Anitha Kotamraju Vs ITO (ITAT Hyderabad)
Only Profit Element in Brokerage Receipts Taxable; Income Estimated at 25% of Gross Commission
The Hyderabad Bench (SMC) of the ITAT partly allowed the assessee’s appeal for AY 2013-14 by holding that the entire brokerage/commission receipts cannot be taxed as income, even where the assessee had not maintained regular books of account. The assessee, a housewife, had allowed her bank account to be used by a stockbroker (BN Rathi Comtrade Pvt. Ltd.), and the Assessing Officer had treated the entire commission receipts of ₹43.71 lakh as unexplained income under section 69A.
The Tribunal noted that the commission receipts were subject to TDS under section 194H, as evident from Form 26AS, and accepted the settled principle that only the profit element embedded in gross receipts can be brought to tax, not the entire turnover. Since no books were maintained, the Tribunal held that income had to be estimated on a reasonable basis. After analysing industry profit margins of prominent stockbroking companies (discussed in detail in the order), the Tribunal considered an estimation of 25% of gross brokerage receipts as fair and reasonable in the peculiar facts of the case, including misuse of the bank account and SEBI action against the broker. Accordingly, the Assessing Officer was directed to restrict the taxable income to 25% of the total commission/brokerage receipts, and the appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
