TALENT INFOWAY LTD,MUMBAI vs. ACIT CEN CIR 46, MUMBAI

The only issue in these cross appeal of Revenue and assessee is as regards to the order of CIT(A) restricting the disallowance at 2% of net commission of assessee out of a total receipts shown by the assessee being sales made to Sharp Products Private Ltd. amounting to Rs.3.11 crore.

Briefly stated facts are that a search action u/s. 132 of the Act was carried out on 25/11/09 in the case of Mahasagar Group of Companies, known as Alag Securities, were engaged in fraudulent billing activities in the business of providing bogus speculation/profit loss, short term/long term gain/loss commodities profit/loss on commodity trading. During search, it was noticed that the assessee was engaged in the business of providing accommodation entries. During the course of search, certain incriminating material pertaining to the assessee was found and seized. Accordingly, notice u/s. 153C of the Act was issued and assessment u/s. 143(3) r. w. s 153C of the Act was completed on 24/11/08 at total income of Rs. NIL. Later, on the basis of search carried out, the AO was of the opinion that income chargeable to tax had escaped assessment and a notice u/s 148 dated 31/03/10 was issued and reasons for issuing notice u/s 148 of the Act were communicated.

During assessment proceedings, the AO observed that the assessee was one of the companies floated by Shri Mukesh Choksi and his Associates. During the search & seizure proceedings in the office premises of Shri Mukesh Choksi, external hard disc was found and seized. Perusal of the data revealed that the assessee had sold News flash, New Editing, MPEG2 compression Software amounting to Rs3.11 Cr to Shaf Broadcast Pvt. Ltd. It was noticed that the assessee had not reflected these sales in the books of accounts and failed to pay the taxes on the income accrued from the said sales. Even during assessment proceedings the assessee did not furnish the details of the amount credited in bank account in cash as well as other credits. Further, no documentary evidence in support of its claim as well as the details of persons to whom accommodation bills were given or provided to the AO that it had provided accommodation bills. Accordingly, the AO added Rs.3.11 Cr to the total income of the assessee as undisclosed sales. Aggrieved, assessee preferred appeal before CIT(A).

The CIT(A) restricted the addition @ 2% of net commission and deleted the balance addition by observing in Para 5.18 to 5.20 as under: -

The finding given by the Hon'ble ITAT in one of the group companies of Mr. Mukesh Choksi i.e. M/s. Goldstar Finvest Pvt. Ltd for A. Y. 2002-03with regard to the chargeability of commission income @ 0.15% relates to the assessee’s business activities during the period, when survey u/s. 133Awas carried out. However, in the search action conclusive evidence has been found indicating that Mr. Mukesh Choksi through various entities deriving/charging commission at much higher rate i.e. up to 3.6%. Moreover, it is also noteworthy that for the purposes of carrying out the above activities, the assessee had to incur some expenses, which may also be higher than 0.15% of the commission income earned by the assessee, which is evident from the statements of his employees recorded during the course of search action and which cannot take care of even the basis expenses to be incurred by the assessee. Therefore, the assessee's claim of income at the rate of nominal profit @ 0.15% is not correct based on the documents/evidences found during the course of search and also several statements of related parties recorded referred to above. In view of the above, it is clear that the assessee has earned commission income at much higher rate ranging between 1.5% and 3.6% depending upon the various kinds of entries provided to different beneficiaries as it is not possible to segregate the volume for different kind of entities. I therefore, considered it fair and reasonable to apply the rate of net commission @2%. 5.20. As the Ld. AO has himself treated the appellant as one of the hawala operators of Mukesh Choksi Group and thereby estimated the net commission of assessee at 2% of the total receipts shown in the bank accounts, there is no justification to make an addition of the entire sale to M/s. Shaf Broadcast Pvt. Ltd. It is therefore, directed that net commission @ of 2% maybe estimated by the Ld. AO and the balance addition may be deleted. Accordingly Ground nos. 5 & 6 are partly allowed.”

We have heard rival contentions and gone through the facts and circumstances of the case. We find from the order of the AO that the assessee is unable to prove the amounts credited in the bank A/c in cash as well as other credit entries and the persons to whom accommodation bills were provided. The assessee could not provide the details of beneficiaries it means that no sale has been affected by the assessee. The CIT(A) has totally gone on wrong premise by treating the unaccounted sale on which net commission of 2% is to be charged as profit of the assessee but according to us the assessee is unable to prove the sales as he is unable to prove the beneficiaries. First of all, the assessee has to prove the beneficiaries to whom these accommodation entries are given and in case he is able to provide information in relation to beneficiaries and beneficiaries admit that they have paid only net commission, only then the commission is added otherwise the entire deposits to be added in the hands of the assessee. But, before that the compete verification of facts are required because none of the authorities below have brought on record the facts of the case. Even otherwise, the assessee has to provide details of beneficiaries so that the AO can verify and finalize the assessment as per the provisions of the Act. Accordingly, both the appeals, of Revenue as well as assessee, are allowed for statistical purposes and matter is remanded back to the AO. The orders of lower authorities are set aside.

In the result, both the appeals are allowed for statistical purposes. Order pronounced in the open court on 06-12-2016.