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Facts
The assessee, engaged in direct selling, received commission of Rs. 71,97,994/- but did not file a return of income. The Assessing Officer (AO) reopened the case, issued notices, and completed an ex-parte assessment at Rs. 71,97,994/-. The assessee argued that only net income should be taxed, estimating profit from 4% to 8%, citing expenditure incurred.
Held
The Tribunal held that due to the assessee's non-compliance with statutory notices, the ex-parte assessment by the AO was made. The Tribunal restored the issue to the AO for fresh adjudication, directing the AO to grant the assessee one final opportunity to substantiate their case with requisite details and evidence, while also allowing credit for TDS.
Key Issues
Whether the entire gross receipts should be taxed as income or only the net profit after estimating expenditure, and whether the ex-parte assessment made due to non-compliance is justified.
Sections Cited
148, 142(1), 144, 270A, 147
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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS ASTHA CHANDRA
The above 2 appeals filed by the assessee are directed against the separate orders dated 29.08.2024 of the CIT(A) / NFAC, Delhi relating to assessment year 2017-18. For the sake of convenience, these appeals were heard together and are being disposed of by this common order.
Facts of the case, in brief, are that the assessee is an individual and engaged in the business of direct selling agent of M/s. Finbud Financial Services Pvt. Ltd. In this case information was received from NMS module of Insight portal that the assessee has received commission or brokerage of Rs.71,97,994/- and has not filed his return of income. Therefore, the case of the assessee was reopened with the prior approval of Addl. CIT, Range-1, Nashik. Notice u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dt 30.03.2021 was issued and duly served on the assessee. However, neither the assessee filed any return in response to the notice u/s 148 of the Act nor responded to the notices issued by the Assessing Officer u/s 142(1) of the Act. The Assessing Officer, therefore, completed the assessment u/s 144 of the Act determining the total income of the assessee at Rs.71,97,994/-. The Assessing Officer thereafter initiated penalty proceedings u/s 270A of the Act for under-reporting of the income.
Before the Ld. CIT(A) / NFAC it was argued that the assessee received total receipt of Rs.71,97,994/- towards commission from M/s. Finbud Financial Services Pvt. Ltd. who has deducted TDS at Rs.4,18,958/-. The Assessing Officer was not justified in bringing to tax the entire amount of Rs.71,97,994/- as income of the assessee without allowing any expenditure out of that nor estimating the income. Relying on various decisions, it was argued that in such type of cases, the profit is usually estimated from 4% to 8%.
However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee and upheld the action of the Assessing Officer with a direction to allow the credit for the TDS in accordance with law by observing as under:
“5. The facts of the case, assessment order, appeal filed have been perused. The AO was in receipt of information that the appellant received commission/brokerage of Rs.71,97,994/- and had not filed return of income for the Asst. year 2017-18. The appellant was afforded opportunities of hearing on various dates viz., 13.08.2021, 01.12.2021, 11.03.2022 and 22.03.2022 by the AO and the appellant did not comply with any of these notices before the AO. The AO, therefore completed the assessment ex-parte and brought all the receipts of Rs.71,97,994/- as unexplained income and completed the assessment on total assessed income of Rs.71,98,000/-vide order dated 25.03.2022. 5.1 The appellant filed the present appeal against the order of AO and the submissions filed in this regard during the present appeal proceedings have been reproduced in the preceding paragraphs. However, the appellant did not file any fresh documentary evidences in respect of the expenditure incurred except for requesting to estimate his income. No documentary evidence supporting the nature of income has been produced by the appellant except for the form 26AS which is already on record. The appellant stated that he is a direct selling agent at M/s. FINBUD financial services Pvt. Ltd, however, no specific details in this regard are furnished. Further, the appellant's activities in the previous and subsequent years are not available on record. In the absence of any details, the plea of the appellant to estimate the income cannot be accepted. Therefore, considering the facts and circumstances of the case, the AO's action of reopening the case by issue of notice u/s. 148 and thereafter considering the total receipts of Rs.71,97,994/- as income of the appellant are hereby upheld and the grounds raised by the appellant are dismissed. However, the AO is directed to allow credit for the TDS in accordance with law.”
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1] The learned CIT(A) erred in confirming the addition of Rs.71,97,994 made by the A.O. by taxing the entire gross receipts from M/s. Finbud Financial Services Pvt. Ltd. as income of the appellant without appreciating that only the net income embedded in such gross receipts ought to have been taxed as income as per the settled principles of law and therefore, the said addition made in the ex-parte asst. order u/s 144 was not justified. 2] The learned CIT(A) failed to appreciate that the appellant had derived gross receipts of Rs.71,97,994 from M/s. Finbud Financial Services Pvt. Ltd. while working as a Direct Selling Agent (DSA) providing the service of identifying customers and facilitating financial loan and allied services to such customers and she had incurred substantial expenditure for providing such services and therefore, only the net income reasonably estimated on gross receipts derived by her ought to have been taxed on facts of the case and in law. 3] The appellant submits that the asst. proceedings were conducted during Covid period and since the appellant lady was a senior citizen aged around
70 years susceptible to health issues, she could not make proper compliance before the A.O. which resulted into ex-parte asst. u/s 144 and therefore, the matter may please be set aside to the file of the A.O. to conduct the asst. afresh after providing one more opportunity of being heard, in the interest of justice. 4] Without prejudice to the above grounds, the appellant submits that the net profit on the gross receipts of Rs.71,92,994 may please be estimated @ 4% considering the facts of the case. 5] The appellant craves leave to add/ alter/ amend any of the grounds of appeal.
The Ld. Counsel for the assessee at the outset submitted that the assessee is a commission agent and has received gross commission of Rs.71,97,994/-. Referring to the bank statement of the assessee filed as additional evidence before the Tribunal, he submitted that a perusal of the bank statement would show that the assessee has also incurred certain expenses which have been paid through banking channel. He submitted that this statement goes to the root of the matter and should be admitted as additional evidence. He submitted that bringing to tax the entire amount is not justified and the same should be estimated. For the above proposition, he relied on various decisions.
The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both sides. We have also considered the various decisions cited before us. It is an admitted fact that due to non-compliance to the statutory notices issued by the Assessing Officer, he completed the assessment u/s 144 of the Act determining the total income of the assessee at Rs.71,97,994/- which is the gross commission received by the assessee. We find the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that bringing to tax the entire gross receipts without granting any proportionate expenditure will cause grave injustice to the assessee. A perusal of the order of the Ld. CIT(A) / NFAC would show that the Ld. CIT(A) / NFAC has basically dismissed the appeal of the assessee on the ground that the assessee did not file any fresh documentary evidence in respect of expenditure incurred nor filed any details for the activities of the assessee in the previous and subsequent years. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one final opportunity to the assessee to substantiate his case by filing the requisite details and decide the issue as per fact and law. The assessee is also hereby directed to appear before the Assessing Officer on the appointed date and make his submissions, if any, without seeking any adjournment under any pretext failing which the Assessing Officer shall be at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
The assessee in this appeal has challenged the levy of penalty u/s 270A by the Assessing Officer on account of under-reporting of income.
Since the quantum appeal has been restored to the file of the Assessing Officer for fresh adjudication, therefore, the issue relating to levy of penalty u/s 270A is also restored to his file for fresh adjudication. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open Court on 7th May, 2025.