M/S Sunrise Stock Services (P) Ltd v. Commissioner Of Income Tax (Appeals)-Ii, Ludhiana And Another

ITA No. 266 of 2010 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 266 of 2010 Date of Decision: 30.7.2010 M/s Sunrise Stock Services (P) Ltd. ....Appellant. Versus Commissioner of Income Tax (Appeals)-II, Ludhiana and another...Respondents. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Akshay Bhan, Advocate for the appellant.ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 31.12.2009 passed by the Income Tax AppellateTribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as“the Tribunal”) in ITA No. 367/Chandi/2008 for the assessment year2005-06, proposing to raise the following substantial questions of law:- (i)Whether in facts and circumstances of thecase, the action of the authorities below inrejecting the claim of the assessee withouttheir being any material evidence to rebut theclaim of the assessee/appellant is legallysustainable in the eyes of law? (ii) Whether in facts and circumstances of thecase, the action of the authorities below inignoring the books of accounts of the assessee/appellant and to arbitrarily arrive atthe rate of commission income is legallysustainable in the eyes of law? (iii)Whether in facts and circumstances of thecase, the action of the authorities below,impugned orders Annexures A-1 and A-3 arelegally sustainable in the eyes of law?” 2.During the course of assessment, the Assessing Officermade an addition of Rs.66,62,980/- on account of unaccountedcommission earned by the assessee on share dealing transactions.The amount was calculated @ 2% of the total receipt ofRs.33,31,48,866/-. On appeal of the assessee, the CIT (A) deleted thesaid addition. 3.The Tribunal restored the said addition. The Tribunalnoticed the fact that originally the assessee declared income ofRs.9,04,360/-. Later the assessee made additional disclosure ofincome of Rs.14,25,000/-. The assessee took the stand that its booksof account were lost and FIR was lodged on 6.6.2006. Having regard tothe turnover of Rs.33,31,48,866/-, the Assessing Officer was of theview that the disclosed income was not genuine and in absence ofbooks of account, the Assessing Officer made assessment by applyingrate of 2% to the gross turnover reflected in the return of income. Theview taken by the CIT (A) that there was not sufficient evidence to rebutthe claim of the assessee, the addition was not justified was notapproved by the Tribunal. It was observed as under:- “15.The assessee worked out the total transactions “15.The assessee worked out the total transactions of the year at Rs.33,31,48,866/-. However, theassessee claimed that 90% of the total turnover wason account of short term capital gains on which it hasreceived commission @ 0.3% as against thecommission of 1.50% received on long term shareprofits. However, in the statement of the director ofthe assessee company recorded during survey, afterexplaining the modus operandi of carrying on thebusiness of providing share profits to variouspersons, in reply to Q. No.7, the director admittedthat commission earned on issuing share profit billsagainst cash receipt varies from 0.005% to 0.015%.During the assessment proceedings, the explanationwas filed by the assessee. As per the saidexplanation and also the statement of directorsrecorded during survey, the modus operandi adoptedby the assessee was that it was receiving cash/cheques from various parties to whom the sharesprofits were being given. The assessee claims thatthere were two types of transactions on account ofshare profits; on being short term capital gains. Theassessee claims that on receipts of cash/cheques inlieu of bills or share profits, commission was chargedat different rates on the different types oftransactions. During assessment proceedings thelearned counsel for the assessee claimed that in case of short term transactions where the rate ofcommission was in the range of 0.25% to 0.30%,however, in case of larger volume the commissionwas in the range of 0.10% to 0.15%. The learnedcounsel of assessee further claims that in case oflong terms transactions the commission was in therange 1.35% to 1.50%. The assessee furnishedbreak up of long term and short term transactionsconducted during the year totaling toRs.33,31,48,866/- as under:- Value (in Rs.)Long Term1,81,68,972/-Short Term31,49,79,894/-33,31,48,866/- 16.The assessee claimed to have receivedcommission @ 1.50% on long term transactiontotaling Rs.2,72,535/- and 0.30% on short termtransactions totaling to Rs.9,44,940/-. The totalcommission received by the assessee during theyear totals to Rs.12,17,475/-. The Assessing Officerhad accepted the total turnover declared by theassessee in its return of income. However, thebifurcation undertaken by the assessee on account oflong term and short term transactions had not beenaccepted by the Assessing Officer in the absence ofthe books of account nor the rate of commission earned was accepted. After applying a rate of 2% tothe total turnover shown by assessee, the AssessingOfficer worked the income at Rs.66,62,980/-. 17.The issue to be addressed by us is limited tothe rate of commission/service charges charged bythe assessee and the break-up of the total turnover inthe turnover relating to the long term transactionsand short term transaction. The claim of theassessee that 90% of the total turnover relates toshort term transactions and balance is long termtransactions cannot be accepted in the absence ofany books of account or any other evidencefurnished by the assessee to justify this claim. Thedirector of the assessee company had also not talkedabout the said bifurcation. In his statement recordedduring survey, the director of assessee Companystated that bogus share profits were issued andhence surrender of income. We are in conformitywith the order of the Assessing Officer in this regardand reverse the order of the CIT (A) to this extent. 18.The consequential controversy in this case iswith regard to the rate of commission to be appliedfor computing the income by the assessee. Thedirector of the assessee company in his statementhad talked of different rates of commission i.e.varying between 0.005% to 0.015%. The assessee 18.The consequential controversy in this case iswith regard to the rate of commission to be appliedfor computing the income by the assessee. Thedirector of the assessee company in his statementhad talked of different rates of commission i.e.varying between 0.005% to 0.015%. The assessee during the assessment proceedings though claims tohave charged commission in the range of 0.25% to0.30% for short term transactions and 1.25% to1.50% for long term transactions. However, whilecomputing the working of commission earned duringthe year under appeal the assessee has adopted theflat rate of 0.30% for short terms transactions and1.50% for long term transactions and worked out theincome of the year. 19.The assessee had adopted different standsregarding rate/s of commission earned on shareprofit transactions. No evidence to justify anyparticular rate of commission charged by theassessee had been filed on record. In the absenceof any evidence brought to our notice, we are of theview that the exercise is hypothetical as varying ratesof commission are put forward by the assessee or hiscounsel at various junctures. In the absence of anyevidence filed regarding the rate of commissioncharged by the assessee for the aforesaid shareprofit transactions issued during the year, we are leftwith no alternative but to estimate the rate ofcommission charges for giving the share profits. Inthe facts and circumstances of the case, rate of0.75% be applied to work the income of theassessee. The Assessing Officer is directed to recompute the income of the assessee accordingly.The ground of appeal No.1 raised by the Revenue ispartly allowed.” 4.We have heard learned counsel for the assessee whosubmitted that the addition was without any basis and books of accountof the assessee were wrongly ignored. 5.We are unable to accept the submission. The Tribunal hadduly considered the statement of the Director. The assessee wasadopting modus operandi of receiving cash through cheques fromvarious parties and giving them share profits. Claim of the assesseethat it was receiving only 1.50% commission on long term transactionsand 0.30% commission on total transactions was duly considered and itwas held that the rate of commission disclosed by the assessee was notacceptable. Further, circumstance that the assessee itself surrenderedadditional income was also taken into account which fact itself showsthat the initial declaration of income of the assessee was not genuine.In absence of genuineness of the stand of the assessee, the Tribunalheld that rate of 0.75% to the gross turnover would be a fairassessment. The assessment of income of the assessee in the factsand circumstances of the case cannot be held to be illegal or arbitrary. 6.No substantial question of law arises in the appeal. 7.The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 30, 2010gbs (AJAY KUMAR MITTAL)JUDGE