Section 68 of the Income Tax Act, 1961 is not attracted when the cash credits do not belong to or form part of the income of the assessee, and the percentage of commission declared by the assessee can be accepted as reasonable based on similar transactions.

JUDGMENT

1. Heard Mr. Suresh Kumar, learned standing counsel, Revenue for the appellant.

2. This appeal under Section 260-A of the Income Tax Act, 1961 (briefly 'the Act' hereinafter) has been preferred by the Revenue assailing the order dated 18.11.2016 passed by the Income Tax Appellate Tribunal, Mumbai Bench 'A', Mumbai ('Tribunal' for short) in ITA No.886/Mumbai/2012 for the assessment year 2003-04.

3. The appeal has been preferred by the Revenue projecting the following questions as substantial questions of law:-

"1. Whether on the facts and in the circumstances of the case and in law, Tribunal erred in restricting the addition of Rs.4,78,94,000.00 made by the Assessing Officer on account of unexplained cash credits under Section 68 of the Act to commission income calculated at 0.15% without appreciating that the assessee had failed to furnish satisfactory explanation with regard to identity of the parties, source and genuineness of the transactions?

2. Whether on the facts and in the circumstances of the case and in law, Tribunal erred in restricting the addition made by the Assessing Officer to the commission income at 0.15% without considering that the material found during the course of search clearly established that the net commission charged by the assessee varied between 1.5% to 3.6% and that the decision in M/s. Mihir Agencies Pvt. Ltd. relied upon by the First Appellate Authority was clearly distinguishable?"

4. Thus from the above, it is quite evident that the issue involved in the present appeal is restriction of the addition of Rs.4,78,94,000.00 made by the Assessing Officer on account of unexplained cash credits under Section 68 of the Act to the commission income at the rate of 0.15%.

5. Respondent is an assessee under the Act having the status of resident company (hence also referred to as 'assesee'). Assessee is engaged in the business of providing accommodation entries to entry seekers. A search and seizure operation under Section 132(1) of the Act was carried out on 28.06.2006 in the case of one Shri Hitesh M. Bagthariya who deposed that he was an entry operator and that he used to arrange cheques of the assessee and M/s. Goldstar Finvest Pvt. Ltd. Following the same, assessment under Section 143(3) read with Section 153- C of the Act in the case of the assessee was made by the Assessing Officer for the assessment year 2003-04 on 26.12.2008 determining the total income of the assessee at Rs.62,480.00 as against the returned loss of Rs.14,596.00.

6. It may be mentioned that another search action under Section 132 of the Act was subsequently carried out on 25.11.2009 in the case of Mahasagar Group of Companies, now known as Alag Securities, to which assessee belongs. Following the same, assessment completed under Section 143(3) read with Section 153-C of the Act in the case of the assessee was reopened after recording the reasons and after taking prior approval of the higher authority. After hearing the assessee and considering the materials on record, Assessing Officer passed the assessment order dated 31.12.2010 under Section 143(3) read with Section 147 of the Act. Assessing Officer held that the identity of the parties involved in the transactions were not furnished as well as genuineness of the transactions relating to total cash deposits of Rs.4,78,94,000.00 were not satisfactorily explained by the assessee. Holding that the source, nature, genuineness and credit worthiness of the creditors relating to the transactions were not proved by the assessee, the aforesaid amount which were found in deposits in various bank accounts was added back to the total income of the assessee as unexplained income from undisclosed sources under Section 68 of the Act.

7. Aggrieved by the above and raising other issues as well, assessee preferred appeal before the Commissioner of Income Tax (Appeals)-37, Mumbai (referred to hereinafter as 'CIT (A)' or 'the First Appellate Authority'). By the appellate order dated 08.11.