Bengaluru ITAT: Ad Hoc Estimation of Commission Income at 8% Unsustainable Without Evidence; Matter Remanded for Fresh Verification

Hosadurga Lateef Abdulla Vs ITO (ITAT Bangalore)

Bengaluru ITAT: Ad Hoc Estimation of Commission Income at 8% Unsustainable Without Evidence; Matter Remanded for Fresh Verification

The Bengaluru Bench of the ITAT held that where the Assessing Officer rejected the assessee’s claim of earning only 2% commission as a licensed commission agent dealing in tender coconuts, the ad hoc estimation of commission income at 8% of the turnover, without any independent material or comparable evidence, could not be sustained. At the same time, the Tribunal observed that the assessee had also failed to substantiate the 2% commission claim with adequate documentary evidence despite repeated opportunities.

Considering that the assessee was merely a commission agent and not a trader, the Tribunal found no justification for adopting an arbitrary 8% commission rate. However, since the assessee had not produced supporting records such as documentary evidence to establish the actual commission earned, the Tribunal restored the matter to the Assessing Officer for de novo adjudication, granting one final opportunity to substantiate the claim.

The Tribunal also restored the issue relating to the disallowance of deduction claimed under Chapter VI-A, directing the assessee to furnish the necessary supporting documents. Since the assessment itself was remanded, the Tribunal clarified that all contentions on merits as well as jurisdiction, including the validity of the reassessment proceedings, would remain open for consideration by the Assessing Officer. Accordingly, the appeal was allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. The assessee has filed the present appeal against the impugned order dated 18.09.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”), by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2020-21.

2. In this appeal, the assessee has raised the following grounds: –

1. The order of the authorities below in so far as it is against the appellant is opposed to law, equity and weight of evidence, probabilities, facts and circumstances of the case.

2. The appellant denies himself liable to be assessed to a total income of Rs. 66,97,782/- for the impugned assessment year 2020-21 on the facts and circumstances of the case.

3. Grounds on estimation of commission income at 8%:

a. The learned CIT(A) has erred in confirming the commission from sale of coconuts at the rate of 8%of the gross receipts, on the facts and circumstances of the case.

b. The authorities below have failed to appreciate that the commission earned by the appellant could not have exceeded 2%, on the facts and circumstances of the case.

c. The learned CIT(A) has failed to appreciate that the turnover of Rs.8,37,22,275/- adopted by the learned assessing officer for estimating be excluded for the purpose of computing the gross receipts.

4. Grounds on disallowance of deduction claimed under Chapter Vl -A:

a. The learned assessing officer is not justified in disallowing the deduction of Rs. 1,57,086/- claimed under Chapter Vl A of the Act, on the facts and circumstances of the case.

5. The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act in view of the fact that there is no liability to additional tax as determined by the learned assessing officer. Without prejudice the rate, period and on what quantum the interest has been levied are not in accordance with law and further are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.

3. The assessee has also filed an application seeking admission of the following additional grounds of appeal: –

1. Grounds on reopening:

a. The notice issued under section 148 of the Act s bad in law, on the facts and circumstances of the case.

b. The notice issued under section 148 of the Act by the learned Income Tax Officer, Ward-1(1), Mysore is without jurisdiction subsequent to the ‘faceless assessment scheme’, on the facts and circumstances of the case.

c. The notice issued under section 148 of the Act in invalid for failure to strike off the irrelevant portion, on the facts and circumstances of the case.

d. The learned assessing officer has failed to follow the mandatory procedures for assessment under section 147 of the Act, on the facts and circumstances of the case.

e. The learned assessing officer has failed to obtain sanction under section 151 of the Act. Without prejudice, the sanction obtained if any, is mechanical and without application of mind, on the facts and circumstances of the case.

4. The brief facts of the case are that the assessee is an individual and is engaged in the business of a commission agent of tender coconut. For the year under consideration, the assessee filed its return of income, declaring a total income of Rs. 6,97,770/-. On the basis of the information that the assessee has deposited a substantial cash amounting to Rs. 3,28,58,520/- in its bank account maintained with ICICI Bank and Rs. 2,51,13,920/- in its bank account maintained with AXIS Bank, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued on 26.03.2024. In response to the said notice, the assessee filed his return of income on 30.04.2024, declaring a total income of Rs. 6,97,770/-. In this return, the assessee has shown an estimated turnover of Rs. 3,28,58,520/-, on which a profit of Rs. 8,54,856/- was declared, which is 2.6% of the turnover. During the assessment proceedings, the assessee was asked to furnish the details regarding the computation of commission income, which is declared at 2.6% of the total turnover. In response, the assessee submitted that he holds a license to conduct business as a commission agent, and that he sends goods to various destinations as a consigner on behalf of farmers. The assessee further submitted that he deducts commission @2% and pays the balance amount to the farmers. The assessee submitted that there is no separate entry for commission in his bank account. After considering the statements of the assessee, the Assessing Officer (“AO”) vide order dated 15.02.2025 passed under section 147 r.w.s. 144B of the Act noted that, as per the bank statement furnished by the AXIS Bank, in response to the notice issued under section 133(6) of the Act, there were total credits of Rs. 25,15,654/-and in another bank account of Rs. 2,56,205/-, which have not been considered by the assessee while computing the commission income. The AO recomputed the assessee’s total turnover at Rs. 8,37,22,275/-. Since the assessee, despite the grant of multiple opportunities, failed to substantiate the commission income @2% vis-a-vis the entries in the bank statement, the AO computed the commission @8% on the total turnover of Rs. 8,37,22,275/-. As the assessee had already shown commission income of Rs. 8,54,856/-, the balance commission income of Rs. 58,42,926/- was added to the total income of the assessee. Since the assessee did not furnish any details regarding the deduction of Rs. 1,57,086/- claimed under Chapter VI-A, the AO also disallowed the said deduction and added the same to the total income of the assessee.

5. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee observing as follows: –

“6.3 Decision: I have carefully examined the assessment order and the written submissions filed by the appellant, it is noticed that the AO has clearly mentioned in the assessment order that the documentary evidences of expenses claimed was not uploaded by the appellant during the assessment proceedings. Further, the total turnover in the reconciliation uploaded by the assessee is also not correctly computed. The assessee has not uploaded the date wise details of interbank transactions and nature of transactions under the head others.

Further, the appellant has not provided the reconciliation of turnover and expenses claimed along with documentary evidence during the appellate proceedings.

In view of the above, the addition amounting to Rs.58,42,926/- made by the A.O. is being upheld. Hence, Ground Nos. 3,4 & 5 of appeal are dismissed.

7. Ground No. 6: The appellant has not provided the documentary evidences of deduction claimed u/s 80C during the assessment and the appellate proceedings.

In view of the above, the addition amounting to Rs.1,57,086/- made by the A.O. is being upheld. Hence, Ground No. 6 of appeal are dismissed.”

Being aggrieved, the assessee is in appeal before us.

6. We have considered the submissions of both sides and perused the material available on record. In the present case, it is evident that the Revenue disagreed with the submissions of the assessee that it earned commission @2% as a commission agent of tender coconut. As per the assessee, it holds a license issued by the Agricultural Marketing Department, Mysore. From the record, we find that during the assessment proceedings, the assessee furnished the bank statement of its accounts maintained with ICICI Bank and AXIS Bank and also submitted the reconciliation of turnover as follows: –

8. Thus, as per the assessee, during the year, he had a turnover of Rs. 7,45,80,716/- on which he earned commission income of 2%. However, the AO disagreed with the submissions of the assessee and held that there is no basis for computing the turnover at 2%. Accordingly, the AO computed the commission income on an ad hoc basis at 8% of the assessee’s total turnover. We further find that opportunities were granted to the assessee to upload corroborated documentary evidence to substantiate the commission income at 2%. However, in the absence of any documentary evidence being filed by the assessee to substantiate its claim, the AO disagreed with the submissions of the assessee regarding earning commission @2%. Even before the learned CIT(A), the assessee did not bring any new documentary evidence to substantiate its claim.

9. It is pertinent to note that the assessee is acting as a commission agent and not as a trader of tender coconut. Thus, we do not find any merit in the findings of the AO in considering 8% as the commission income of the assessee merely on an ad hoc basis without any independent evidence. Since, in the present case, the assessee could not bring any material evidence to substantiate its claim of earning commission income @2% apart from placing on record the bank statements and reconciliation, which were duly considered by the AO, we deem it appropriate to grant one more opportunity to the assessee, in the interest of justice, to furnish necessary documents in support of its claim of earning commission income @2%. Accordingly, we restore this issue to the file of the AO for de novo adjudication with the direction to the assessee to furnish the requisite details in support of its claim of earning commission income @2%.

10. As regards the deduction claimed under Chapter VI-A, we restore this issue also to the file of the AO, directing the assessee to furnish the documentary evidence in support of its claim.

11. Accordingly, with the above directions, the impugned order is set aside, and all the grounds raised by the assessee are allowed for statistical purposes. Before concluding, we may also note that, since the matter has been restored to the file of the AO for consideration afresh, all the contentions of the assessee on merits as well as on jurisdiction shall remain open for consideration before the AO.

12. In the result, the appeal by the assessee is allowed for statistical purposes.

Order pronounced in the open court on 20-July-2026.