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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER : These are cross appeals by the assessee and Revenue arising out of the respective orders of ld. CIT (Appeals) for the concerned assessment year.
Since the issues are common and connected and appeals were heard together, these are consolidated and disposed off by this common order for the sake of convenience. by the ld. CIT (A) of the rate of commission income at 1.04%. We may refer to grounds of appeal, which are common in all the assessee’s appeals, from AY 2016-17 which read as under :-
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals)[CIT(A)] is bad both in the eye of law and on facts.
2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in restricting the addition to RS.2,37,66,799/- made by the AO on account of commission income treating the assessee as an accommodation entry provider.
(ii) That the addition has been confirmed by arbitrarily applying the commission rate of 1.04% of the alleged turnover.
On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of AO in holding that the assessee is an accommodation entry provider.
4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of AO despite the fact that the addition has been made on the basis of extraneous considerations grossly indulging into surmises and conjectures.
5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of AO despite the fact that the addition has been made by misinterpreting the statement of the assessee recorded on the oath.
6. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of AO despite the fact that the addition has been made by
7. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of AO despite the fact that the addition has been made on the basis of material collected at the back of assessee without giving him an opportunity to rebut same.
8. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of AO despite the fact that the addition has been made by drawing adverse inference against the assessee on the basis of statement recorded without giving assessee an opportunity to cross examine the same.
9. Without prejudice to the above and in the alternative, the rate of commission applied by Ld. CIT(A) is too high and without any basis.
In Revenue’s appeals, one common issue relates to the challenge of ld. CIT (A)’s reducing the commission income to 1.04% against the AO’s determination @ 2%. We may refer grounds of appeal, which are common in all the Revenue’s appeals, from AY 2014-15 which read as under :-
“On the facts and in the circumstances of the case, the ld.CIT(A) has erred in law and on facts in restrict addition at Rs.4,90,35,779/- as against the addition of Rs.23,10,02,265/- made in the assessment order on account of commission income from the accommodation entry business by taking the rate of l.04% for charging of commission income on the turnover of accommodation entries without considering the fact that in the assessment order the transactions among the shell concerns were already eliminated from the total turnover and the remaining transactions of commission were quantified @ 2% of total turnover.”
The Revenue has taken one more ground in all the assessment years which read as under :-
“ITA No.1749/Del./2019 (AY: 2010-11) “On the facts and in the circumstances of the case, the ld.CIT (A) has erred in law and on facts in deleting the protective addition of Rs.6,85,000/- made by the AO on account of unexplained cash credits without considering the fact that the assessee has failed to produce directors of the shell concern to verify the identity of the company, genuineness of the transactions and creditworthiness of the concern.”
./2019 (AY: 2011-12) “On the facts and in the circumstances of the case, the ld.CIT (A) has erred in law and on facts in deleting the protective addition of Rs.74,50,000/- made by the AO on account of unexplained cash credits without considering the fact that the assessee has failed to produce directors of the shell concern to verify the identity of the company, genuineness of the transactions and creditworthiness of the concern.” ./2019 (AY: 2012-13) “On the facts and in the circumstances of the case, the ld.CIT (A) has erred in law and on facts in deleting the protective addition of Rs.43,60,000/- made by the AO on account of unexplained cash credits without considering the fact that the assessee has failed to produce directors of the shell concern to verify the identity of the company, genuineness of the transactions and creditworthiness of the concern.”
ITA No.1752/Del./2019 (AY: 2013-14)
“On the facts and in the circumstances of the case, the ld.CIT (A) has erred in law and on facts in deleting the protective addition of Rs.40,25,000/- made by the AO on account of unexplained cash credits without considering the fact that the assessee has failed to produce directors of the shell concern to On the facts and in the circumstances of the case, the ld.CIT (A) has erred in deleting the addition of Rs.24,60,451/- on account of difference in the value of immovable property purchased by the assessee and the value determined by the DVO and inspector report treating the same as unaccounted investment u/s 69 of the Act without considering the fact that Inspector’s report was submitted after spot visit enquiries and after ascertaining the market value of this property through the property dealers of the area indicating the fair market value of the property.”
./2019 (AY : 2014-15)
“On the facts and in the circumstances of the case, the ld.CIT (A) has erred in law and on facts in deleting the protective addition of Rs.72,15,210/- made by the AO on account of unexplained cash credits without considering the fact that the assessee has failed to produce directors of the shell concern to verify the identity of the company, genuineness of the transactions and creditworthiness of the concern.”
./2019 (AY : 2015-16) “On the facts and in the circumstances of the case, the ld.CIT (A) has erred in law and on facts in deleting the protective addition of Rs.24,00,000/- made by the AO on account of unexplained cash credits without considering the fact that the assessee has failed to produce directors of the shell concern to verify the identity of the company, genuineness of the transactions and creditworthiness of the concern.”
Apropos rate of commission : Since facts are identical we are referring to the facts and figures from AY 2016-17. The facts of the case are that a search and seizure operation u/s 132 of the Income-tax Act, 1961 (for short 'the Act') was carried out on 17.12.2015 on Sh. Anand associates. The allegation on the assessee and his brother is that both of them use to maintain and operate various shell companies to provide accommodation entries and charge commission in respect of the same.
Extensive enquiry / investigation was carried out during the course of search, post search investigation and assessment proceedings. The search operation was conducted at various premises including the office and residence of the assessee and his brother, residence of the partners / employees of the assessee and his brother. During the course of search various documentary evidences were found and seized by the department.
The evidences and material found during the course of search includes documentary evidences in the form of cheque books, financial statements, bank statements, share certificates, acknowledgements of ITR, bank account opening and closing letters, authorization letters for attending the assessment proceedings, books of accounts in Tally format, copy of ledger accounts / confirmations. Further various statements of postman, employees & partners of the appellant and his brother and beneficiaries of the accommodation entries were recorded during the search and post search investigations which lead to the conclusion that the assessee and his brother were involved in providing accommodation entries in lieu of commission on the same. Enquires were also conducted from the bank of controlled and managed by the assessee and his brother for providing accommodation entries. In view of these observations, the AO has added commission @2% in the hands of the assessee and his brother on the amount of accommodation entries.
Upon assessee’s appeal, ld. CIT (A) elaborately considered the issue and concluded as under :-
“8.14 The above table shows that the appellant has received commission of Rs.22,06,16,047/- and made payments of Rs.15,13,52,004/- in short and excess a/c over the period of six years for the total turnover of the six years of Rs.1485,36,50,460/-. The average rate of commission received on total turnover herein above comes to 1.49% (Rs.22,06,16,047 / 1485,36,50,460*100). Whereas the average rate of commission paid comes to 1.02% (Rs.15,13,52,004 / 1485,36,50,460*100). Thus, the net commission rate in the tally data seized is search comes to 0.47%. The appellant in this regard, submitted that receipts net off of payment/expenses should be taxed in its hands as commission only. In this regard, the appellant has pointed out that seized record is the best evidence and when income is being considered on the basis of seized record, the expenses as recorded in the seized document also need to be deducted. It is only the net income, which is to be considered. I have examined the seized tally data. On going through the same, the contention of the appellant that expenses side represents the expense incurred by the appellant in arranging accommodation entries is found to be correct. However, in the facts and circumstances of the case, it will not be appropriate to allow deduction of entire expenses. Accordingly, taking a holistic view, I consider that 30% of the gross commission receipts (@1.49%) are the expenditure incurred for earning commission income. Accordingly, I find it appropriate to take rate of 1.04% (1.49%- 0.45%) for charging of commission income on the turnover of accommodation entries in the hands of the appellant. Here, it is also noticed that 9 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 there are some additional credit entries in the AD's data which are not appearing in the Jain folder tally data, accordingly it is logical to apply average rate of commission of 1.04% on the said additional credit entries as well. The. total turnover of the appellant will be as follows:-
8.15 In view of the above working the average rate of commission income of 1.04% will be charged in the hands of the appellant on the turnover of Rs.228,52,69,083/- for the year under consideration. Accordingly, the AO is directed to restrict addition at Rs.2,37,66,799/-.”
8. Against the above order, assessee and Revenue are in cross appeals before us. We have heard both the parties and perused the records.
Ld. Counsel of the assessee submitted that on identical issue of commission on accommodation entries, this ITAT in the case of brother and passed an order whereby rate of commission on the accommodation entry has been determined as 0.47%. He submitted that his submissions shall be the same as in these appeals and he submitted that rate of commission adopted in that case will also be applied in the present cases as facts are similar.
10. Ld. DR for the Revenue, on the other hand, relied upon the order of AO.
11. Upon careful consideration, we note that identical issue was considered by the coordinate Bench of the Tribunal in the case of the brother of the assessee, Anand Kumar Jain in to 1324/Del/ 2019 and ITA Nos.2888 to 2894/Del/2019 vide order dated 28.04.2023.
The adjudication of the ITAT is as under :-
“7. The moot issue involved in this case pertain to determination of the commission income of the proven accommodation entry operator.
Brief facts of the case are that the assessee is an individual and derives income under head house property, business and profession and other sources. A search and seizure operation was carried out on business and residential premises of the Anand Jain and Naresh Jain group on 17.12.2015 and subsequently, notice u/s 153A dated 27.10.2017 was issued to the assessee.
9. The AO held that assessee manages and controls shell companies and routes money through such concerns for providing accommodation entries. The list of such alleged concerns is as under:
Name of Alleged Concerns 1.Ambarnuj Finance & Investments Pvt. Ltd. 2.Chandra Buildcon Pvt. Ltd 3.Garima Jain 4.Jai Maa Bhawani Overseas Pvt. Ltd. 5.JKS Impex Pvt. 6.Kavita Buildcon 7.KCJ Buildtech 8.Reena Jain 9. Shivangi Garments Pvt. Ltd. 10. Shivaji Garments Pvt. Ltd. 11. Sukumar Buildwell Pvt. Ltd.
During the assessment proceedings, the assessee submitted that the total turnover calculated by the AO and the rate of commission charged by the AO was not correct.
It was also submitted by the assessee that the inclusion of banking transactions related one concern namely M/s Ambarnuj Finance & Investments Ltd. in the working of turnover of accommodation entries is incorrect and it is evident from the fact that assessment proceedings of the said company have been completed under section 153A and 143(3) and no adverse inference had been drawn against M/s Ambarnuj Finance & Investments Ltd. It was therefore requested to exclude the transactions related to M/s Ambarnuj Finance & Investments Ltd. from the working of turnover of accommodation entries alleged to be provided by the assessee.
The AO, on the basis of seized material and post search investigations, held that assessee is an accommodation entry provider and therefore completed the assessment order computing the commission income @2% on the turnover of the amounts rotated/routed.
13. Aggrieved by the order of the AO, the assessee filed appeal before CIT(A).
During the appellate proceedings before the ld. CIT(A), the assessee filed written submissions pleading that,
12 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 i. The working of the total turnover of the concerns by the AO is incorrect ii. The AO has taken and added both credit and debit side which is incorrect as only credit side transactions of the alleged shell concerns should be taken instead of both debit and credit. iii. Circular transactions among the concerns have not been eliminated by the AO while computing income iv. Turnover with respect to M/s Ambarnuj Finance Investment Pvt. Ltd. should be eliminated as no adverse inference can be drawn on the transactions of the entities. v. Ad-hoc rate of 2% should be rejected and average rate of commission as coming out of seized material should be applied. vi. The AO has ignored the ‘short and excess account’ in the Tally Data which represents the total actual commission earned by the assessee and Sh. Naresh Kumar Jain and also the correct amount of accommodation entries given by the assessee and Sh. Naresh Kumar Jain. vii. The short and excess a/c clearly depicts the consolidated commission income earned on the accommodation entries by the assessee and Sh. Naresh Kumar Jain and the expenditure incurred with the respect to the earning of said income. Accordingly, actual commission can be computed based on the data appearing in short and excess account and the same may at best be charged in the hands of the assessee as commission income on the turnover. viii. The working for the consolidated net commission rate is as under:
Short and excess A/c Total (in Rs.) Receipts(Credit side) 220,616,047/- Less: Expenses(Debit side) 151,352,004/- Net commission income 6,92,64,043/- ix. It was submitted that the total turnover of alleged accommodation entries of the assessee and Sh. Naresh Kumar Jain. The computation is hereunder:
13 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 Particulars Total Turnover Appearing in Tally(Jain Folder) 19,696,128,227 Less: Circular transactions among the shell company 4,842,477,767 Net Turnover as per Tally Data 14,853,650,460 x. that as per the above working the net rate of commission earned by the appellant comes to 6,92,64,043/14,85,36,50,460) *100 which at best can be applied on the turnover of accommodation entries after elimination of circular transactions. xi. The assessee also submitted a detailed working of the correct year wise turnover of the accommodation entries for the assessee which is also reproduced below:
Particulars AY 2010-11 AY 2011-12 AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 AY 2016-17 Total Working of Turnover Credit entries 143,029,299 3088,746,297 527,895,388 942,231,774 3,507,589,328 543,865,839 826,996,284 9,580,354,209 taken by the AO Less: Circular 27,418,331 2,928,640,846 413,194,791 679,514,294 3,261,972,453 283,637,659 109,750,000 7,704,128,374 transactions among the shell company/ eliminated transactions Credit entries to 115,610,968 160,105,451 114,700,597 262,717,480 245,616,875 260,228,180 717,246,284 1,876,225,835 be consider as turnover
15. Thereafter, considering the detailed submission and explanation furnished by the assessee, the ld. CIT(A) restricted the rate of commission to 1.04% as against 2% computed by the AO by holding as under in AY 2010-11. A similar finding has been given for all the assessment years. For the sake of ready reference, the relevant part of the order of the ld. CIT(A) is reproduced as under:
“With regard to M/s Ambarnuj Finance & Investments Ltd.
9.7 Further on going through the replies filed before the AO during the course of assessment proceedings under section 153A, it is noticed that the company has submitted the details of loans given, repayment of the same and interest income shown on the same during the year under consideration. The AO has not drawn any adverse inference in this regard in the assessment order. From the above facts, it is evident that in year under consideration, the company was engaged in the business of financing and investment activities which are not doubted by the AO in the assessment order. Further, the returned loss of the company has been accepted and there is no adverse inference/finding of the AO that the company was involved in providing any accommodation entry. In view of these facts, I am of the view that since the business operations of M/s
14 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 Ambarnuj Finance & Investments Pvt. Ltd. are not in doubt in the year under consideration, therefore, it was not justified on the part of the AO to include Rs. 4,64,29,476/- being the aggregate of debit and credit bank transactions of M/s Ambarnuj Finance & Investments Pvt. Ltd. in the working of the commission income, hence, the said figure of Rs. 4,64,29,476/- is reduced from the calculation of commission.
With regard to calculation of turnover/quantum of accommodating entries after eliminating the impact of circular transactions and percentage of commission
9.11 From the above instances, I find that the AO has pointed out that the “short & excess account” in the tally data means the commission received by the Jain Brothers. Further from the above quoted instance and other examples quoted by the AO in the assessment order, it is clear that the appellant and his brother use to maintain the data of providing accommodation entries including bank transfers, cash exchanged and commission charged in Jain Folder Tally data. Further the turnover analysis placed in the paper book also depicts that majority of credit entries in the bank statement of shell companies matches with the entries posted in the Jain folder tall data. Accordingly, it becomes relevant to consider the entire short and excess account in the Jain Folder tally data for the purpose of evaluation of actual amount and rate of commission earned by the appellant and his brother on the accommodation entries provided, instead of a few stray instances considered by the AO in the assessment order, when complete details are available in the seized data itself.
9.12 In the tally data the year-wise aggregate of debit and credit side of short and excess account is mentioned. It appears that the credit side represents the commission received and debit side represents the commission paid:-
Short and AY 2010- 11 AY 2011- 12 AY 2012- 13 AY 2013- 14 AY 2014- 15 AY 2015- 16 AY 2016-17 Total Excess A/c Receipts(Credit 27,377,147 20,165,241 22,557,902 38,865,246 38,186,848 73,503,663 - 220,616,047 side) Expenses( Debit 27,336,593 19,510,546 17,996,407 22,794,455 31,921,772 31,792,231 - 151,352,004 side)
9.13 Further the turnover as per tally data after eliminating circular transactions or the aforesaid six years for which details are available are as under:-
Particulars AY 2010- 11 AY 2011- 12 AY 2012- 13 AY 2013- 14 AY 2014- 15 AY 2015- 16 AY 2016-17 Total Turnover 523,137,544 1,463,935,931 2,694,686,090 3,681,193,690 5,303,052,720 6,030,122,251 - 19,696,128,227 Appearing In Tally (Jain Folder)
15 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 Less: Circular 83,550,600 453,336,100 913,688,481 799,494,446 985,521,370 1,606,886,770 - 4,842,477,767 transactions among the shell company Net 439,586,944 1,010,599,831 1,780,997,609 2,881,699,244 4,317,531,350 4,423,235,481 - 14,853,650,460 Turnover as per Tally Data
The above table shows that the appellant has received commission of Rs. 22,06,16,047/- and made payments of Rs. 15,13,2,004/- in short and excess a/c over the period of six years for the total turnover of the six years for the total turnover of the six years of Rs. 1485,36,50,460/- The average rate of commission received on total turnover herein above comes to 1.49% (Rs. 22,06,16,047 / 1485,36,50,460*100). Whereas the average rate of commission paid comes to 1.02% (Rs. 15,13,52,004 / 1485,36,50,460*100). Thus, the net commission rate in the tally data seized is search comes to 0.47%. The appellant in this regard, submitted that receipts net off of payment/expenses should be taxed in its hands as commission only. In this regard, the appellant has pointed out that seized record is the best evidence and when income is being considered on the basis of seized record, the expenses as recorded in the seized document also need to be reduced. It is only the net income, which is to be considered. I have examined the seized tally data. On going through the same, the contention of the appellant that expenses side represents the expense incurred by the appellant in arranging accommodation entries is found to be correct. However, in the facts and circumstances of the case, it will not be appropriate to allow deduction of entire expenses. Accordingly, taking a holistic view, I consider that 30% of the gross commission receipts (@1.49%) are the expenditure incurred for earning commission income. Accordingly, I find it appropriate to take rate of 1.04% (1.49% - 0.45%) for charging of commission income on the turnover of accommodation entries in the hands of the appellant.”
9.13 Since, the facts in the case of the appellant are same as that of his brother Sh. Naresh Kumar Jain, therefore, I am inclined to adopt rate of commission at 1.04% as worked in the case of bother of the appellant. The total turnover of the appellant will be as follows:-
Particulars AY 2010-11 AY 2011-12 AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 AY 2016-17 Total Working of Turnover Credit entries taken 143,029,299 3088,746,297 527,895,388 942,231,774 3,507,589,328 543,865,839 826,996,284 9,580,354,209 by the AO Less: 27,418,331 2,928,640,846 413,194,791 679,514,294 3,261,972,453 283,637,659 109,750,000 7,704,128,374 Circular transaction s among the shell company/ eliminated transactions Credit entries to be 115,610,968 160,105,451 114,700,597 262,717,480 245,616,875 260,228,180 717,246,284 1,876,225,835 consider as turnover
16 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 9.14 In view of the above working the average rate of commission income of 1.04% will be charged in the hands of the appellant on the turnover of Rs. 11,56,10,968/- for the year under consideration. Accordingly, the AO is directed to restrict the addition at Rs. 12,02,355/- .”
16. Aggrieved by the order of the CIT(A), the assessee and the Revenue filed an appeals before the Tribunal.
17. Heard the arguments of both the parties and perused the material available on record.
18. We find that the AO himself has given a finding that circular transactions should be eliminated while computing the turnover of accommodation entries. However, while arriving at the turnover of accommodation entries given by the assessee such elimination of circular transactions was left out to be made. The ld. CIT(A) has accepted the working of turnover furnished by the assessee after eliminating circular transactions or transactions on which income had already been offered. The ld. CIT(A) has rightly held that the turnover with respect to M/s Ambarnuj Finance Investment Pvt. Ltd. should be eliminated as the assessment proceedings of M/s Ambarnuj Finance Investment Pvt. Ltd. have been completed and no adverse inference has been drawn against the said company. The ld. CIT(A) has accepted the gross commission income as appearing in short & excess A/c in Tally Data of Jain Folder. However, what has not been accepted by the ld. CIT(A) is the expenses incurred in earning such commission income which was also duly reflected in the same short & excess A/c in the Tally Data of Jain Folder which is a part of the seized material. The ld. CIT(A) in Para 9.4 of Pg. 20 of ld. CIT(A)’s Order for AY 2010-11 has stated that, “the contention of the appellant that expenses side represent the expense incurred by the appellant in arranging accommodation entries is found to be correct. However, in the facts and circumstances of the case, it will not be appropriate to allow deduction of entire expenses. Accordingly, taking a holistic view, I consider that 30% of the gross commission receipts (@1.49%) are the expenditure incurred for earning commission income.”
19. Thereafter the ld. CIT(A) proceeded to compute commission income by applying a rate of 1.04% (i.e. gross commission receipts @1.49% less 30% of gross commission receipts i.e. 0.45%) on the turnover offered and accepted by ld. CIT(A). The ld. CIT(A) has not brought anything on record but rejected the expenses incurred on earning the commission income and allowed 30% of commission income
17 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 as expenses incurred for earning such income. The decision of ld. CIT(A) to restrict the expenses is purely on ad-hoc basis. While the commission income appearing in Short & excess A/c in Tally Data of Jain Folder is accepted, rejection of expenses appearing in the same short & excess A/c in Tally Data of Jain Folder is not tenable and without any logical conclusion. A document has to be read in its whole prospective but not in such a way that the data seized is interpreted to result in two diametrically opposite derivations. A summary of turnover of accommodation entries and consequently addition of commission income computed by AO and the turnover and commission income confirmed by ld. CIT(A) vis-à-vis commission income as per the assessee is tabulated below:
Assessment Turnover Turnover as Average Average Yearly Average Year calculated as per assessee & Yearly Commission Yearly per AO accepted by Commission calculated by the Commission CIT(A) charged by the CIT(A) @1.04% on which should AO @2% on the the total turnover(by have been total turnover on arbitrarily restricting considered ad hoc basis expenses on earning @0.47% on commission to 30% the total of gross commission turnover income) AY 2010-11 27,66,87,335 115,610,968 55,33,746 12,02,355 5,43,372 AY 2011-12 618,05,53,386 160,105,451 12,36,11,068 16,65,096 7,52,496 AY 2012-13 105,04,22,587 114,700,597 2,10,08,452 11,92,886 5,39,093 AY 2013-14 187,86,43,617 262,717,480 3,75,72,872 27,32,262 12,34,772 AY 2014-15 696,49,99,924 245,616,875 13,92,99,999 25,54,416 11,54,399 AY 2015-16 109,26,08,571 260,228,180 2,18,52,171 27,06,373 12,23,072 AY 2016-17 180,12,05,658 717,246,284 3,60,24,113 74,59,361 33,71,058 Total 1924,51,21,078 187,62,25,835 38,49,02,421 1,95,12,749 88,18,262
20. Reliance is being placed on the judgment of Hon’ble Supreme Court in the case of Reliance Industries Limited Vs. SEBI, 2022 (8) TMI 423 - dated August 5, 2022 wherein it was held that,
“57. Before we part with the present appeal, another disconcerting aspect of this case that comes to the fore is SEBI’s attempt to cherrypick the documents it proposes to disclose. There is a dispute about the fact that certain excerpts of the opinion of Justice (Retd.) B. N. Srikrishna, were disclosed to the appellant herein. It is the allegation of the appellant that while the parts which were disclosed, vaguely point to the culpability of the appellant, SEBI is refusing to divulge the information which exonerate it. Such cherrypicking by SEBI only derogates the commitment to a fair trial. In Nea Karteria Maritime Co Ltd v. Atlantic and Great Lakes Steamship Corporation, [1981] Com LR 138 at 139, Mustill J. held as under:
18 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 “I believe that the principle underlying the rule of practice exemplified in Burnell v British Transport Commission [1956] 1 QB 187 is that where a party is deploying in court material which would otherwise be privileged, the opposite party and the court must have an opportunity of satisfying themselves that what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question. To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.”
The aforesaid principle is often referred to as the ‘Cherrypicking’ principle.
In the case at hand, SEBI could not have claimed privilege over certain parts of the documents and at the same time, agreeing to disclose some part. Such selective disclosure cannot be countenanced in law as it clearly amounts to cherry picking.”
Therefore, as per the explanation and submissions of the assessee, whole of the expenses incurred in earning commission income shall be allowed and accordingly the net rate of commission earned by the assessee i.e. 0.47% is the best which can be applied on the turnover of the accommodation entries after elimination of circular transactions. Thus the maximum addition which can be made in the hands of the assessee on account of commission earned on turnover of the accommodation entries worked out as under:
Assessment Year Turnover Commission Commission (after elimination rate Income of circular transactions) AY 2010-11 115,610,968 0.47% 5,43,372/- AY 2011-12 160,105,451 0.47% 7,52,496/- AY 2012-13 114,700,597 0.47% 5,39,093/- AY 2013-14 262,717,480 0.47% 12,34,772/- AY 2014-15 245,616,875 0.47% 11,54,399/- AY 2015-16 260,228,180 0.47% 12,23,072/- AY 2016-17 717,246,284 0.47% 33,71,058/-
The AO is therefore directed to give effect to this order accordingly. Before parting we would like to clarify that the determination of expenses and the commission earned is based on the incriminating material specifically found and seized during the courses of search and hence the percentage of commission earned cannot be considered to be the same in other similar cases.”
19 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 12. Since facts are identical and same search was conducted on both the brothers, we follow the principle of stare decisis and follow the aforesaid order. Hence, the rate of commission in the present cases is determined at 0.47%. AO is accordingly directed to follow the direction in the aforesaid ITAT order.
Our above order applies mutatis mutandis to all the appeals filed by the assessee and Revenue in relation to rate of commission. to 1754/Del/2019 (AYs 2010-11 to 2015-16) 14. Apropos protective addition : Since facts are identical we are referring to the facts and figures from AY 2014-15. The ld. CIT (A) has elaborately discussed the facts and decided as under :-
“The assessee has challenged the protective addition of Rs.72,15,210/- made by the AO on account of unexplained cash credit in the form of unsecured loan. The AO in the assessment order has added an amount of Rs.72,15,210/- on account of unsecured loan received from following parties :-
S.No. Name of party Amount received
1 Mahadev Investments 1,15,210 2 Pragaya Multitraders Pvt. Ltd. 3,00,000 3 Gomati Consultants Pvt. Ltd. 18,00,000 4 Naresh Kumar Jain HUF 13,00,000 5 Groupone Informative Services P. Ltd. 7,00,000 6 Maha Laxmi Trading Co. 2,00,000 7 Next Generation Exim Pvt. Ltd. 5,00,000 8 Next Generation Exim Pvt. Ltd. 20,00,000 9 Pragaya Multitraders Pvt. Ltd. 3,00,000 Total : 72,15,210
10.1 The AO has added the above amount in the hands of the appellant on the ground that the he has failed to produce directors of the shell companies to verify the identity of the company, genuineness of the transactions and creditworthiness of the company. In this regard, the AD has also alleged that the directors of the above companies are dummy directors and the companies are shell companies which are being managed and controlled by Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain. The AO has acknowledged the filing of documentary evidences by the appellant in the form of confirmation, bank statement and acknowledgement of ITR with respect to the above companies. However, not satisfied with the explanation and the documentary evidences submitted by the appellant, he has added the amount of Rs.72,15,210/- as unexplained cash credit on protective basis in the hands of the appellant. The AO has also mentioned that the addition of unaccounted commission has already been made in the hands of the appellant and his brother on substantive basis. The appellant in his written submission has tried to substantiate the genuineness, creditworthiness and identity of the lenders making reference to the documentary evidences filed before the AD. The appellant alternatively also submitted that no protective addition can be made in his hands if the substantive addition of undisclosed commission income is sustained. In this regard, it is noticed that out of total amount of Rs.72,15,210/-, the amount of Rs.13,00,000/- was received from the appellant own HUF, for which there is no specific allegation of the AO in the assessment order doubting the source of funds its bank statement neither it has been held as a shell concern, hence no adverse inference can be drawn in this regard. Further the remaining amount of Rs.59,15,210/- was received by the appellant from Mahadev Investments, Next Generation Exim Pvt. Ltd., Pragaya Multitraders Pvt. Ltd., Gomati Consultants Pvt. Ltd., Group one Informative Pvt. Ltd., Maha Laxmi Trading Co. and Next Generation Exim Pvt. Ltd. These companies from whom funds were received by the appellant have already been treated as shell companies operated and managed by the appellant and his brother. From the operation and management of these shell companies the appellant and his brother had earned undisclosed commission in lieu of providing accommodation entries to the various beneficiaries which is the 21 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 substantive addition made by the AO. With regard to the said earning of undisclosed commission substantive addition to the extent of Rs.4,90,35,779/- has already been confirmed in the hands of the appellant. The amount of Rs.72,15,210/- received by the appellant can at best be treated as obtained out of his undisclosed commission income which has already been brought to tax. Therefore, being the protective addition made by the AO of Rs.72,15,210/- is double addition in the hands of the appellant, the same is directed to be deleted.”
Against the above order, the Revenue is in appeal before us.
We have heard the parties. We note that the Ld. CIT(A) has held that the impugned amount can at best be treated as obtained out of assessee’s undisclosed commission income which has already been brought to tax. We note that on identical issue, the Tribunal in in the case of Sh. Anand Kumar Jain, observed that such receipt form part of accommodation entries and that the AO may verify the same. Following the aforesaid precedent, we direct the AO to verify the same as stated above.
Our above adjudication applies mutatis mutandis to all the additions on protective basis in all the appeals here.
ITA No.1752/Del/2013 (AY 2013-14)
Apropos DVO Report : The AO in the assessment order has added Rs. 24,60,451/- on account of difference in the value of property purchased by him and his wife during the year under consideration. The AO in the assessment order has mentioned that the immovable property DVO has submitted his valuation report dated 21/08/2018 wherein it has been intimated that due to non cooperation of the appellant, no proper inspection / visit could be made and accordingly he had to close the case.
The AO has mentioned to have conducted spot enquiries through his inspector to ascertain the market value of the property. The Inspector in his report has stated that he conducted local enquiries from the property dealers of the area who have confirmed that the value of the property is approximately at Rs. 1.25 crores. Based on the said report of the inspector, the AO has added 50% of the difference in the value of the property amounting to Rs.24,60,451/- (50% of difference of Rs. 4920900/-).
The ld. CIT(A) adjudicated the issue as under:-
“11.2. On going through the observations of the AO in the assessment order, the report of the DO, the report of the inspector and written submissions of the appellant, it is noticed that the appellant has purchased the property in question during the year under consideration along with his wife as co-owner for a consideration of Rs. 75,79,100/-. The appellant in support of his contention has submitted a copy of sale deed which is placed at PB Pg. 56-67. On perusal of the same, it is noticed that the circle rate / the stamp valuation rate of the property is Rs. 71,42,400/- and the appellant has sold the property for a consideration of Rs.71,50,000/- + Stamp duty of Rs. 3,57,500/-. The report of the DVO is placed at PB Pg.298. On perusal of the same, it is noticed that the DVO has only mentioned that the appellant has not cooperated with him and accordingly he could not make the inspection / visit of the property for the valuation. He has not 23 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 mentioned anything on the merits of the case. From the report of the DVO, it is also noticed that he has nowhere mentioned anything regarding the underreporting of the sale consideration showed by the appellant. As far as the issue of non cooperation of the appellant is concerned, the appellant has duly discharged his onus by submitting reply before the DVO along with the copy of sale deed and intimating the DO regarding the sale of the property by him. Accordingly, no adverse inference can be drawn from the report of the DVO. The main evidence based on which addition has been made in the hands of the appellant is the report of the inspector. The copy of said report is placed at PB.Pg. no.297. On perusal of the said report, it is noticed that the inspector has mentioned to have made a visit to the property on 30/08/2018, on which he noticed that the property is a newly constructed multistory building constructed on approximate land of 110 - 150 yards. The inspector has further mentioned to have made enquiries from property dealers with respect to the value of the property who have informed him that the value of the property is around 1.25 crores. On careful perusal of the report of the inspector, it is noticed that the report is not supported by any evidence collected by the inspector on the spot verification. It is also noticed that the inspector has mentioned to have made enquiry from the local property dealer, however, he has not mentioned the name / whereabouts of the said property dealer. Also, it has not been mentioned that on what basis the property dealer has intimated him the rate of the property at Rs.1.25 crores. Further there is no reference of any comparable sale deed of any other property in the same locality or any other documentary evidence which could form basis to ascertain higher value of property in the hands of the appellant. Accordingly, it can be concluded that the report of the inspector for the purpose of evaluation of value of the property cannot be relied upon since the same is not corroborated with any documentary evidence. Further, it is also matter of the fact that the sale consideration paid by the appellant is at the circle rate / stamp valuation rate prescribed by the stamp valuation authority. The said rate has not been doubted by the A in the assessment order. Further, there is no evidence on record which could prove something over and above emanated from the coffer of the appellant which has been utilized for the purchase of the property. It is 24 to 1331/Del./2019 ITA Nos.1749 to 1754/Del./2019 also relevant to notice here that the AO has also not pointed out/brought any incriminating material found during the course of search which could lead to the conclusion that the appellant has paid consideration for the purchase of property over and above what has been declared in the purchase deed. Accordingly, simply based on the suspicion no addition can be made in the hands of the appellant estimating the value of the property. Therefore, the AO is directed to delete the addition.”
Against the above order, the Revenue is in appeal before us.
21. Heard the parties. We note that the on identical issue, the Tribunal in 2890 and 2891/Del/2019, vide order dated 28.04.2023 has adjudicated the issue as under:- “27. We have gone through order of the ld. CIT(A) in detail. The ld. CIT(A) concurrently considered the provisions of Section 56(2)(viib) and Section 50C, report of the DVO and the stamp duty valuation (circle rates). The ld. CIT(A) held that the value as per the stamp duty valuation authority shall be taken as full value of the consideration and since the payment made by the assessee is as per the stamp value authorities determination no addition is called for. With regard to the addition made on account of cost of construction, the ld. CIT(A) held that there was no difference between the value in the cost of construction declared by the assessee and the value as considered by the AO, can be attributed owing to the variance being less than 10% of the accepted norms of variation. Having gone through the facts, we find no reason to interfere with the decision of the ld. CIT(A) who accepted the value of the land as per the circle rate and value of the construction within the acceptable range of variation.
22. On a perusal of the ld. CIT(A)’s order in the light of aforesaid ITAT order, we find in the present case also, the Ld. CIT(A) has given a finding transaction was not below the circle rate. We note that the ld. interference.
In the result, all the appeals filed by the assessee and the Revenue are partly allowed.
Order pronounced in the open court on this 24th day of May, 2023.