhs was already recorded representing the investment made in the business of commodity exchange. Such profit and loss account is placed on pages 20 to 21 of the paper book.
11.2 On the other hand, the ld. DR contended that the assessee had not filed complete confirmations to substantiate its claim.
Page 5 of 6 11.3 On perusal of the records, we find merit in the assessee’s contention. When the assessee is an investor and has already incurred brokerage expenses for trades, there is no scope to presume brokerage income. The addition of ₹5,85,282 is therefore unsustainable and stands deleted.
11.4 In conclusion, we hold that the ex parte order of the learned CIT(A) cannot be sustained as it fails to adjudicate the issues on merits as required under section 250(6) of the Act. On merits, we delete the additions relating to cash deposits, investment in BMA Commodities, and brokerage income, and restrict the addition on account of mismatch in professional receipts to 10% of the gross amount. Hence, the grounds of appeal of the assessee are thus partly allowed.
At the time of hearing, the ld. counsel for the assessee before us submitted that he has been instructed by the assessee not to press the issues raised in the additional grounds of appeal. Accordingly, we dismiss the same as not pressed.
In the result, the appeal of the assessee is partly allowed.