HARISH BANGA,HISAR vs. ASSESSMENT UNIT, NEW DELHI

1.5 The Ld. CIT(A) erred in holding that the Appellant's participation in assessment proceedings estopped him from challenging the validity of the notice u/s 148. The jurisdictional defect in reopening cannot be cured by participation, as held in various judicial precedents, including CIT v. Chetan Gupta (2022) 441 ITR 1 (SC).

1.6 Without prejudice, the addition made by the AO and confirmed by the Ld. CIT(A) exceeds the scope of reopening, as the notice u/s 148A(b) was issued solely for disallowance of expenses, and no new income was alleged to have escaped assessment.

2.1 The Ld. CIT(A) erred in law and on facts in confirming the disallowance of commission expenses of Rs. 9,00,000/- paid to Smt. Suman Devi, treating the same as non-genuine and not allowable under section 57 of the Act.

2.2 The Ld. CIT(A) failed to appreciate that the Appellant had furnished substantial evidence during appellate proceedings, Including: a) Copy of invoice raised by Smt. Suman Devi: b) PAN number of Smt. Suman Devi; c) Bank statements reflecting payments made through account payee cheques; d) Copy of Aadhaar Card of Smt. Suman Devi, establishing her identity.

2.3 The Ld. CIT(A) erred in holding that the genuineness of the transaction was not proved, despite the Appellant's submission that payments were made through banking channels (via account payee cheques dated 15/01/2018 and 18/01/2018 totaling Rs. 9,00,000/-) and corroborated by bank statements. The requirement of proving genuineness beyond banking transactions is contrary to settled law, as held in CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC).

2.4 The Ld. CIT(A) failed to consider that the commission paid to Smt. Suman Devi (2/3rd of the total commission of Rs. 13,50,380/-) was in accordance with the verbal agreement for introducing new customers to M/s Future Maker Life Care Pvt. Ltd., which was a common practice in multi-level marketing (MLM) businesses.

2.5 The Ld. CIT(A) erred in dismissing the Appellant's reliance on judicial precedents, which are squarely applicable, including CIT v. Anwar Ali (1970) 76 ITR 696 (SC), where expenses supported by documentary evidence were held allowable unless disproved by the Revenue.

2.6 Without prejudice, the Ld. CIT(A) failed to appreciate that even if the commission income is treated as "Income from Other Sources" u/s 56, the expenses Incurred wholly and exclusively for earning such income (le, commission paid to sub-agent) are allowable u/s 57(iii) of the Act.

2.7 The Ld. CIT(A) erred in not allowing at least a reasonable portion of the expenses, as claimed by the Appellant, despite evidence of services rendered by Smt. Suman Devi, which is contrary to the principles of natural justice and equity.

3.1 The Ld. CIT(A) erred in law and on facts in upholding the AO's treatment of commission income of Rs. 13,50,380/- as "Income from Other Sources" u/s 56 instead of "Profits and Galns of Business or Profession" u/s 28 of the Act.

3.2 The Ld. CIT(A) failed to appreciate that the Appellant was engaged in the systematic and organized activity of earning referral commissions through MLM schemes, which constitutes a business activity as per section 2(13) of the Act, as held in CIT v. P.V. Subba Rao (1988) 173 ITR 295 (AP).

3.3 The Ld. CIT(A) erred in relying on the illegal nature of the MLM scheme operated by M/s Future Maker Life Care Pvt. Ltd. to deny the business character of the Appellant's income, as the Appellant was not involved in the management or operation of the scheme but merely acted as an agent earning referral commissions.

3.4 Without prejudice, even if the income is treated as "Income from Other Sources," the Ld. CIT(A) erred in disallowing the expenses u/s 57(iii), as the commission paid to Smt. Suman Devi was directly linked to earning the referral commission.

4.1 The Ld. CIT(A) erred in dismissing the appeal without adequately considering the additional evidence submitted by the Appellant during appellate proceedings, including the PAN, Aadhaar Card, and bank statements of Smt. Suman Devi, which were not available during assessment proceedings due to practical difficulties.

4.2 The Ld. CIT(A) failed to exercise powers under Rule 46A of the Income-tax Rules, 1962, to admit additional evidence, which was crucial for proving the identity and genuineness of the commission payments.

4.3 The Ld. CIT(A) erred in not remanding the matter to the AO for verification of the additional evidence, thereby denying the Appellant a fair opportunity to substantiate his claim, which is violative of the principles of natural justice.

4.4 The Ld. CIT(A) did not provide a reasoned finding on the Appellant's submissions and mechanically upheld the AO's order, rendering the appellate order perverse and unsustainable.

5.1 The Ld. CIT(A) erred in not adjudicating on the initiation of penalty proceedings u/s 270A for alleged under-reporting of income, which was raised as a ground of appeal before the CIT(A).

5.2 The Ld. CIT(A) failed to appreciate that the disallowance of expenses does not constitute under-reporting of income, as the commission income of Rs. 13,50,380/- was fully disclosed in the return of income, and the dispute pertains only to the allowability of expenses.

5.3 The initiation of penalty proceedings is premature and unjustified, as no willful concealment or misreporting of income has been established, as held in CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC).

6.1 The Appellant craves leave to add, alter, amend, or delete any of the above grounds of appeal at or before the time of hearing.”

2. Rival submission of both the parties heard and perused the material available on record. The Ld. Authorized Representative (in short the ‘Ld. AR’) on behalf of the Assessee has submitted that the case of the Assessee was reopened on the basis of information available with the Assessing Officer that the Assessee has received commission of Rs.13,50,380/- from Future Makers Life Care Pvt. Ltd. the details of such information was provided to the assessee in the form of Annexure which notice under Section 148 (A) (b), copy of which is filed on record. The Assessee in response to such notice submitted his reply and contended that the Assessee while filing the return of income has declared income from the business by running a hotel in the name of Mid City Hotel, income from commission, out of which net commission of Rs.4,58,380/- is shown in the computation of income. The Assessee disclosed that he has received commission of Rs.13,50,380/- and out of which Rs. 9,00,000/- was paid to earn such commission income. The Assessee furnished all such explanation in his reply dated 15.06.2022. On receipt of reply furnished by the Assessee, the Assessing Officer passed order under Section 148 (A) (d) dated 26.03.2022. In the order, the Assessing Officer substituted/change the basis of reopening. The Assessing Officer after serving notice under Section 148 dated 29.03.2022 proceeded for reassessment. Reassessment was completed on 10.03.2023. The Assessing Officer instead of making addition on the basis which was based for reopening, made addition on other issues, the Assessing Officer disallowed the commission payment of Rs.9,00,000/- debited by Assessee. Though, the Assessee furnished required details to substantiate genuineness of commission paid to Smt. Suman Devi. The Assessing Officer disregarded the submission of the Assessee and made addition/ disallowance of such commission payment under section 57. The Ld. CIT (Appeal) confirmed the action of Assessing Officer. The Ld. AR of the Assessee submitted that the Hon’ble Jurisdictional High Court in Jindal Saw Limited Vs. DCIT reported in 2025 170 taxmann.com 634 (Delhi) held that wherein allegation made in the order under Section 148 (A) (d) were in variance which was set out in the notice under section 148A(b), order under Section 148 (A) (d), was to be set aside. The Ld. AR reiterated his submission that the allegation in the notice under Section 148 (A) (d) was that the Assessee received commission income from Future Makers Life Care Pvt. Ltd. However, in the assessment order the AO made addition on account of disallowance of commission paid by Assessee to Suman Devi. Thus, the ratio of decision of Hon’ble Jurisdictional High Court in Jindal Saw Ltd. Vs DCIT (Supra) is squarely applicable on the facts of the case.

3. On merit, the Ld. AR of the Assessee submits that the Assessee furnished the details of commission payment and proved the genuineness of the commission payment. During the assessment the commission recipient was not in the contact with the Assessee therefore, the confirmation could not be filed. Now, the Assessee has filed affidavit of Suman Devi confirming the fact that she has received commission for her service as a sub-agent for introducing new customers to Future Makers Life Care through assessee, as per verbal understanding with the Assessee. Since, such evidence could not be filed during assessment, now; the Assessee has filed application for admission of additional evidence. The additional evidences are relevant and essential to adjudicate the real controversy about the payment of commission for earning commission income. To support his submission on legal issue, the Ld. AR of the Assessee already relied upon following case laws :-  Jindal Saw Ltd. Vs Deputy/Assistant Commissioner of Income-tax ([2025] 170 taxmann.com 634 (Delhi)[23- 12-2024]) wherein the Hon'ble High court held that order u/s 148A(d) of the act is unsustainable as it is at variance with the allegations that were made in the impugned notice issued under Section 148A(b) of the Act.  Pr. CIT v. Sunlight Tour and Travels (P.) Ltd. [2024] 169 taxmann.com 673 (Delhi) In this case the Hon'ble High Court held that section 147 cannot be interpreted to mean that Assessing Officer could assess other incomes of assessee even in cases where no addition is made on account of reasons for which reassessment was initiated.  Pr. CIT v. Jaguar Buildcon (P.) Ltd. [2024] 165 taxmann.com 757 (Delhi). In this case the Hon'ble High Court held that where assessee's case was reopened on basis of information relating to accommodation entry received from an entity but no addition was made in assessment order on this account since amount was already added in order under section 153A, other addition made by Assessing Officer which did not form part of reasons recorded by him was not valid.  Anand Cine Services (P.) Ltd. v. Asstt. CIT [2024] 169 taxmann.com 236 (Madras): In this case the Hon'ble High Court held that Where Assessing Officer issued reopening notice on ground that assessee sold land and deleted certain amount under head 'land' in fixed assets of balance sheet without offering capital gain for assessment, since no additions were made in reassessment order as regards deletion of relevant immovable property which formed basis for reopening assessment, other addition made reassessment order could not be sustained.  Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Limited Vs. CIT 2011 336 ITR 136 where it has been held that "it is essential that the items in respect of which the reasons had been recorded are assessed. If the AO accepts that the items for which reasons are recorded have not escaped assessment, it means he had no "reasons to believe that income has escaped assessment" and the issue of the notice becomes invalid".  CIT V. Jet Airways (1) Ltd. [2010] 195 Taxman 117 (Bombay), the Bombay High Court held that if after issuing notice under section 148, Ld. Assessing Officer accepts contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice under section 148 would be necessary, legality of which would be tested in event of a challenge by assessee.  Aishwarya Rai Bachchan v. Pr. CIT [2022] 135 taxmann.com 335 (Mumbai – Trib.), ITAT held that where AO recorded reasons on basis of which reassessment was initiated, but did not make any addition in reassessment proceedings, in such case primary reason to believe that income had escaped assessment would fail and reassessment could not be treated as a valid order.

4. On the other hand, the Ld. Sr. DR for the Revenue supported the order of lower authorities. The Ld. Sr. DR submits that in fact addition is made on the basis of same information which was the basis of issuance of notice under Section 148 (A) (b). On merit the Ld. Sr. DR. submits that the Assessee failed to substantiate the genuineness of commission payment to Suman Devi. Copy of agreement/other document to establish genuineness of Assessee’s claim were not furnished. The Assessee merely furnished copy of bank certificate. Since the Assessee failed to prove the identity of the person, thereby AO rightly disallowed such commission payment.

2. In view of the above, you are required to show cause as to why a notice u/s 148 of the Income Tax Act, 1961 should not be issued on the basis of information discussed in the preceding para which delineates that income chargeable to tax has escaped assessment in your case for the relevant assessment year i.e. 2018-19.”

7. Before me the Ld. AR of the Assessee on legal issue vehemently argued that basis of addition in the assessment order as well as in the order under Section 148 (A) (d) is at variance with the information supplied with notice under Section 148 (A)(d). On careful perusal of information, in the annexure with notice under Section 148 (A) (b), I find that the AO in the said information noted that commission payment made by Future Makers Life Care was without actual business. However, the commission income shown by Assessee was accepted by AO. The AO doubted the commission paid by Assessee to Smt. Suman Devi. Thus, the basis of addition is quite different than the allegation of issuance of notice under Section 148 (A) (b).

is allowed.

9. In the result, appeal of the Assessee is allowed. Order pronounced in the open court on19.12.2025, with the direction to place result on notice board at Delhi.