Case Law Details
Nanak Motumal Pherwani Vs ITO (ITAT Surat)
In Nanak Motumal Pherwani vs. ITO, the Income Tax Appellate Tribunal (ITAT) Surat addressed the issue of commission income addition based on bank transactions related to cheque discounting and money transfers. The assessee, Nanak Pherwani, filed a return of income for the 2013-14 assessment year. Following a survey of a related entity, Hari Corporation, run by the assessee’s brother, the Assessing Officer (AO) reopened Pherwani’s case. The AO applied a 1% commission rate on total bank credits, asserting it as the income derived from cheque discounting. Pherwani, however, argued that the commission typically ranged from 0.15% to 0.20% and provided evidence of similar cases where lower commission rates had been accepted.
The ITAT considered both the evidence and prior rulings, including cases where lower commission rates (as low as 0.10%) were accepted for similar transactions. Ultimately, the ITAT found that a 1% commission rate was excessive for the nature of Pherwani’s business. Citing the lack of a uniform standard for such income and aiming for a fair assessment, the Tribunal reduced the commission income addition to 0.50%, deeming it a reasonable reflection of the business activities. The Tribunal also dismissed the assessee’s appeal regarding a separate Rs.1.20 lakh addition under Section 69A due to procedural limitations in the appeal submission.
FULL TEXT OF THE ORDER OF ITAT SURAT
1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “NFAC/Ld. CIT(A)”] dated 08.03.2024 for assessment year 2013-14, which in turn arises out of assessment order passed by the Assessing Officer under section 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.05.2023.
2. Rival submissions of both the parties heard and record perused. The Ld. Authorized Representative (Ld.AR) for the assessee submits that assessee engaged in the business of cheque discounting and transfer of money. The assessee filed his return of income for the year under consideration of assessment year 2013-14 on 31.01.2014 of Rs.2,03,370/-. The case of assessee was reopened on the basis of survey action in case of M/s Hari Corporation, which is managed by his brother namely Harish Pherwani as well as M/s Hari Corporation are engaged in the business of cheque discounting. The Assessing Officer while passing assessment order made addition @ 1.00 % commission of total transactions / credit received in assessee’s bank account. The commission earned by the assessee has already been shown in the return of income. The commission earned by assessee varies from 0.15% to 0.20% per Rs.100/-, which is depending upon clearance and profile of persons. The Ld.CIT(A) confirmed the action of Assessing Officer. The Ld. AR for the assessee further submits that Assessing Officer also made addition of Rs.1.20 lakh under section 69 of the Act on the ground that assessee has given such amount to M/s Hari Corporation from his bank account and such amount was given by assessee on account of business. The Ld. CIT(A) also confirmed such addition as well. The Ld. AR for the assessee submits that in case of M/s Hari Corporation, the Assessing Officer has taxed commission @ 0.102% i.e., ten paisa per hundred rupees or less than of Rs. 0.10%. Copy of assessment orders for assessment years 2011-12, 2012-13 2013-14 and 2014-15 of Shri Harishkumar M Pherwani are placed on record. The Ld. AR for the assessee submits that commission in cheque discounting is very low, which has already been offered by assessee and no further addition was warranted. The Ld. AR for the assessee further submits that co-ordinate Benches of ITAT Ahmedabad in case of Sanjay R Shah vs. ITO [ 2017] 88 taxmann.com 809 (Ahmedabad-Trib.)/[2016] 51 ITR(T) 250 (Ahmedabad – Trib.) also confirmed the addition to the extent of 0.10%. Further, Ld. AR for the assessee relied in the case of Shri Rohit Pravindhandra Panwala vs. ACIT in IT(SS)A No.608-612/Ahd/2010 dated 31.05.2011 wherein the co-ordinate Benches sustained the addition to the extent @ 0.125% i.e., twelve paisa per rupees hundred. On the addition of Rs.1.20 lakh under section 69A, Ld. AR for the assessee submitted that such amount was duly shown in the balance-sheet of assessee. Thus, no addition is warranted.
3. On the other hand, Ld. Senior Departmental Representative for the Revenue (Ld. Sr-DR) supported the order of lower authorities on both the grounds of appeal raised by the assessee.
4. I have considered the contention of both the parties and have gone through the orders of lower authorities carefully. Ground No.1 relates to addition of commission income. I find that Assessing Officer made the commission income @ 1.00 % of total transaction / credit in the bank account of assessee. The Ld. CIT(A) confirmed such action of Assessing Officer. Before me, Ld. AR for the assessee vehemently argued that in case of assessee’s group concerned, the Revenue has assessed commission income @ nine paisa or ten paisa per rupees hundred. However, in case of assessee, the Revenue has followed similar income assessed @ 1.00 % per hundred rupees. The Ld. AR for the assessee relied on the decision of Sanjay R Shah (supra) and in the case of Rohit P Panwala (supra) wherein similar income was assessed @ ten paisa or twelve paisa per rupees hundred. Thus, considering the overall facts and circumstances of the case, in my view, if the commission income is considered @ .50 paisa per rupees hundred is sufficient and reasonable as no straight jacket formula can be applied of such income. Thus, ground No.1 is partly allowed.
5. So far as ground No.2 is concerned, I find that no specific ground of appeal is raised by assessee while filing appeal before ld CIT(A). the ld AR for the assessee has not filed any application for raising additional grounds of appeal. Thus, submissions of ld AR of the assessee against addition of Rs.1.20 lakh is rejected.
6. In the result, the appeal of the assessee is partly allowed.
Order pronounced in open court on 14th October, 2024.
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