ORDER
Sunil Kumar Yadav, Judicial Member - These cross-appeals are preferred by the assessee as well as the Revenue against the order of the CIT (A) on various grounds. Since common issues are involved in these appeals, these were heard together and are being disposed of by this single consolidated order.
2. The facts in brief borne out from the record on the impugned issues are that assessee is a Private Limited Company engaged in the business of dealing in shares and securities and investment as brokers. The assessee filed return of income declaring a loss of Rs. 5,85,025/-. It was initially processed under section 143(1) of the I.T. Act, but, later on, it was taken up for scrutiny and the Assessing Officer determined the income at Rs. 26,61,25,050/- treating the entire amounts of cash and other deposits made into the bank accounts of the assessee as its income from undisclosed sources. While disallowing the claim of the assessee, the Assessing Officer noted from the P&L account that the assessee has shown income by way of commission and brokerage of Rs. 4,99,000/- and professional fees at Rs. 55,000/-. From the details furnished by the assessee, the Assessing Officer noted that assessee calculated commission @ 0.15% on transactions done through bank. The assessee was asked to furnish the details and in response thereto, the assessee furnished the receipts and payments reflected in the bank account representing the amounts received from the customers and paid back to them through cheques. The identity and the address and other details in respect of each transactions could not be identified as the same pertain to their old period and the transactions were through brokers. It was submitted before the Assessing Officer that assessee has furnished the details to the best of his ability and since the matter was very old, it was extremely difficult for him to furnish names and addresses etc., of the parties from whom various amounts were received. As the assessee failed to submit the details called for, the Assessing Officer treated the cash deposits as well as deposit by way of transfer and clearing made into the accounts with the Bank of Baroda and Co-op. Bank of Ahmedabad, as the income of the assessee from undisclosed sources. He, accordingly, made an addition of Rs. 25,59,97,475/-.
3. The assessee preferred an appeal before the CIT (A) with the submissions that in the course of business various customers approached the assessee for obtaining adjustment bills. The customers made deposits in cash amounts and in turn they took cheques from the assessee for amounts slightly less than the amounts of deposit. The difference representing the commission realised by the assessee. Many a times commission is paid in cash. The prevalent commission in such dealings is 0.15%. In this regard, the assessee has invited his attention to the letter dated 31-5-2002 of Shri Mukesh Choksi, addressed to the Dy. Director of Investigations wherein the modus operandi of the business of the assessee and Richmond Securities Pvt. Ltd. were explained in the following words :
2. "During the course of various hearings before your goodself I have furnished the details of the bank accounts of the above two companies and also the modus operandi of the workings of the above two companies. I have submitted before your goodself that the above two companies used to receive cash from various parties. Simultaneously, the above two companies used to provide bills of speculative profit to the concerned parties. I state that there was no corresponding transactions in the stock exchange and the bills were issued without underlying transactions. I say that, in that sense, the transactions were accommodation transactions in nature. I say that the cheques were issued by the above two companies and only against the corresponding consideration received by these two companies in cash. Further, during the course of recording of statement before your goodself, I had also given the detailed, method in which cash and cheque transactions were routed through the bank accounts of the above two companies.
3. As stated before your goodself the above two companies have earned commission at the rate of 0.15% of the cheque amount for which the bills were given by the said companies. I have explained to your goodself that there is a fierce competition in the market and the rate of the commission has touched the bottom. Further, the said two companies were not having any direct customers and they used to come through agents only. Accordingly, the said two companies were getting 0.15% as its commission in the above transactions. I would like to further clarify that the bank accounts with the Citibank of the above two companies were given to one Shri T.C. Kothari, who is responsible for the deposits and withdrawals of the above bank accounts. I say that Shri T.C. Kothari is also engaged in the similar kind of activity and requested for allowing him to use the bank account which were opened in the name of the above two companies. Accordingly, the signed cheque books of the above accounts were given to Shri TC Kothari, and he has used the said accounts for his own purpose. In consideration of the same, he has made certain payments which have been taken into account while determining the income of the above two companies..."
4. With regard to inability of the assessee to furnish the details before the Assessing Officer, it was contended that considering the multitude of transactions that the appellant enters in normal course of its business, it becomes almost impossible not only to identify individual clients, but, also offer their details for scrutiny. It was submitted that most of the cheques had been issued through intermediaries and assessee did not have any direct contact with the ultimate beneficiary. At times, there may be a chain of 2 or 3 intermediaries between the assessee and the ultimate beneficiary. There are various other reasons also, such as, the number of customers are voluminous. Customers are not fixed regular and permanent. Further, it was stated that in the line of assessee's business, the customers come and go after achieving their object and as such information/particulars are not kept by any one engaged in this line and so assessee is not an exception. It was further contended that Investigation wing of the department has located each and every beneficiary. Not only that the statement of beneficiaries have been taken under the provisions of the Act. Many of the beneficiaries have conceded that it was their money and they undertook to pay the tax. All the beneficiaries in India have been intimated by the Assessing Officer and assessment has been completed in many cases after making additions.
5. The assessee has filed the copies of assessment orders in few of the cases before the CIT (A) and the CIT (A) admitted the filing of assessment orders of various beneficiaries. It was further contended that in fact the department has passed innumerable orders in the case of various beneficiaries holding that the amount routed through the assessee's bank account belong to them. Once the department has taken one stand in the case of beneficiaries, it cannot take contrary stand and hold that amounts belong to the assessee. It was further pleaded that the assessee had received notices from time to time from the Assessing Officer of the beneficiaries and personal attendance of the Director Mukesh Choksi was required. A list of notices numbering 13 together with details of Assessing Officers and the name of the group companies and the concern financial years were furnished before the learned CIT (A). On the basis of these details, it was urged that the assessee is a Hawala Operator and the entire amount does not belong to it. The assessee was only concern with the commission on issuing the accommodation bills.
6. The CIT (A) re-examined the issue, but, was partly convinced with the explanation of the assessee and he did not approve the assessment order of the Assessing Officer, treating the entire amounts of credit in the bank account as undisclosed income of the assessee. Relying upon his order in the case of Richmond Securities for the assessment year 2002-2003, the CIT (A) directed the estimation of income in relation to similar credits in bank accounts @ 2% of the turnover. The CIT (A), accordingly, held that since in this case, the assessee itself admitted the income by way of commission or brokerage in relation to the bank deposits in question working out the rate of 0.15% of the turnover, as noted by the Assessing Officer himself in the impugned assessment year, the balance addition, shall be worked out by the Assessing Officer taking the total commission / brokerage of the 2% of the total turnover. He, accordingly, directed the Assessing Officer to compute the income of the assessee. These directions of the CIT (A) were not accepted by the assessee as well as the Revenue. They both have challenged the Order of the CIT (A) through their respective appeals before the Tribunal on following grounds :
GROUNDS IN ITA. No. 4625/Mum/2005 (Assessee's Appeal) :
1.
"On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the Assessing Officer to estimate the commission income of the assessee in relation to the following credits in bank accounts adopting a rate of 2% of the turn over.
|
(i) Cash deposit |
Rs. 4,22,99,900 |
|
(ii) Transfer/Clearing entries in Bank of Baroda accounts |
Rs.18,71,73,703 |
|
(iii) Transfer/clearing entries in Citibank |
Rs. 3,21,50,500 |
|
(iv) Transfer/ Clearing entries in Co-op Bank of Ahmedabad |
Rs. 43,73,373 |
|
Total |
Rs. 26,59,97,476 |
2.
On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have appreciated that the assessee has already disclosed reasonable amount of commission in relation to the above credits in bank accounts, as its income, and accordingly ought to have directed the Assessing Officer to accept the income returned, by way of commission.
3.
On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not holding that the transactions to the tune of Rs.5,36,76,000/- though Citibank belong to one Mr. T.C. Kothari and hence no commission income in respect of these transactions is assessable in the hands of the assessee.
4.
On the facts and in the circumstances of the case, the Ld. CIT(A) has erred, in confirming the disallowance made by the Assessing Officer, of loss on sale of assets debited to Profit & Loss Account of Rs.6,49,788/-, even after coming to the conclusion that the transaction as a result of which the loss was suffered was genuine.
5.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in not deleting the interest u/s. 234B and 234C levied by the Assessing Officer."
GROUNDS IN ITA. No. 5000/Mum/2005 (Revenue Appeal):
1.
" On the facts and in the circumstances of the case as well as in law, the Ld.CIT (A) erred in deleting the addition made by the Assessing Officer amounting to Rs.26,59,97,476/- u/s. 68 of the IT Act without appreciating the fact, that assessee company failed to submit the details in regard to cash and other deposits of Rs.26.60 crores in the banks with the source of receipt, modus operandi, names and addresses of the agents / persons for whom, or on whose behalf cash has been deposited in the banks.
2.
On the facts and in the circumstances of the case as well as in law, the Ld .CIT (A) erred in directing the Assessing Officer to re-compute the income of the assessee taking the total commission/brokerage at 2% of the total turnover with reference to the credits reflected in the bank statement, instead, of treating the entire amount of credits as the income of the assessee from undisclosed sources u/s. 68 of the IT Act.
3.
The appellant prays that the Order of the CIT (A) on the above grounds be set aside and that of the ITO/AC/DC be restored."
7. With regard to ground Nos. 1 and 2 of assessee's appeal and sole ground of the Revenue's appeal, the learned counsel for the assessee has invited our attention to the Orders of the Tribunal in the case of ITO v. Palresha &. Co. [ITA. No. 1640/Bom/82], Kiran & Co. v. ITO [ITA. No. 3604/Bom/83], in which the Tribunal has considered these type of transactions and has held that the assessee is concern with respect to the commissions only on these accommodation entries and the normal rate of commission was Re. 1/- per thousand i.e. 0.1%. The assessee has also invited our attention to the assessment order and the Tribunal's Order in the case of Alembic Securities Pvt. Ltd. the another group concern of the assessee in which the assessee was engaged in similar type of activities and it was accepted by the Assessing Officer that the assessee has earned commission income @½% on long term capital gain entries and 0.25% on others. He further placed a reliance upon the Orders of the beneficiaries i.e., Mukesh Chandrakant Dagli and Shri Devji Ravshi Shah, in which beneficiaries have accepted that they got the accommodation bill from the assessee. Since similar type of transactions was examined and considered by the Tribunal and the CIT (A) and it was held in those cases that the assessee being the broker, is concerned about the commissions, the commission disclosed in those cases, should be accepted in the instant case.
8. The learned DR refuting the contention of the assessee has submitted that numerous entries were passed in the bank accounts of the assessee and it was for him to explain the nature of entries with evidence and if he fails to do so, the Revenue is justified in treating all these credit entries as unexplained credit.
9. Having heard the rival submissions and from careful perusal of the Orders of the lower authorities and documents placed before us we find that undisputedly the assessee is a private limited company engaged in the business of dealing in shares securities and the investment as brokers. Once the assessee is held to be a broker and dealing in shares and securities of investments, the deposits made in his bank account, cannot be called to be his investment. A broker undertakes the sales and purchase of shares on behalf of its clients and he is concerned to a particular percentage of commission on value of transactions. Before the CIT (A), assessee has explained the nature of activities undertaken by it. The assessee has explained in a specific words that in strict sense the transactions were accommodation transactions in nature and there was no corresponding transactions in the Stock Exchange and the bills were issued without underlying transactions. Meaning thereby, the assessee has given the accommodation entries to its customers and in lieu of that, he earned particular percentage of commission. We have also examined the other cases in which the Tribunal has considered similar type of activities and has arrived at a conclusion that assessee is concern only with the commissions on the value of transactions. In the case of Palesha & Co. (supra) the Assessing Officer has accepted that assessee was earning commission on providing accommodation entries. In that case, a total of Rs. 11.86 crores of cheques and drafts were discounted. According to the assessee, he was only entitled to commission of Re. 1/- per thousand. On account of non-furnishing of complete details, the Assessing Officer has rejected the books of account and has applied rate of Re. 1/- per thousand. The matter travelled to the Tribunal and the Tribunal has held that even after the books are to be rejected, an estimation can be made only if the book results shown by the assessee were found to be unreasonable. The Tribunal, accordingly, accepted the commission at Re. 1/- per thousand and deleted the additions.
10. Similar was the position in the case of Kiran & Co. (supra) in which the Tribunal has again examined the similar type of activities and observed that the nature of the business of the assessee is to only earn commission on these transactions. In that case also, assessee has offered commission at Re. 1/- per thousand and Assessing Officer applied at Rs. 4/- per thousand. Relying upon the earlier years order, the Tribunal has deleted the additions and accepted the rate of commission at Re. 1/- per thousand.
11. We have also examined the assessment order and the Tribunal's Order in the case of Alembic Securities Pvt. Ltd. an another group concern of the assessee in which the Tribunal did not approve the theory of cash credit developed by the Assessing Officer. He has accepted the stand of the assessee regarding the income on commission basis. We have also examined the Order of Adolf Patric Pinto in which the assessee has earned the income on similar type of activities and the Revenue has accepted that the bank accounts were operated by sub-brokers in the name of the assessee for giving Hawala profits in share dealings. The CIT (A), accordingly, deleted the additions made by the Assessing Officer on account of unexplained cash credits. He, however, observed in his order that he has come to know that brokerage charges would be 0.15% to 0.25% on brokerage especially from sub-brokerage. He, accordingly, estimated the share of commission of the assessee. Similar type of activities were also considered in the case of Hirachand Salecha by the Assessing Officer and he himself has accepted that assessee has earned commission income at 1% of the total turnover on each bank account.
12. Having carefully examined the various Orders in the case of different assessees' it has become amply clear that in these type of activities brokers are only concerned with their commission on the value of the transactions. Now the question comes what would be the reasonable percentage of the commission on the total turnover ? The assessee has also made out a case that the customers do not come directly to him and they come through a sub-broker who also charge a particular share of commission. In all the judgments what has been stated is that an average percentage of commission is between . 15% to .25%. In the cases of Palresha & Co. (supra) and Kiran & Co. (supra), the Tribunal has considered reasonableness of percentage of commission to be earned on turnover was at .1%. The assessee himself has offered the percentage of commission at 0.15%, which is more than the percentage of commission considered to be reasonable by the Tribunal in the cases of Palresha & Co. (supra) and Kiran & Co. (supra), in similar type of transactions. The theory of the Assessing Officer to treat the entire deposit as "unexplained cash credits, cannot be accepted in the light of assessment orders in the case of beneficiaries and also in the light of the fact that assessee is only concern with the commission earned on providing accommodation entries. We, therefore, of the view that since the assessee itself has declared the commission on turnover at 0.15% which is more than the percentage considered to be reasonable by the Tribunal in the cases of Palresha & Co. (supra) and Kiran & Co. (supra), the same should be accepted. We, accordingly, accept the commission declared by the assessee and set aside the Order of the CIT (A) in this regard.
13. With regard to ground No. 3, we do not find any independent adjudication in this regard and more so no specific ground was raised before the CIT (A) on this issue. We, therefore, of the view that this ground does not arise out of the order of the CIT (A). Morever, nothing is stated during the course of hearing, as to how this ground arise out of the order of the lower authorities. We, therefore, decline to adjudicate this ground and reject the same.
14. With regard to ground No.4 it is noticed that assessee has debited to P & L account loss on sale of assets at Rs.6,49,708/ -. The assessee company was asked to submit the details of the same and in response thereto, it was stated that the company was taken over by the assessee with assets and liabilities. At the time of take over, it was decided that fixed assets and debtors were to be realized and out of such realization, the creditors were to be paid. During the course of this process, the company had suffered a loss of Rs. 6,49,788/ -, of which details are given in para 10 of the assessment order. The assessee company was asked to produce the supporting bills for repairs and name and addresses of the parties on behalf of the company made transactions, but, the assessee did not file any details and the Assessing Officer has rejected the claim of the assessee. Similar was the position before the CIT (A) and the CIT (A) confirmed the disallowance. Before the Tribunal, the assessee could not improve his case and we, therefore, find no merit in this ground. Accordingly, we, dismiss the same.
15. Ground No.5 relates to chargeability of interest under section 234B and 234C. Since this ground is of consequential in nature, it does not require any independent adjudication. We, therefore, reject the same.
16. In the result, appeal of the assessee is partly allowed and that of the Revenue is dismissed.
Sunil