ITAT Delhi Rules in Favor of Commission Agent Due to Medical Circumstances, Orders Denovo Assessment

The Hon'ble Income Tax Appellate Tribunal (ITAT) Delhi Bench "E" in the case of Vijay Kumar Ahuja vs. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [ITA No.1065/Del/2024] dated April 7, 2025, allowed the appeal of a commission agent for statistical purposes and directed a denovo assessment after setting aside the ex-parte order of the CIT(Appeals). The Tribunal recognized the appellant's severe medical conditions that prevented effective representation and ordered the Assessing Officer to provide adequate opportunity of being heard to the assessee.

Facts of the Case:

The Appellant, Mr. Vijay Kumar Ahuja, a 63-year-old commission agent registered with Agricultural Produce Market Committee (APMC) under Section 2(10) of Agriculture Produce Marketing (Regulation) Act, 1997, filed his return of income for Assessment Year 2018-19 on December 29, 2018, declaring a total income of Rs. 10,40,105/-. The declared income comprised:

• Commission from vegetable agency business: Rs. 4,23,800/-

• Income from house property: Rs. 1,84,800/-

• Income from other sources: Rs. 16,505/-

• Income from sale of flats: Rs. 6,00,000/-

The case was selected for limited scrutiny under the e-Assessment Scheme, 2019, primarily focusing on verification of cash deposits. The Assessing Officer noted deposits aggregating to Rs. 12,12,80,697/- in the assessee's Current Account and additional deposits of Rs. 93,10,899/- in his Savings Account, both maintained with Canara Bank, Okhla SSI Branch.

During assessment proceedings, the Appellant maintained and produced detailed books of accounts demonstrating his business model, which operates under APMC regulations with a 7% charge structure (6% representing commission for Aarthi services and 1% constituting APMC market fees). The operational framework involves facilitating trade between farmers and buyers, collecting sale proceeds in a fiduciary capacity, and remitting the same to farmers after deducting authorized commission and statutory fees. The books of accounts demonstrated:

• Gross Commission Income: Rs. 58,38,156/- (6% of Rs. 9,73,02,600/-)

• APMC Fees Collected: Rs. 9,73,026/- (1%)

• Business Expenses: Rs. 41,15,500/-

• Net Profit: Rs. 4,23,800/-

The Assessing Officer, through an order dated March 16, 2021, under Section 143(3), made two substantial additions:

• Enhanced commission income to Rs. 58,38,156/- instead of declared Rs. 4,23,800/-

• Added Rs. 2,39,78,097/- as unexplained cash credits

This resulted in a total additional demand of Rs. 2,87,82,662/-.

Aggrieved by the assessment order, the Appellant filed an appeal before CIT(A) on April 8, 2021. However, during the critical period of appellate proceedings from March 2023 to December 2023, the Appellant suffered severe medical conditions requiring multiple hospitalizations at:

1. Medanta Hospital, Gurugram for:

   • Chronic pancreatitis with pseudocyst measuring 65x51x61 mm

   • Superior Mesenteric Artery re-cannulization and stenting

   • Critical post-operative care and monitoring

2. Max Super Speciality Hospital, Saket for:

   • Type 2 Diabetes with poor glycemic control

   • Acute pancreatitis episodes

   • Gastroenterological complications

   • Emergency interventions

Despite these severe medical conditions and hospitalizations being brought to the notice of CIT(A), four notices of hearing were issued between December 24, 2020, and May 16, 2024. The Appellant's physical incapacity prevented proper compliance and representation during this period.

The CIT(A), through an order dated January 10, 2024, dismissed the appeal without considering either the merits of the case or the Appellant's severe medical conditions that prevented effective representation. The order failed to appreciate:

• The nature of commission agent business under APMC regulations

• The distinction between turnover and actual commission income

• The explanation for bank deposits

• The medical circumstances preventing proper representation

The total disputed amount in the appeal was Rs. 2,93,92,453/-, with a tax effect of Rs. 2,87,82,660/-. The Appellant paid the requisite appeal fee of Rs. 10,000/- via BSR Code 510022 dated March 7, 2024.

Issue:

Whether the CIT(Appeals) was justified in dismissing the appeal ex-parte without considering the appellant's severe medical conditions that prevented effective representation and the merits of the case regarding the nature of commission agent business under APMC regulations?

Held by the Tribunal:

The Hon'ble ITAT Delhi Bench "E" in ITA No.1065/Del/2024 held that:

1. After considering the rival submissions and perusing the orders of the authorities below, the Tribunal found it appropriate to set aside the order of the CIT(Appeals).

2. The Tribunal directed the restoration of the issues in appeal to the file of the Assessing Officer for denovo assessment after providing adequate opportunity of being heard to the assessee.

3. The Tribunal instructed that the assessee may furnish necessary evidence in support of his claims and cooperate with the assessment proceedings.

4. The appeal of the assessee was allowed for statistical purposes.

Relevant Sections:

• Section 250 of the Income Tax Act, 1961 - Procedure in appeal

ORDER COPY -

ITAT FINAL ORDER.pdf

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Advocate for the Assessee:

Shri Rehan Narula, Advocate

Analysis and Implications

Procedural Fairness in Tax Appeals

The ITAT's decision in this case underscores the importance of procedural fairness in tax appeal proceedings. By setting aside the ex-parte order of the CIT(Appeals) and directing a denovo assessment, the Tribunal has reaffirmed that taxpayers must be given adequate opportunity to present their case, especially when there are valid reasons for non-appearance or inadequate representation.

This decision reflects the principle that tax authorities must balance their enforcement objectives with the procedural rights of taxpayers. When a taxpayer demonstrates legitimate reasons for inability to effectively participate in proceedings—such as severe medical conditions in this case—administrative bodies should exercise reasonable accommodation rather than proceeding ex-parte.

Recognition of Medical Circumstances as Valid Ground

A significant aspect of this ruling is the Tribunal's recognition of the appellant's severe medical conditions as a valid ground for setting aside the ex-parte order. The appellant's hospitalization for serious ailments such as chronic pancreatitis, requiring specialized interventions and post-operative care, was deemed a legitimate reason for his inability to effectively represent his case.

This sets a precedent for similar cases where taxpayers face genuine health challenges that impede their ability to participate in tax proceedings. The decision suggests that tax authorities should take into account such extraordinary circumstances and provide appropriate accommodations to ensure that taxpayers' rights to be heard are not compromised due to medical exigencies.

Understanding the Business Model of Commission Agents

The case also highlights the complexities involved in assessing the income of commission agents operating under regulatory frameworks such as the Agricultural Produce Marketing (Regulation) Act. The appellant's business model—involving collection of sale proceeds in a fiduciary capacity and remittance to farmers after deducting authorized commission—requires careful analysis to distinguish between turnover and actual commission income.

The Assessing Officer's enhancement of commission income from Rs. 4,23,800/- to Rs. 58,38,156/- without properly considering the nature of the business and legitimate expenses suggests a potential misunderstanding of the business model. The Tribunal's decision to direct a denovo assessment allows for a proper examination of these aspects, which could lead to a more accurate determination of the appellant's tax liability.

Distinguishing Between Turnover and Income for Commission Agents

One of the key issues in this case was the Assessing Officer's apparent failure to distinguish between the appellant's turnover and his actual income. For commission agents, especially those operating under regulatory frameworks like APMC, large amounts may flow through their accounts, but their actual income is limited to the commission earned, which is typically a small percentage of the total flow.

The appellant's books of accounts demonstrated a clear breakdown of his gross commission income, APMC fees collected, business expenses, and net profit. The denovo assessment ordered by the Tribunal provides an opportunity for a more nuanced examination of these financial aspects, potentially leading to a more accurate assessment of the appellant's taxable income.

Treatment of Bank Deposits for Businesses with Fiduciary Responsibilities

The case also raises important questions about how tax authorities should interpret bank deposits for businesses that handle funds in a fiduciary capacity. The Assessing Officer noted deposits aggregating to Rs. 12,12,80,697/- in the appellant's current account and Rs. 93,10,899/- in his savings account, treating a significant portion of these as unexplained cash credits.

However, for commission agents who collect sale proceeds on behalf of farmers and then remit the funds after deducting their commission, large bank deposits are inherent to their business model and do not necessarily represent income. The Tribunal's decision allows for a proper examination of the nature of these deposits, which could lead to a more accurate assessment of what portion, if any, should be treated as unexplained cash credits.

Conclusion

The ITAT Delhi's ruling in the case of Vijay Kumar Ahuja vs. Commissioner of Income Tax (Appeals) reinforces several important principles in tax adjudication:

1. Procedural fairness and the right to be heard are fundamental to tax proceedings, and exceptional circumstances such as severe medical conditions warrant reasonable accommodations.

2. Tax authorities must properly understand the business models of taxpayers, particularly those operating under specific regulatory frameworks, to make accurate assessments of income and tax liability.

3. For businesses that handle funds in a fiduciary capacity, bank deposits must be carefully analyzed to distinguish between amounts that represent income and those that are merely passing through accounts.

4. Ex-parte orders should be a last resort, and appellate authorities should consider valid reasons for a taxpayer's inability to effectively participate in proceedings.

By directing a denovo assessment, the Tribunal has provided the appellant with an opportunity to present his case fully, while also ensuring that the tax authorities have a chance to properly examine the nature of his business and the explanations for the bank deposits. This balanced approach serves both the interests of revenue collection and taxpayer rights, reinforcing the principles of fairness and accuracy in tax assessment procedures.

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