IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA No. : 2644/Mum/2015 (Assessment year: 2002-03) ITA No.: 2645/Mum/2015 (Assessment year: 2003-04) ITA No.:2646/Mum/2015 (Assessment year: 2004-05) ITA No.:2649/Mum/2015 (Assessment year: 2008-09) Vs ITO 14(3)(2), Mohit Rakesh Kumar Gupta, Earnest House, Prop. M.S. Astha Silk Industries Mumbai Shop No.4, Ram Galli, Pankaj Market, Champa Gally Cross Lane, Mumbai -400 002 PAN:AFUPG 3014 P (Appellant) (Respondent) Appellant by Shri Vimal Punamiya Shri Niraj Punamiya Respondent by Shri C S Sharma Date of Hearing : 29-09-2016 Date of Pronouncement : 29-09-2016 ORDER , PER AMIT SHUKLA, J.M.: 2 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 aforesaid appeals have been filed by assessee against common order dated, 22.01.2015 passed by ld. CIT(Appeals)-29, Mumbai in relation to penalty proceedings under section 271(1)(c) for assessment years 2002-03, 2003-04, 2004-05 and 2008-09. 2. facts relating to levy of penalty are identical in all years, which is mainly on account of estimation of net profit rate of commission income. penalty levied for various assessment years are as under:- Assessment year Penalty (Amt) Rs. 2002-03 6,91,449 2003-04 7,03,687 2004-05 12,20,646 2008-09 11,34,086 3. brief facts qua issue relating to levy of penalty are that, assessee is trader in fabrics, however, at time of survey under section 133A, it was found that, he along with his other family members through various concerns are engaged in issuing accommodation sales bills. assessee s family consists of following persons, who were running following business concerns:- Name Relation Business Concerns Rakesh Kumar Gupta Father M/s Manoj Mill Hema Gupta Mother M/s Shree Rama Sales & Synthetics Mohit Gupta Seld M/s Aastha Silk Industries Nilesh Gupta Brother M/s Dev Vani Industries Rakesh Kumar Gupta HUF Father HUF M/s Sainath Textiles commission income from such business of providing accommodation bill was estimated by Assessing Officer in various assessment years in following manner:- 3 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 Particulars Product 2002-03 2003-04 2004-05 2008-09 value 6% of sales 39642782 2378567 4% of sales 32254181 1290166 59116963 2364678 51407550 954448 3% of 1528930 Purchases 31814964 50964355 1455830 Less: 5% expenses 118928 112130 194680 175606 Net Commission 2259639 2132484 3698928 336526 4. Assessee s case was that, he has only earning 1% of gross profit as commission for issuing accommodation bills and net profit from such commission income was around 0.42%, whereas, Assessing Officer has estimated net profit @ 7% and thereafter giving benefit of expenditure for earning this income to extent of 5%, balance net profit rate of approximately 6.35% was confirmed. 5. In first appeal, Ld. CIT(A) confirmed said addition and matter had travelled up to stage of Tribunal. Tribunal sent back matter to file of CIT(A). In set aside proceedings, Ld. CIT(A) after calling for remand report again confirmed said estimation made by Assessing Officer. 6. Now, in second round of appeal before Tribunal, net profit rate of commission has been reduced to 0.6% of turnover and 5% of net expenditure as allowed by Assessing Officer was retained. 7. Before us, Ld. Counsel submitted that, now in wake of decision of Hon ble Tribunal, whereby, 4 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 substantial relief on account of net profit rate has been given, no penalty can be levied. effect of Tribunal order and computation of additional tax liability have been worked out by Ld. Counsel in following manner: COMPUTATIN OF ADDITIONAL TAX LIABILITY (In Rs.) AY 2002-03 AY 2003-04 AY 2004-05 AY 2008-09 Appellant 90,602 143,490 173,248 228,759 Income Tax 7,120 18,098 23,650 19,752 Cess 473 593 7,120 18,098 24,123 20,344 Hon ble 225,964 183,849 292,691 287,767 ITAT 34,193 25,770 47,538 31,553 Income Tax - 951 947 Cess 34,193 25,770 48,489 32,500 Differential 27,072 7,672 24,366 12,156 Thus, he submitted that, ultimately quantum has been decided substantially in favour of assessee and difference now remains marginally less. Ultimately, view taken by various authorities is based on estimation and difference between net profit shown by assessee and net profit as estimated from stage of Tribunal is very less. Thus, there cannot be case for levy of penalty, either for concealment of income or for furnishing of inaccurate particulars. In support, he relied upon catena of decisions and also to be put forth various proposition that on such fact no penalty can be levied. 8. On other hand, Ld. DR submitted that, assessee has been found to be involved in providing accommodation entry and net profit rate on commission income earned on such activities have been found to be incorrect. Therefore, penalty has rightly been levied and confirmed by CIT(A). 5 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 However, he submitted that, in light of Tribunal decision, quantum of penalty can be scaled down. 9. After hearing both parties and on perusal of impugned order as well as material placed on record, we find that addition in all years have been made after estimating income of assessee by way of net commission @ 6% to 7%. Now, Tribunal in assessee s own case has reduced net profit rate of commission @ 0.6% after observing and holding as under: We find that it is not case of turnover and tax thereon but regarding estimation of commission on such business of accommodation entries and tax thereon. Regarding rate of commission adopted by Assessing Officer at 6%, Ld. Authorized Representative submitted that it was very abnormal and cannot happen in case of accommodation business. Further, rate of presumptive profit referred by CIT(A) could not be considered in case of accommodation business. Assessee in his statement dated 13/02/2009 & 23/02/2009 stated that commission income is earned @ 1% on sales also claimed certain expense thereon. rate mentioned by assessee is rate which is prevailing in this line. In this regard, Ld. Authorized Representative submitted that this issue of determination of rate of commission in case of accommodation transaction arose before ITAT in case of Sanjay Kumar Garg vs. ACIT [2011] 12 taxmann.com 294 (Delhi) wherein Tribunal held as under:- "49. next issue arises for estimation of commission income. In statement assessee at time of survey under section 133A had stated that he charged 25p as commission for providing accommodation entries and out of that 25p he paid lop to others in whose name bank accounts were maintained and 5p was spent on expenses incurred in 6 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 relation such business and hence, net commission earned was 1O paise i.e., 0.10 per cent. Ld. CIT (A) had taken commission at 1 per cent as against 1.75 per cent applied by Assessing Officer for which no evidence during course of survey was found. Ld. CIT(A) has also noted that there was no clear standard rate of commission for accommodation activities. According to him people who are engaged in this type of business would not charge less than 1 per cent on bill amount as done in case of brokerage on real estate business. He further observed that rate of 1 per cent commission is very reasonable. Now issue arises as to whether commission should be estimated at rate of .01 per cent or 1.75 per cent or 1 per cent. Id. CIT (A) for arriving at rate of commission earned has relied on rate of commission normally charged in case of real estate transactions. In real estate transactions broker has to identify/ suitable butler/ purchaser, inspection of property, visit of interested parties, negotiations of rates, registration of sale deeds etc. whereas in case of bogus entries providers no such activities are involved. Interested party gives cash to entry provider which is deposited in bank account and entry provider issues cheque. Hence transactions of bogus entry providers cannot be compared with transactions of real estate business transactions. He has to ensure nature of property and has to satisfy both seller and purchaser. services rendered by brokers in real estate transactions are more than entry providers. Hence both transactions are not comparable. Therefore, comparison of commission earned on real estate transaction, which in fact takes place and commission on transaction which does not at all occur, are not comparable. In accommodation entries transaction does not take place and, therefore, commission will be certainly lower than commission in case of real estate or real transactions. Moreover, neither Ld. CIT(A) nor Assessing Officer had given any comparable case wherein commission at rate of 1.75 per cent as taken by Assessing Officer or 1 per cent adopted by Id. CIT(A) has been admitted by other assessees engaged in business of bogus provider. Therefore, in absence of any such material on record, statement given by assessee on oath during course of survey proceedings has to be given credence. assessee has floated bogus concerns and has controlled accounts. During course of survey, no material was found on basis of which it could be said that assessee had passed on. 1 per cent commission to persons in whose names bank accounts were maintained. In absence of any evidence having brought on record, we are unable to agree with assessee that assessee had passed on commission of lop to persons in whose names dummy concerns were floated. However, in business of entry 7 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 provider certain expenditure has to be incurred which has been stated to be 5p during course of survey. Therefore, credit of 5p out of 25p received as commission has to be allowed. Therefore, Assessing Officer is directed to estimate commission income by applying 0.2 per cent net commission on turnover determined by Ld. CIT (A) for both assessment years as against 1 per cent taken by him. 6.1 We find that Tribunal in case of Sanjay Kumar Garg vs. ACIT (supra) held that rate of commission cannot be more than 1%, but in present case, assessee had already offered same for taxation purpose but with rider of allowability of certain expense against same. Hence, rate of 6% adopted by Assessing Officer was highly one. Hence, commission income was to be taken @ 0.6% of sales turnover. Similar view has also been taken by jurisdictional Mumbai Tribunal in case of Gold Star Finvest (P.) Ltd Vs. ITO [2013] 33 taxmann.com 129bal Trib.), wherein Tribunal held as under: 12. Having carefully examined various Orders in case of different assessees' it has become amply clear that in these type of activities brokers are only concerned with their commission on value of transactions. Now question comes what would be reasonable percentage of commission on total turnover ? assessee has also made out case that customers do not come directly to him and they come through sub-broker who also charge particular share of commission. In all judgments what has been stated is that average percentage of commission is between .15% to .25%. In cases of Pairesha & Co. (supra) and Kiran & Co. (supra), Tribunal has considered reasonableness of percentage of commission to be earned on turnover was at . 1 %. assessee himself has offered percentage of commission at 0.15%, which is more than percentage of commission considered to be reasonable by Tribunal in cases of Pairesha & Co. (supra) and Kiran & Co. (supra), in similar type of transactions. theory of Assessing Officer to treat entire deposit as "unexplained cash credits, cannot be accepted in light of assessment orders in case of beneficiaries and also in light of fact that assessee is only concern with commission earned on providing accommodation entries. We, therefore, of view that since assessee itself has declared commission on turnover at 0.15% which is more than percentage considered to be reasonable by Tribunal in cases of Palresha & Co. (supra) and Kiran & Co. (supra), same should be accepted. We, accordingly, accept commission 8 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 declared by assessee and set aside Order of CIT (A) in this regard." 6.2 We find that ITAT in case of Sanjay Kumar Garg (supra) has applied 0.2% commission on turnover and in Gold Star Finvest (P) Ltd. (supra) approved 0.15%. So, taking all factors into consideration, we hold that percentage of commission to be earned on turnover is reasonable at 0.6%. We hold so. 6.3 Assessing Officer has allowed only ad hoc expenses @ 5% of commission income, without prejudice to merit of issue, we are not inclined to interfere in finding of Assessing Officer on this issue . Now, in wake of aforesaid Tribunal decision in quantum proceedings, income estimated has been scaled down substantially and differential in tax amount is in few thousands only as reproduced above. Once it is matter of estimation and final income sustained after estimation of net profit is very near to estimate of commission income shown by assessee, then under these facts and circumstances, it cannot be held that any penalty can be levied under section 271(1)(c) either for concealment of income or for furnishing of inaccurate particulars. Once it is case of pure estimation which has been varied by various authorities at different stages, then on such difference of opinion that to be in matter of estimation, it cannot lead to any inference of levy of penalty. Accordingly, penalty levied by Assessing Officer and sustained by CIT(A) is hereby directed to be deleted in all years. Therefore, appeals of assessee for all years are allowed. 10. In result, all appeals of assessee are allowed. 9 Mohit Rakesh Kumar Gupta ITA No. : 2644/Mum/2015 ITA No.: 2645/Mum/2015 ITA No.:2646/Mum/2015 ITA No.:2649/Mum/2015 Order pronounced in open court on 29th September, 2016. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 29th September, 2016. Copy to:- 1) Appellant. 2) Respondent. 3) CIT (Appeal) 29, Mumbai. 4) CIT-____Conerned, Mumbai 5) D.R. C Bench, Mumbai. 6) Copy to Guard File. By Order / / True Copy / / Dy./Asstt. Registrar I.T.A.T., Mumbai * . . *Chavan, Sr.PS Mohit Rakesh Kumar Gupta v. ITO 14(3)(2), Mumbai