DCIT vs Pramod Kumar

PER M. BALAGANESH, A. M.:

The appeal in ITA Nos. 3724 to 3728/Del/2025 filed by the revenue and CO Nos. 16 to 19/Del/2026 filed by the assessee for AYs 2014-15 to 2018-19, arises out of the order of the CIT(A)-27, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 31.01.2025 against the order of assessment passed u/s 147/ 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.05.2023 by the Assessing Page | 1 Officer, ACIT, Central Circle-18, New Delhi (hereinafter referred to as ‘ld. AO’). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience.

The only effective issue to be decided in this appeal is as to whether the Learned CIT(A) was justified in restricting the additions made to the business income under section 28 of the Act in the facts and circumstances of the instant case. With the consent of both the parties, the facts relevant for assessment year 2018-19 are taken for adjudication and the decision rendered thereon shall apply with equal force for other assessment years also except with variance in figures.

We have heard the rival submissions and perused the materials available on record. The Assessee is operating as consignment agent (Kaccha Arahtiya) in the name and style of M/s Shri Balaji Associates. The modus operandi of the business of the Assessee is that the Assessee enters into consignment sales transactions on behalf of farmers and traders (Consignee) and earns commission income thereon. The Assessee operates as an Arahtiya who procure agricultural produce from agriculturists often on short-term credit. Arahtiya presents samples of the produce to the prospective buyers or millers and once the buyer approves the sample, the rate and quantity are settled. Following this, the agriculturist delivers the produce to the buyer's premises and the Arahtiya submits bills to the buyer based on the agreed rates and the recorded weight of the goods. Upon receiving payment, the Arahtiya withdraws the amount from their bank account deducts the commission and pays the agriculturist often in cash. Arahtiyas earn their commission from both buyers and occasionally agriculturists involving significant effort, including sourcing samples, negotiating rates and ensuring transactions are completed. When the transport carrying the goods reaches the mandi, a few samples of the goods are then taken by the Assessee and circulated to the potential buyers who then place their desired orders to the Assessee. The goods are directly delivered to the customers in the transport which was originally carrying the goods on consignment without uploading the goods on the premises of the Assessee (consignment agent). When the sales are affected, the Assessee receives the payment against sales in his bank account who then deducts his commission and other expenses incurred on behalf of the consignee and pays the balance amount to the consignee. The complete transactions through the bank are done in a very short period of time. The Assessee earns Rs 1 to 2 per quintal in this transaction which is the market rate generally prevailing in the industry in which the Assessee operates. The same has been adequately and completely recorded by the Assessee in his books of accounts.

Notice under section 148 of the Act stood issued to the Assessee on 30-7-2022 after complying with the new reassessment procedure. Thereafter notice under section 142(1) of the Act was issued to the Assessee on 15-9-2022 calling for various documents and information. Finally, the Assessee was served with a show cause notice on 9-5-2023 to which the Assessee submitted his response along with the supporting documents and information / explanations on 15-5-2023. The Learned AO completed the reassessment under section 147 of the Act on 30-5-2023 with an addition of Rs 13,10,316 on account of commission earned for providing bogus bills under section 28 of the Act under the head income from business and profession. The Assessee submitted given the modus operandi adopted by him, there was absolutely no justification behind the assumption made by the Learned AO that Assessee would have earned commission at the rate of 2% on bogus sales of Rs 190,18,50,149.

It was contended that the addition has been made by the Learned AO on the basis of statement and in this regard it was submitted that the complete statement should have been taken into consideration by the Learned AO, instead the Learned AO had just picked and chose only that part of the statement which suits him and had ignored the other part of the statement which provides the entire facts. It was submitted that the Assessee has nowhere admitted that he earns commission on percentage basis of total amount of bill in the statement. It was submitted that the Assessee admitted that he earns commission on quantity of grains that too from Rs 1 to 1.5 per quintal which fact has been conveniently ignored by the Learned AO while making the addition on account of commission income. The Assessee in his statement dated 22-09-2018 recorded on oath under section 131(1A) of the Act had specifically mentioned the manner in which the commission income is calculated. It was submitted that Assessee duly furnished the entire tax audit report containing the stock summary details giving the quantity of food grains for which bills were issued before the Learned AO. It was submitted that the total quantity of food grains for which bills were issued amounts to 535280 quintals and applying a commission rate of Rs 1 to 1.5 per quintal results in an amount approximately equal to the amount already disclosed by the Assessee as commission income. It was submitted that Assessee had offered Rs 4,19,858 as Arahtiya income, Rs 5,93,138 as gross profit and Rs 3,04,627 as quality claims income credited in the profit and loss account for assessment year 2018-19. Since Assessee had already disclosed Rs 13,17,623 as profit in the profit and loss account which amount exceeds the commission income calculated at Rs 1 to 1.5 per quintal for total quantity of 535280 quintals made during assessment year 2018-19, there was no justification for addition of Rs 13,10,316 made by the Learned AO on account of commission income. The Assessee also submitted before the Learned CIT(A) that in assessment years 2009-10 and 2011-12, scrutiny assessments were framed on the Assessee and the modus operandi adopted by the Assessee in his business and the records maintained by the Assessee thereon were duly accepted by the Assessing Officer and no adverse inference were drawn thereon.

The Learned CIT(A) noted that Assessee in his statement dated 22-09-2018 recorded an oath under section 131(1A) of the Act had replied that he maintains proper books of accounts of the concern and that the books of accounts are maintained by accountant Shri Govind Sharma who was out of station on the date of survey conducted and the books of accounts are maintained in tally package in the laptop since 2012-13. It was also specifically replied in response to question number 9 of the statement that books of accounts and laptop containing books of accounts have been stolen from his car, a week prior to the date of survey and Assessee provided a copy of FIR registered with Mukherjee Nagar police station on 17-09-2018 before the survey team. The Assessee however submitted that some data backup of the accounts should be available with the accountant and the same shall be produced within few days time. The Learned CIT(A) noted that the Learned AO had not doubted or rejected the book results of the Assessee by applying the provisions of section 145(3) of the Act. The Learned CIT(A) also observed that the order of the Delhi Tribunal in the PAN group case confirmed that the Assessee’s name did not feature in the list of suppliers flagged for bogus transactions and thereby further reinforcing the genuineness and authenticity of the dealings of the Assessee. No incriminating material was found during the survey operation to justify that Assessee is engaged in the issuance of fake bills. The Learned CIT(A) observed that no inquiry was made during post survey proceedings by the investigation wing that how much commission was charged by the Assessee to provide the sale bills and whether at all he was actually engaged in the business of providing fake bills or not. No specific inquiry was made by the Learned AO to ascertain the actual rate of commission charges from the farmers / mill owners. The Learned CIT(A) concluded that there is absolutely no basis for the Learned AO to adopt commission percentage at the rate of 2% on the total sales by giving a categorical finding that in the statement dated 22-09-2018, the Assessee had not admitted that he is engaged in the business of providing fake bills. The Learned CIT(A) accepted that Assessee is only engaged as a commission agent as a Kachcha Arahtiya broker and earns only commission income. The Learned CIT(A) agreed to the complete modus operandi adopted by the Assessee in his business and also agreed that he earns commission on the quantity of grains ranging from Rs. 1 to 1.5 per quintal. Accordingly, the Learned CIT(A) on perusal of the stock details for the period 1-4-2017 to 31-3-2018 noted that Assessee had dealt with total quantity of food grains for which bills were issued to the extent of 535280 quintals. Applying rate of commission at Rs. 1.5 per quintal thereon, the commission income earned by the Assessee works out to Rs. 8,02,920. The Assessee had actually offered Arahtiya commission income of Rs. 4,19,858 in the return. Accordingly the difference of Rs. 3,83,062 alone was added by the Learned CIT(A) instead of Rs. 13,10,316 made by the Learned AO for the assessment year 2018-19.

We find that the Learned CIT(A) had completely understood the modus operandi of the business adopted by the Assessee, the range of commission earned by the Assessee in his business as an Arahtiya commission agent and had given a categorical finding that he is not engaged in the business of providing any fake bills. In our considered opinion, the Learned CIT(A) had elaborately dealt with the issue in dispute and had determined the total income of the Assessee in consonance with the nature of business activities carried out by the Assessee and the modus operandi adopted thereon. We do not deem it fit to interfere in the said order of the Learned CIT(A). Accordingly, the grounds raised by the revenue are hereby dismissed.

No arguments were advanced by the Learned AR at the time of hearing on the cross objections preferred by the Assessee. Hence the same are hereby dismissed as not pressed.

To sum up, all the appeals of the revenue are dismissed and all the cross objections of the Assessee are dismissed.