M/s. Adam Smith Consultancy Pvt. Ltd. vs ACIT, Central Circle 05, New Delhi

“l. That on the facts & the circumstances of the case and in law, the order dated 14.01.2025 passed by the Ld. Commissioner of Income Tax (Appeals) - 24, Delhi ["Ld. CIT(A)"] to the extent confirming the order dated '30.12.2019 passed uls.153A1143(3) of the Income Tax Act, 1961 ("Act") by the ACIT Central Circle 5, Delhi ("AO") for AY 2016-17 is bad in law.

2.

That contrary to settled law, the Ld. CIT(A) erred in sustaining the action of the AO in assuming unreported commission in the hands of the appellant while passing the impugned order u/s.153A of the Act for AY 2016-17 in the absence of any incriminating material pertaining to the appellant, being a year for which the appellant's assessment stands completed/unabated.

3.

That in any case, unreported commission of the group of companies to which the appellant belongs and the seized materials, having been surrendered to tax and adjudicated upon by the Hon'ble ITSC in the case of the group's flagship company, no presumption of unreported commission in the hands of the appellant is sustainable in the absence of any seized material specific to the appellant and/or found not submitted to the ITSC.

4.

Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in making an addition of Rs.16,34,405/- by applying the rate of unreported commission determined in the case of the appellant's group flagship company by the Hon'ble ITSC on the seized and surrendered materials, to the reported commission of the appellant, solely on the presumption of common premises and business model, the addition being thus only on conjectures and surmises.”

“4.

The appellant company is a part of the Adam Smith Group of companies ("ASG"). The flagship company of ASG is M/s. Adam Smith Associates Pvt. Ltd. ("ASAPL"). ASG is involved in discounting of bills of exchange under letters of credit ("LC"). The Group also provides consultancy in trade financing and other services appurtenant to discounting of LCs.

5.

Search uls.132 of the Income Tax Act, 1961 ("Act") was conducted on 28.11.2017 on the premises of all ASG companies, including the appellant and M/s. SNW Smith Consultants Pvt Ltd ("SNW"), besides others.

6.

The offices of ASAPL were at 901 Commercial Tower, Le Meridien, Delhi ("Le Meridien") and Basement, Thapar House, Delhi ("Basement, Thapar House"). At the time of Search, the Appellant's office was in the same premises as M/s. ASAPL, viz., corrimon premises. The explanations/responses to the seized materials from all premises of ASG which were not identifiable to any ASG entity, were owned, explained and submitted by ASAPL to the Investigation Wing, Income Tax Department.

7.

Similar, if not verbatim, orders have been passed u/s.153A of the Act for the Appellant and SNW by the same Ld. AO. SNW in which cases this Hon'ble Bench has adjudicated vide orders dated 21.11.2025 in ITA No. 1633 to 1637IDeV2025 for AY 2012-13 to AY 2016-17, copy enclosed as Annexure 1.

8.

It is respectfully submitted that, being pari materia with SNW supra, the present case of the appellant is squarely covered on facts and in law by the decision of this Hon'ble Bench in SNW supra for the following facts and reasons.

Booked and Un booked Commission - separately recorded - two parallel sets of accounting servers - No instance of "under-booked"

9.

Materials were seized from the offices of ASG companies at Le Meridien and Basement Thapar House. At para (second from the bottom) on page 2, the Ld. AO states as under:

During the course of search and seizure. digital data and documents were found and seized. It was found that ASG is maintaining two parallel sets of accounting servers in its office premises. On is the Tally Server that is used by ASG to show all the accounted income as per the books of accounts; other was the parallel set of books in software called LC Billing & Discounting (LCBD) System which is maintained in SQL. LCBD system had backend database in SQL format. The SQL system comprised of all the data (Booked/accounted and unbooked/unaccounted) for domestic LCs facilitated by ASG from ay 2008 till September, 2016. From September 2016 to till date all the booked entries are maintained in tally server and the unbooked LCs are maintained in excel h is by employees.

Seized Materials Relied Upon

10.

The seized materials relied upon by the Ld. AO (para 6 page 3 of the assessment order) in the case of the appellant is tabulated as under:

Seized Material Annexure	Premises	Comments
A-14	Le Meridien Office Premises of ASAPL & Others, shared by Appellant	Compilation of 89 Loose Sheets not identifiable to any entity; owned and explained by ASAPL to Investigation Wing and submitted before Hon'ble ITSC
A-29		Hard Disks containing Tally records of various ASG entities, including the Appellant
A-35	Basement Thapar House Office of ASAPL & Others, not shared by Appellant	Four Hard Disks. Two hard disks containing Tally & related office records of various ASG entities Other two hard disks were miscellaneous junk data
A-36
A-37
A-38
A-39		(61 pages) Cheques of various client parties (signed & unsigned) lying in custody

11.

Para 6 page 3 of the assessment order is reproduced as under for ready reference:

6.

Vide notice u/s 142(1) of the Act dated 16.11.2019, the assessee was asked the following:

A perusal of annexure A-14 & A-29 seized from hotel Le Meridian, Windsor Place, Janpath, Delhi and annexures A-35, A-36, A-37, A-38 and A-39 seized from basement, Thapar House, 124, Janpath; Delhi reveals that you have not accounted for part of your receipts from LC discounting in your books of accounts. From Account Settlement Sheets, seized from your premise as mentioned above, it has been found that average gross commission on your domestic LC discounting comes to 1.28% of LC amount which has not been taken into account while preparing your books of accounts. It has also been found that commission on hundi/LC booked in your books has been reported at a lower rate compared to rate arrived at by averaging the commission as reflected in account settlement sheets. From seized data, it has been found that commission on domestic LC discounting @ 1.28% of LC limit comes to Rs.55787700/- during the year whereas you have reported revenue from ales/services of Rs.Nil.

In view of the above, kindly explain as to why unbooked amount of commission on LC discounting should not be brought to lax and assessed in your total taxable income.

Seized Materials pertaining to Unbooked Commission from all ASG premises submitted by ASAPL to ITSC

12.

Further, as stated in para 6.2 at page 4 of the assessment order, all the seized materials pertaining to unbooked commission were submitted by ASAPL before the Hon'ble Income Tax Settlement Commission ("ITSC") as part of it's application dated 13.12.2019 u/s.245C of the Act. Para reproduced as under for ready reference:

6.2

Meanwhile, the flagship company, M/s Adam Smith Associates Pvt. Ltd filed an application u/s 245C of the Act before Hon'ble Income Tax Settlement Commission. Also, the assessee company had not submitted any response on the merits of the case.

Facts not in Dispute - Seized Material pertained to Booked & Unbooked Commission not identifiable to any specific ASG entity is a matter of record.

13.

The booked and un booked commission were separate and parallel records. While Tally was maintained for booked commissions/consultancy incomes, SQL based the LCBD software/excels had records of both booked and unbooked commission/incomes. As noted by the Ld. AO & Ld. CIT(A), the record of unbooked commission/income was not identifiable to any particular entity.

14.

As ASAPL carried out more than 95% of the LC Discounting & Trade Finance business of ASG, with ASAPL giving referral business to Adam Smith Consultancy (appellant) and SNW Smith Consultants, being only intermediaries, ASAPL owned and submitted complete details and explanations of all un booked transactions to the Investigation Wing.

15.

All the documents, physical and digital, and details of the entire un booked commission/income for the years AY 2012-13 to AY 2018-19 was submitted and surrendered by ASAPL vide it's application dated 13.12.2019 u/s.245C of the Act before the Hon'ble Income Tax Settlement Commission/Interim Board for Settlement ("ITSCIIBS") in December 2019. The said facts are a matter of record and not in dispute. Settled law - S.245-1 of the Act - Order u/s.245D(4) -Conclusive of all matters stated therein.

16.

Order dated u/s.245D(4) of the Act was passed by the Hon'ble ITSC/IDS (copy placed at pages 27-44 of the paperbook) accepting the surrendered unbooked transaction details provided by ASAPL for ASG for AY 2012-13 to AY 2018-19 and determining the net rate of commission on unbooked transactions (0.25% x 30%) as against the arbitrary rate of 1.28%. Section 245I of the Act provides as under:

"Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force. n

17.

In view of the above position in facts and law, the matter of unbooked commission of ASG having been addressed by the Hon'ble ITSCIIBS, stands settled conclusively.

In any case, No Finding of any "under-reported" transaction

18.

There is no finding during Search by the Investigation Wing or subsequently in assessment proceedings or the proceedings before the Hon'ble ITSC/IBS of any transaction that has been "under-reported". On the contrary, as stated by the Ld. AO on page 2, there are parallel sets of accounting records for booked and un booked commission incomes. Even before the Hon'ble lTSC, there is no finding that the booked transactions were under-reported, the case being one of separate unreported transactions only.

Key Contention of the AO/Ld. CIT(A) - Same business model, Common Premises even though no material identifiable to the appellant

19.

It is respectfully submitted that the Ld. AO does not attribute any of the seized materials specific to the appellant. The key contention of the Ld. AO is that the Search revealed unbooked commissions of the Adam Smith Group. In view of the same, the Ld. AO proceeded to make an addition in the hands of the Appellant as the assessee had common premises and common business model with ASAPL.

Addition based on applying an unsupported extrapolated rate to Audited & Disclosed Turnover

20.

The addition by the Ld. AO has been made as under:

Turnover as per audited financial statements & ITR multiplied by 1.28%, being an ad- hoc/extrapolated rate of commission based on documents seized comprising booked and unbooked transactions for ASG companies for the period 2012 to 2018.

There is no finding by the Ld. AO of any of the transaction as per audited financial statements and as disclosed in the ITR that has been under-reported. S.145(3) of the Act has not been invoked. Books of accounts have not been rejected. Even on remand, the Ld. AO re-affirms that while there is no document or material specific to the assessee, as ASG/ ASAPL has surrendered unbooked commission income before Hon'ble lTSC, it is evident that even the appellant will have unbooked commission since it has the same business model and common premises. This erroneous reasoning has resonated with the Ld. CIT(A).

LC Numbers in the alleged "incriminating material" Annexure A-14 - No match found

21.

This can be demonstrated. On comparison of the LC numbers appearing in 89 loose pages in the compilation Annexure-14 with the LC numbers of each transaction in AY 2016- 17 as per the audited accounts of the appellant (submitted to the Ld. AO on 22.12.2019, copy placed at pages 85-87 of the paperbook), there is no match. Thus, none of the disclosed transactions are "under-reported".

No material alleged to exist that demonstrates under-reporting of reported transactions

22.

No material has been brought on record nor has even been alleged by the ld. AO to exist in the case of the appellant that demonstrates under-reporting of reported transactions. Hence, applying an ad-hoc extrapolated rate of commission to the reported transactions is unsupported on facts and in law.

Findings and Conclusion of the Ld. CIT(A)

23.

In paras 4.4.5 to 4.4.7 at page 30-31 of his order, the Ld. CIT(A) notes as under:

Order also mentions that these materials have been submitted by ASAPL before ITSC

4.4.5

The appellant is engaged in the business of LC Discounting and financial consultancy Services. It has similar model as it's flagship company, ASAPL. As mentioned in the assessment order, based on materials seized from Le Meridien and Basement Thapar House offices of ASAPL and all Adam Smith Group of companies, the Investigation Wing determined unbooked commission at an average rate of 1.28% over six assessment years, i.e. in A Y 2012-13 to A Y 2018-19. The order also mentions that these materials have been submitted by ASAPL before ITSC. There is no independent or specific material in the name of the appellant company which has been relied upon by the AO nor placed on record.

Hon'ble ITSC has rejected the gross commission rate of 1.28% determined by the Department from such seized materials and directed to adopt the uniform commission rate of ..... 0.75%

4.4.6

I have perused the records, the assessment order and the ITSC/IBS Orders. The only issue is regarding unbooked commission determined by the AO in the hands of the appellant. It is noted from ITRs that the revenues of the appellant were about 15-20% of ASAPL. The appellant has submitted that appellant was an intermediary with referral business from ASAPL. The appellant has further submitted that all the unbooked commission has already been accounted for by the ASAPL, the flagship company, while submitting its application before Hon'ble ITSC. Hon'ble ITSC in the case of ASAPL, has adjudicated vide it's order dated 28.02.2023 on all unbooked LC's as per LCBD software surrendered by ASAPL before the Investigation Wing. Hon'ble ITSC has rejected the gross commission rate of 1.28% determined by the Department from such seized materials and has directed to adopt the commission at the uniform rate 0/0.25% while the net profit should be adopted at the uniform rate of @30% on all assessment years covered in the settlement commission determining the net profit of 0.075% (0.25% x 30%).

Appellant has vehemently argued the fact that Assessing Officer could not identify the exact seized material which shows that there was a un booked commission related to the appellant company; It is also a fact that the appellant company was operating from same premises from where whole incriminating material was found and seized. ASAPL as well as appellant company, both were having the same business model and operating from the same business premises

4.4.7

In the instant case, Assessing Officer has determined the gross commission 1.28% with respect to booked commission, which in my opinion is high looking at the gross commission offered by the appellant during the Y 2012-13 to 2016-17.It is pertinent to mention here that appellant has vehemently argued the fact that Assessing Officer could not identify the exact seized material which shows that there was a unbooked commission related to the appellant company. It is also a fact that the appellant company was operating from same premises from where whole incriminating material was found and seized. ASAPL as well as appellant company, both were having the same business model and operating from the same business premises.

Seized material also do not have any specific reference to any company. ASAPL, being the flagship company, has declared the undisclosed income related to those seized material while submitting the application before ITSC………Accordingly, it is necessary to make a little adjustment in the net profit earning of the appellant company with regard to booked commission as well.

Seized material also do not have any specific reference to any company. ASAPL, being the flagship company, has declared the undisclosed income related to those seized material while submitting the application before ITSC. The ITSC order itself proves that the ASAPL group of companies were earning the additional income which was not offered to taxation. Accordingly, it is necessary to make a little adjustment in the net profit earning of the appellant company with regard to booked commission as well. Considering all the facts, along with the order of ITSC in the case of ASAPL, I direct the Assessing Officer to adopt the half the rate which has been adopted by the ITSC in the case of ASAPL i.e. the additional net profit rate would be (50/100)* 0.075% (i.e. (0.5*0.25%)*30%) over and above the income disclosed by the appellant in its return of income. In view of the same, Ground Nos. 2, 2A and 3 are partly allowed.

Summary

24.

In view of the above, it is respectfully submitted that

 Impugned assessments u/s.153A are bad in law for want of incriminating material"

 In the absence of which, the unabated assessments for A Y 2012-13 to AY 2016-17 could not be interfered with as per settled law in (2023) 454 ITR 212

 Every seized material is not "incriminating"

 It is settled law, for material to be incriminating, the same should indicate undisclosed income for the relevant A Y

 There is no "incriminating material" brought on record in the case of the assessee, neither during Search nor in the course of assessment to establish that the assessee under-reported it's audited transactions

 Section 145(3) of the Act has not been invoked by the ld. AO to reject books of accounts, nor the assessment has been done u/s.144 of the Act

 On the contrary, the Ld. AO has used the audited and disclosed turnover as per books on which the adhoc arbitrary rate of gross commission of 1.28% has been applied

 The Id. CIT(A) has erred in confirming the conjecture of the Ld. AO in applying the net rate of 0.75% determined by Hon'ble ITSC/IBS on unbooked commission to the booked commission of the appellant, contrary to facts on record and without any underlying material to establish that any of the booked transactions of the appellant are under-reported and/or there is any undisclosed income in the hands of the appellant over and above the materials and income submitted and surrendered by ASAPLI ASG before Hon'ble ITSC.

Prayer

In view of the facts and circumstances and position in law, it is respectfully prayed that the impugned unabated assessment u/s.15~A rws 143(3) of the Act for AY 2016-17 is vitiated in the absence of any incriminating material in the case of the appellant. Further, in any case, with the entire unbooked commission having been surrendered before the Hon'ble ITSC, the resultant order u/s.2451 of the Act attributes conclusiveness concerning unbooked commission of ASG companies through ASAPL. It is not the case of the Revenue that there is any material to establish that the assessee had any "under-reported" transactions. The Assessing Officer/Ld. CIT(A) have applied an additional rate of commission to the reported turnover, without invoking s.145(3) of the Act, merely on a conjecture.

Accordingly, it is prayed that the sole addition to the returned income on account of alleged under-reported commission may kindly be deleted and assessee be granted such consequential relief as your Honours may deem fit.”

“4.

We have gone through written submission and arguments made by the ld. Counsel of the assessee during proceedings before us. We have also heard the arguments, perused the documents and paper book filed by the Revenue during proceeding before us and we find that the documents in fact do not belong to the assessee at all. Therefore, any assessment passed on the basis of such documents or any addition made on the basis of such documents cannot be sustained. The Ld. CIT(A) has considered the findings given by the Income Tax Settlement Commission in the case of Adam Smit Group of Companies (in brief ASAPL & ASG) and directed the AO to calculate half of the rate which has been adopted by the Income Tax Settlement Commission in the case of ASAPL as additional net profit rate over and above the income disclosed by the appellant in his return of income. We find that this finding of the Ld. CIT(A) is based on the basis of calculation made keeping in view the so called incriminating documents found during the search of assessee but since it has already demonstrated above by the assessee that these documents do not belong to the assessee, therefore, the direction of the ld. CIT(A) to calculate commission rate as suggested by the Income Tax Settlement Commission does not hold good. Therefore, in our considered view the findings given by the Ld. CIT(A) on this issue cannot be sustained. Accordingly, the assessee’s appeals on this ground has allowed.”