Whether Section 154 can be invoked for rectification, re-examination and re-computation of subject matter other than a mistake apparent from the record?

IN THE HIGH COURT OF DELHI AT NEW DELHI

INCOME TAX APPEAL 1/2014

JRD STOCK BROKERS (P) LTD.

Appellant

Through Mr. R.P. Garg and Mr. K.N. Ahuja, Advocates.

Versus

COMMISSIONER OF INCOME TAX-II

Respondent

Through Mr. Kamal Sawhney, Sr. Standing Counsel

with Mr. Sanjay Kumar, Jr. Standing Counsel.

BEFORE CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA

HON'BLE MR. JUSTICE V. KAMESWAR RAO

Date of decision: 22nd August, 2014

SANJIV KHANNA, J. (ORAL)

The assessee, a Chartered Accountant, was subjected to search on 24th November, 2000 under Section 132 of the Income Tax Act, 1961 („Act‟, for short), for providing accommodation entries in the form of share loss or share gain by issuing bills for shares without actual sale and purchase by the party mentioned in the bills. The difference, i.e. gain or loss in sale and purchase was settled by issuing or taking cheques from the party. In case of gain, the party first used to give dummy drafts/cheques or cash against which cheque for the predetermined profit stated in the bills used to be given. In case of loss, however, cheque was taken from the party to claim loss/expenditure and money re-paid in cash. In other words, the appellant-assessee was indulging in money laundering as majority of the sale and purchase transactions recorded in the books were mere accommodation entries.

2. The Assessing Officer vide assessment order dated 27th November, 2002, held that the assessee had earned commission @ 1.5% from the said transactions on the turnover of Rs.1,04,76,94,004/-. Undisclosed income of Rs.1.57 crores as commission earned was assessed. In the first appeal, Commissioner of Income Tax (Appeals) upheld the factual finding that the appellant had entered into and settled bogus transactions to provide accommodation entries, through several bank accounts including dummy and feeder bank accounts in the name of third parties. He observed that the total quantum of credit in various bank accounts was Rs.1,04,76,94,004/-, which was the total turnover/transactions relating to accommodation entries. Before the Commissioner of Income Tax (Appeals), the primary contention of the appellant-assessee was that the computation of commission @ 1.5% was highly excessive and in similar cases, income by way of brokerage had been computed @ 0.5%. The said argument was, however, rejected by the Commissioner of Income Tax (Appeals).

3. Income Tax Appellate Tribunal („Tribunal‟, for short) by their order dated 30th November, 2004, held that in the light of the material available on record, the provisions of Chapter XIV-B were rightly applied, as it was a case where the appellant-assessee had undisclosed income. Most of the transactions recorded in the books were fictitious, and were meant to provide accommodation entries to the clients, who were interested in showing fictitious profit or loss in the share transactions. The books of accounts did not reflect the true nature of business or activities and in fact the appellant-assessee was carrying on business outside the books of accounts. On the question of rate of commission, they referred to the seized documents indicating commission charged was between 1% to 1.25%, whereas the same was shown to be between 0.05% to 0.1%. There was direct evidence of the assessee‟s indulgence in earning undisclosed income through accommodation/fictitious entries and it was not possible to ignore the seized material. In paragraph 16, the Tribunal specifically recorded that there was substantial credit of Rs.104 crores in the large number of accounts maintained by the assessee, including benami accounts, described as dummy/feeder/main accounts. Through the said accounts, the assessee had carried on fictitious and under cover business. The relevant sub-paragraph read as under:-

“16. ...................Similar are the entries in other pages. The contention of the assessee that the assessee did not carry on transaction with Sh. Jitesh (named on page 28) or that some, rough estimates and not actual transactions have to force. Further argument that entries in the sized record should have further been corroborated with other material, is also required to be rejected. It is clear from above that the assessee was charging various rates of commission between .35%. to 1% depending upon the type of ' entry i.e. whether it related. to long term or short term capital gains. However, in the regular bills the rate was shown at 0.35% or 0.5%. There is direct evidence of assessee indulging in earning undisclosed income through accommodating/fictitious entries and it is not possible to, ignore the seized material. The huge credit in large number of accounts maintained by the assessee dealing more than Rs.104 crores as also maintenance 1 of several benami. Accounts describing as dummy/feeder/main accounts used to carry on fictitious and ostensible business of share dealing, leave no amount of doubt that the assessee was involved in earning undisclosed income on a very large scale. It is therefore, not possible accept that the assessee did not earn any undisclosed income and that income in it's (sic) case was to be computed on the basis of books produced by the assessee. We reject the arguments of the assessee.”(emphasis supplied)

4. Thereafter, in paragraph 18, the Tribunal observed as under:-

“18. We now face the question as to what should be reasonable rate of commission in this case having regard to material available on record. The assessee did not dispute that quantum of turnover for providing the accommodation entries to various clients during the year as computed by the AO at Rs.1,04,76,94,004/- is not correct. The commission stated to have been charged and admitted by the assessee ranged from .25% to .5%. The rate as evident from the seized material which has been referred to by the lower authorities, does reflect that the assessee hadcharged a rare (sic) as high as 1%. As against this, the revenue authorities have applied @ .1.5% to the entry turnover irrespective of the nature of entries whether long term, short term gain etc. It is also note worthy that the gross rate of commission .charged by the assessee can also not be said to be profit eligibly, to tax. The credit for the expense incurred in running the business is also required to be considered while estimating the income from business of providing accommodation entries. The total turnover also includes some genuine transactions carried' on by the assessee on which rate of commission was admittedly much lower ranging between 0.25% to 0.50%, Therefore, having regard to the entire gamut of facts, circumstances and material which is available on record, there does riot appear to be justifiable reasons to estimate the commission brokerage of the assessee by applying rate of 1.5% A of the total turnover. In our view it would be in the fitness of the things that the income earned. by the assessee by was of commission/brokerage on the turnover including accommodation entries provided to its clients is computed @.6% on the total turnover of Rs.1,04,96,94,004/- on which' there is no dispute. We accordingly direct the AO to compute income on count of commission/brokerage.”(emphasis supplied)

To read the full judgement, please find the attached file.

Attached File:

http://lobis.nic.in/dhc/SKN/judgement/30-08-2014/SKN22082014ITA12014.pdf