Facts of the Case

The assessee, Dharmesh Rajnikant Trivedi, an individual, did not file his return of income for Assessment Year 2018-19. It was noticed that the assessee had made substantial cash deposits aggregating to ₹5,73,86,000 and cash withdrawals of ₹82,58,000 in his bank account with Central Bank of India.

A show cause notice under Section 148A(b) was issued on 20.03.2022. As there was no compliance, an order under Section 148A(d) was passed on 31.03.2022 and notice under Section 148 was issued on 04.04.2022. The assessee subsequently filed a belated return on 09.02.2023.

During assessment proceedings under Section 143(3) read with Section 144B, the assessee explained that he was engaged in shroff business, earning commission by issuing cheques to various parties who returned the funds within a short period along with commission. The Assessing Officer rejected the explanation and treated bank credits of ₹4,78,08,900 as unexplained money under Section 69A, taxable under Section 115BBE.

On appeal, the CIT(A), NFAC restricted the addition to 1% of total credits, amounting to ₹4,70,084, treating the same as commission income from shroff business taxable under normal provisions. Aggrieved, the Revenue filed appeal before the Tribunal.

Issues Involved

Whether the CIT(A) was justified in restricting the addition under Section 69A to 1% commission income without verifying existence and legality of shroff business, whether the assessee had discharged the onus of establishing genuineness of transactions, and whether the matter required restoration for fresh verification.

Petitioner’s Arguments (Revenue)

The Revenue contended that the assessee neither filed return of income nor produced any evidence to establish source of cash deposits. It was argued that the assessee failed to prove identity, genuineness and creditworthiness of parties and did not establish that transactions were on commission basis. The Revenue submitted that the CIT(A) restricted the addition without verifying statutory licence for shroff business, past returns or consistency of income.

Respondent’s Arguments (Assessee)

None appeared on behalf of the assessee despite repeated opportunities.

Court Order / Findings

The ITAT Ahmedabad observed that the CIT(A) restricted the addition to 1% treating the transactions as shroff business merely relying on coordinate bench decisions, without verifying whether the assessee had statutory permission or licence to carry on shroff business. The Tribunal further noted that the assessee had never filed regular returns of income and there was no verification of earlier or subsequent years to establish existence of such business activity.

The Tribunal held that without verifying these crucial facts, the CIT(A) could not have concluded that the assessee was carrying on shroff business and restrict the addition to commission income. Accordingly, the order of the CIT(A) was set aside and the matter was restored to the file of the Assessing Officer with a direction to provide one more opportunity to the assessee to establish whether genuine shroff business was carried on during the relevant year and to decide the issue in accordance with law.

Important Clarification

The Tribunal clarified that restriction of additions to commission income in alleged shroff or accommodation entry cases requires verification of existence of genuine business activity, statutory compliance and consistency of income disclosure. Such findings cannot be recorded merely on assumptions or precedents without factual verification.

Final Outcome

The appeal filed by the Revenue was allowed for statistical purposes. The order of the CIT(A) was set aside, and the matter was remanded to the Assessing Officer for fresh adjudication after granting opportunity to the assessee.

 Source Link - https://www.mytaxexpert.co.in/uploads/1769061583_SHRIK.D.PARMARINCOMETAXOFFICERWARD331AHMEDABADAHMEDABADVS.DHARMESHRAJNIKANTTRIVEDIAHMEDABAD.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.