ITAT restricts cheque-discounting profit addition to 0.35% and deletes unexplained income addition on Madan Overseas transactions

5-Second Takeaway

The Tribunal restricted the profit addition from cheque and draft discounting business to a 0.35% net margin, following its view in the assessee’s own earlier year. It also held that Rs. 43,00,000 routed through the Bank of India account was part of discounted cheque transactions with Madan Overseas and not unexplained income.

The reassessment concerned large credit entries in the assessee’s bank accounts, which the Assessing Officer linked to cheque and draft discounting activity. The assessee said he earned only commission income from that business, while the department estimated profit at 1% of total credits and made a substantial addition after giving credit for returned income.

The Tribunal noted that in the assessee’s own case for an earlier year it had adopted a 0.35% net margin on similar cheque-discounting receipts. Following that approach, it directed the Assessing Officer to give the assessee the same benefit and restrict the addition accordingly.

A separate addition of Rs. 43,00,000 was made on the footing that the amount represented unexplained income from Madan Overseas. The Tribunal found that the assessee’s return, audit report and balance sheet did not show any loan from Madan Overseas, and the bank records showed the transactions as cheque-discounting entries.

On that material, the Tribunal held that the amount was not a loan or unexplained credit but part of the assessee’s commission-based business receipts. The addition of Rs. 43,00,000 was therefore not justified.