ITAT Reduces Commission Income Addition to 0.50% on Bank Transactions in Income Tax Appeal, Citing It as Reasonable [Read Order]

The Surat Bench of Income Tax Appellate Tribunal ( ITAT ) reduced the commission income addition to 0.50% on bank transactions in an income tax appeal filed by  the assessee, who was engaged in cheque discounting and money transfer, citing it as a reasonable rate based on the nature of the business and precedents in similar cases.

Nanak Motumal Pherwani,appellant-assessee,engaged in cheque discounting and money transfer, had filed his return of income for the relevant year, showing an income of Rs. 2,03,370. The case was reopened based on a survey action in the case of M/s Hari Corporation, managed by his brother.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The Assessing Officer ( AO ) had made an addition to the assessee’s income by assessing commission at 1% of the total transactions credited in his bank account. The assessee argued that his commission was typically between 0.15% to 0.20%, depending on the clearance and profile of the persons involved.

He also highlighted that similar businesses, including his brother’s, were assessed at lower commission rates, such as 0.10% or 0.125%. Despite these submissions, the Commissioner of Income Tax (Appeals)[CIT(A)] upheld the AO’s decision.

The assessee further argued that the commission earned in cheque discounting was very low and had already been duly offered in his return of income. He provided examples of previous decisions, including those of Sanjay R. Shah and Rohit P. Panwala, where similar commission rates were accepted at rates much lower than 1%.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

A single member bench of Pawan Singh ( Judicial Member ) after considering the facts and the precedents cited by the assessee, determined that a commission rate of 0.50% per hundred rupees would be more reasonable, reducing the addition made by the AO.

Additionally, the assessee contested an addition of Rs. 1.20 lakh under section 69A, which was alleged to have been given to M/s Hari Corporation. However, as no specific grounds were raised on this issue before the CIT(A), the tribunal rejected the assessee’s argument.

In conclusion, the appeal was partly allowed, with the commission rate being reduced to 0.50%, but the addition of Rs. 1.20 lakh was upheld.

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