Delhi ITAT Invalidates Reassessment and Deletes ₹46.48 Lakh Commission Addition

Ampulla Developers Private Limited Vs ITO (ITAT Delhi)

REOPENED FOR ₹23.24-CRORE CASH CREDIT, ASSESSED FOR 2% COMMISSION -AO CANNOT CHANGE THE ESCAPEMENT STORY MIDWAY u/s 147/148

Facts of the case

The assessee, Ampulla Developers Private Limited, was incorporated on 12.07.2010 & engaged in the business of real-estate development.

AY 2012-13 was only the second year of its operations. The company was stated to be in its gestation or incubation period, as real-estate activity ordinarily involves considerable time for identifying & purchasing land, negotiating with prospective parties & obtaining statutory approvals before commencing development.

The DDIT (Investigation), New Delhi, forwarded information concerning M/s Janardhan Infrastructure Pvt. Ltd. According to the Investigation Wing, that entity had received debits & credits from various companies, including the assessee.

On the basis of this information, the AO formed an opinion that the assessee had been used for the layering of funds.

The aggregate credits appearing in the assessee’s bank account amounted to ₹23.24 crore. However, instead of ultimately adding the entire amount, the AO estimated that the assessee had earned commission at 2% for allegedly providing accommodation entries.

Accordingly, commission income of ₹46,48,980 was added to the assessee’s income.

The CIT(A), NFAC, sustained the addition & dismissed the appeal.

Additional legal grounds before the ITAT

Before the Tribunal, the assessee raised two additional legal grounds.

The first challenged the validity of reassessment u/ss 147/148 on the ground that it had been initiated merely on the borrowed opinion of the Investigation Wing, without the AO undertaking any independent enquiry or verification before forming the requisite belief regarding escapement of income.

The second challenged the ad hoc addition of commission income. It was contended that the AO could not estimate commission at 2% without rejecting the assessee’s duly audited books of account or identifying any defect therein.

Since the grounds were legal in nature & arose from facts already available on record, the Tribunal admitted them following the Supreme Court’s decision in NTPC Ltd. v. CIT [1998] 229 ITR 383 (SC).

Books were audited & never rejected

The assessee submitted that its books had been audited by an independent Chartered Accountant. The audit report & financial statements were produced before the authorities.

The AO never rejected the books of account, issued no show-cause notice proposing their rejection & identified no defect in the accounts.

Indeed, while completing the assessment, the AO adopted the returned income emerging from the audited financial statements & thereafter added the estimated commission. According to the assessee, this demonstrated that the books were accepted.

The assessee relied upon various decisions, including PCIT v. R.G. Buildwell Engineers Ltd., PCIT v. Forum Sales Pvt. Ltd. & other authorities, for the proposition that ad hoc estimation cannot ordinarily be made without first rejecting the books of account.

Tribunal rejects the books-rejection argument

The ITAT did not accept the assessee’s contention that the commission addition was invalid merely because the books had not been rejected.

According to the Tribunal, the AO had not estimated the assessee’s regular business profits from its books. His case was that the assessee had provided accommodation entries & earned commission from those particular transactions.

Therefore, the decisions relating to estimation of business profits without rejection of books were distinguishable. The second additional ground was accordingly rejected.

But the very foundation of reopening was wrong

The Tribunal then examined the jurisdictional challenge to reassessment.

The AO had initially reopened the assessment on the belief that the entire credits appearing in the Axis Bank account represented unexplained cash credits & undisclosed income u/s 68.

During assessment, however, he noticed that the transactions were between group or sister concerns & were routed through normal banking channels. The assessee had discharged the evidentiary burden relating to those transactions.

The original premise that the entire bank credits represented the assessee’s undisclosed income was therefore not sustained by the AO himself.

Having abandoned that allegation, the AO changed course & alleged that the assessee had provided accommodation entries, estimating commission income at 2% of the same bank credits.

The ITAT found that no material had been brought on record to establish that the assessee had actually rendered accommodation-entry services, charged commission or earned income at the estimated rate of 2%.

Merely receiving information from the Investigation Wing & noticing substantial banking transactions did not establish the character of those transactions as accommodation entries.

The Tribunal held that initiating reassessment on the incorrect belief that the entire bank credits constituted unexplained cash credits & thereafter estimating commission without supporting material was bad in law.

The first additional ground challenging the reassessment was consequently allowed. Since the assessment failed on this legal ground, the Tribunal did not adjudicate the remaining grounds & kept them open. The assessee’s appeal was allowed.

Author’s comments

The important principle is that the reason recorded for reopening provides the jurisdictional foundation of the reassessment. The AO cannot reopen on one allegation, discover that it is factually unsustainable & then construct an altogether different source of escapement without any supporting material.

The Tribunal carefully distinguished two questions. Rejection of books may not always be necessary where the AO alleges separate, unrecorded commission from accommodation-entry activity. But he must still prove, through tangible material, that such activity occurred & commission was earned. A “market trend” of 2% is not evidence of income.

The order rejects the assessee’s second additional ground but grants complete relief on the first. It also contains minor numbering inconsistencies toward the conclusion.

The AO began with ₹23.24 crore as unexplained money & ended with ₹46.48 lakh as commission. When the destination differs from the recorded reason, the reassessment journey itself loses its ticket.

Cases Discussed

• National Thermal Power Company Ltd. v. CIT, 229 ITR 383 (SC)
• PCIT v. R. G. Buildwell Engineers Ltd (2018) 99 taxmann.com 283 / 259 Taxman 371 (Delhi) (HC)
• SLP of revenue is dismissed, PCIT v. R. G. Buildwell Engineers Ltd (2018) 259 Taxman 370 (SC)
• PCIT vs Forum Sales Private Limited (ITA No. 862/2019 dated 01.03.2024) Delhi High Court
• CIT v. Anil Kumar & Co. [2016 SCC OnLine Kar 8512]
• Principal Commissioner of Income-tax v. Marg Ltd. [2017 SCC OnLine Mad 37852]
• DCIT vs. Bright Point India Pvt. Ltd., ITA No.1697/DEL/2023 Dated: 18.08.2025

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI

1. This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short ‘ld. CIT (A)] dated 16.03.2026 for the Assessment Year 2012-13.

2. At the time of hearing, ld. AR of the assessee brought to my notice relevant facts of the case and his submissions as under. She submitted that assessee is a company incorporated on 12.07.2010 engaged in the business of real estate development. Accordingly, the assessment year under consideration i.e. AY 2012-13 is the second year of the company operating in its gestation or incubation period. She submitted that a real estate business generally has a longer gestational period for purchasing lands, making negotiations with the prospective buyers, obtaining necessary statutory approvals before starting with the project of real estate development.

3. She submitted that the DDIT(Inv.), New Delhi passed certain information about one, M/s Janardhan Infrastructure Pvt Ltd, that it has received debits as well as credits from various companies which included the name of the assessee company. On the basis of the above investigation report, it was concluded that since the assessee company has been used for layering of funds, accordingly, commission income @ 2% of the total credits in the bank account i.e. Rs.23.24 Cr., i.e. Rs.46,48,980/- was considered as income of the Assessee.

4. Aggrieved against the above order, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. Ld. CIT (A) after considering the submissions of the assessee, sustained the addition and dismissed the appeal.

5. Aggrieved with the above order of the ld.CIT(A), the assessee filed an appeal before us.

6. At the time of hearing, ld. AR submitted that assessee has filed the following additional legal grounds :-

A. Ground No. A- Reassessment proceedings u/s 148/147 bad in law and void-ab-intio

• • That the Ld.AO erred in reopening the assessment by merely relying on the borrowed opinion of the Investigation Wing without any reasons to believe that the income of the Assessee has escaped assessment.
  • That the Ld.AO erred in initiating reassessment proceedings without carrying any independent inquiry/verification of the facts available on record.

B. Ground No. B-Adhoc addition of commission income bad in law

• • That the Ld.AO erred in making an adhoc addition of commission income without rejecting the books of account of the Assessee.
  • That the ld.AO erred in making an adhoc addition of commission income on an estimate basis without pinpointing any defects in the books of accounts which is arbitrary and against the principle of natural justice.

7. She submitted that the additional grounds are primarily legal in nature, accordingly, it is prayed that the same may please be admitted in view of the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd reported in 229 ITR 383.

8. On the other hand, ld. DR for the Revenue has no objection of admitting the additional ground of appeal being purely legal issue.

9. In view of the reliance made by the ld. AR for the assessee on the judgment of Hon’ble Supreme Court in the case of NTPC Ltd. (supra) and issue being purely legal, I proceeded to admit the additional ground of appeal being a legal issue.

10. At the time of hearing, ld. AR of the assessee specifically argued additional ground no.2 and submitted that ad hoc addition of commission income is bad in law on the ground that the AO erred in making an ad hoc addition of commission income without rejecting the books of account of the Assessee and also the AO erred in making an adhoc addition of commission income on an estimate basis without pinpointing any defects in the books of accounts which is arbitrary and against the principle of natural justice.

11. Further, she submitted that the AO made an addition of adhoc commission income @ 2% of Rs.23.24 Cr (aggregate of bank credits) i.e. Rs.46.48 Lacs on an estimate basis keeping in mind the market trend. She submitted that no ad hoc addition ought to be made without rejecting books of account. In this regard, it is submitted that the books of account of the Assessee have been audited by Independent Chartered Accountant and copy of the audit report and the audited financial statement are placed at Paper Book Page 1-10.

12. Further, she submitted that the AO has not rejected the books of account of the Assessee rather accepted the books since at the end of the assessment order, the returned income has been considered from the audited financial statement and thereafter, an ad hoc commission income has been added. She brought to my attention assessment order at page 16 of the Paper Book and the Screenshot quoted hereinafter:

5. With the above remarks, the total income of the assessee company is computed as under:-

13. She further submitted that no ad hoc addition ought to be made where the books of account are audited and the same have been accepted by the AO. Furthermore, the AO initiated the assessment proceedings on the basis of assumption that Rs.23.24 Cr have not been disclosed, however, during the course of assessment proceedings after considering the ITR and confirmation, he dropped the reasons midway that Rs.23.24 Cr is the undisclosed income rather accepted the same and further moved to make a new addition of undisclosed income. This also proves that the books of accounts were not rejected rather accepted by the AO..

14. She further submitted that even otherwise, no show cause notice was issued by the AO for rejecting books of account, neither any such fact has been mentioned in the assessment order rather the ad hoc addition has been made to the returned income which evidently proves that the books stand accepted by the O.

15. She submitted that in these circumstances, when books of account have not been rejected, an ad hoc addition of commission income is invalid in the eyes of law. In this regard, she brought to my attention to the following judicial precedents:

• PCIT v. R. G. Buildwell Engineers Ltd ( 2018) 99 taxmann.com 283 / 259 Taxman 371 ( Delhi) (HC)
• SLP of revenue is dismissed , PCIT v. R. G. Buildwell Engineers Ltd ( 2018) 259 Taxman 370 (SC)
• PCIT vs Forum Sales Private Limited (ITA No. 862/2019 dated 01.03.2024) Delhi High Court
• CIT v. Anil Kumar & Co. [2016 SCC OnLine Kar 8512]
• Principal Commissioner of Income-tax v. Marg Ltd. [2017 SCC OnLine Mad 37852]
• DCIT vs. Bright Point India Pvt. Ltd., ITA No.1697/DEL/2023 Dated: 18.08.2025

16. She accordingly pleaded that in view of the above case laws and the factual matrix of the case wherein the books of account have been duly audited and the same have not been rejected by the AO rather the assessment has been made u/s 143(3), no ad hoc addition of commission income ought to be made without rejecting the books of account and prayed to allow the appeal.

17. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.

18. Considered the rival submissions and material placed on record. I observed that the AO made an addition of ad hoc commission income @ 2% of Rs.23.24 Cr (aggregate of bank credits) i.e. Rs. 46.48 Lacs on an estimate basis. It was submitted that the AO has not rejected books of account and the books of account of the Assessee are duly audited by the independent Chartered Accountant and copy of the audit report and the audited financial statement are also placed on record. I noticed that the Assessing Officer had initiated the proceedings with the belief that the credits appearing in the Axis Bank is cash credit and undisclosed income of the assessee but later, he noticed that it is accommodation entries and proceeded to restrict the income on the basis of estimation. I am not in agreement with the submissions of ld. AR that Assessing Officer had estimated the income of the assessee without rejecting the books of account. In my view, the Assessing Officer had not estimated the income of the assessee, rather, he was of the view that the assessee had given accommodation entry and estimated the income on the relevant transaction. The case law relied upon are distinguishable.

19. After careful consideration, I noticed that the Assessing Officer had proceeded to reopen the assessment on the basis of intimation from Inv. Wing with the wrong satisfaction that the whole credit in the bank account as undisclosed income u/s 68 of the Act overlooking the fact that all the transactions are inter-group/sister concerns. All the transactions are through banking channels and onus on the assessee are already proved. Estimating the commission upon recording of reasons to initiate proceedings without actually bringing on record the material to establish how the same credits are cash credits and escapement of income is bad in law. Therefore, I am inclined to allow the first additional ground and reject the second additional ground raised by the assessee.

20. We have not dealt with the other grounds and the same are kept open.

21. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on this 9th day of September, 2026.