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Facts
The Assessing Officer received information that the assessee made a large cash deposit and did not file a return. Upon filing a return, the AO treated the entire credit in the assessee's bank accounts as turnover and estimated profit at 8%. The CIT(A) confirmed this addition.
Held
The Tribunal found that an 8% estimation of profit on total credited amount was high and unreasonable for a commission agent. The Tribunal held that a 3% estimation would be fair and reasonable for net profit from trading and commission activities.
Key Issues
Whether the estimation of net profit at 8% of total turnover/credit is justified for a commission agent, and if not, what would be a fair and reasonable estimation.
Sections Cited
148, 194H
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Before: Shri S.S. Viswanethra Ravi&
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order dated 30.09.2024 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2013-14.
At the outset, we note that the Assessing Officer received information that the assessee made cash deposit of ₹.1,03,60,875/- and did not file return of income. Against the notice issued under 2 section 148 of the Income Tax Act, 1961, the assessee filed his return of income showing total income of ₹.2,34,150/-. The assessee is a commission agent enrolled with Tirukoilur Market Committee. The assessee also filed bank statement of Laxmi Vilas Bank and City Union Bank. On going through the bank statements, the Assessing Officer noted that the total amount credited in Laxmi Vilas Bank account at ₹.26,71,464/- including cash amount of ₹.18,000/-. Further, the Assessing Officer also noted that total amount credited at ₹.2,08,94,996/- in City Union Bank account including total cash deposits at ₹.1,01,09,395/-. As per both the bank accounts statement, the total amount credited in bank accounts at ₹.2,35,66,460/- during the year under consideration. The assessee has not submitted profit and loss account to ascertain the income from trading activity of the assessee and commission activity. In the absence of the classification of the income earned by the assessee, the Assessing Officer treated the entire credit at ₹.2,35,66,460/- as total turnover of the assessee and estimated net profit at 8% of the total turnover at ₹.18,85,315/- and added to the total income of the assessee. With regard to the commission/brokerage income of ₹.4,530/- under section 194H of the Act, since the assessee has not submitted any explanation or details, the Assessing Officer treated the same as unexplained income and added to the total income of the assessee. On appeal, the ld. CIT(A) confirmed the addition of ₹.18,85,315/- made towards net profit and also directed the Assessing Officer to verify the commission income of ₹.4,530/- and allow the same if the said amount is offered for tax in the return filed by the assessee in response to the notice under section 148 of the Act.
The ld. AR Ms. D. Nidhi Jain, C.A. submits that the assessee is a commission agent enrolled with Tirukoilur Market Committee and also submitted the confirmation given by the Superintendent of Marketing Committee issued on 08.03.2023 and also attached list containing detailed breakup of crop, date of purchase, no. of kgs/bags, party for whom purchased and the amount of purchase, which was duly attested by the Superintendent of Marketing Committee. She submits that the assessee received commission of 1% of the total purchase and vehemently argued that it is absolutely not possible to earn 8% commission on the total purchase as estimated by the Assessing Officer, which is exorbitant and prayed that the commission at 1% of the total purchase may be accepted.
The ld. DR Ms. R. Anita, Addl. CIT relied on the order of the ld. CIT(A).
Heard both the parties and perused the material available on record. We note that the assessee is a commission agent, which was also accepted by the Department in the assessment order for the AY 2018-19 placed at page 12-18 of the paper book. On perusal of the assessment order, we note that the Assessing Officer estimated the net profit at 8% of the total amount credited, since the assessee has not submitted profit and loss account to ascertain the income from trading activity of the assessee and from commission activity. However, we find that the estimation of 8% of total amount credited, which was confirmed by the ld. CIT(A), appears to be in higher side and there is no scope for earning commission at 8%. Thus, in the interest of natural justice, we hold that estimation of 3% of total amount credited would be fair and reasonable. Accordingly, the Assessing Officer is directed to estimate the net profit at 3% of total amount credited and delete the balance amount.
With regard to the commission/brokerage income of ₹.4,530/-, we find that the ld. CIT(A) has rightly directed the Assessing Officer to 5 verify as to whether the said amount has already been offered for tax and if so, directed the Assessing Officer to delete the addition. We find no reason to interfere with the above finding of the ld. CIT(A).