The dispute primarily involved the provisions relating to reassessment and estimation of income under the Income Tax Act, 1961. Section 147 read with Section 148 governed the reopening of the assessment based on information received from the Investigation Wing. Section 143(3) read with Section 147 dealt with completion of reassessment. Section 250 governed the appellate proceedings before the Commissioner of Income Tax (Appeals). Interest was levied under Sections 234A and 234B, which were treated as consequential.

The assessee, a partnership firm, was subjected to reassessment proceedings for AY 2013–14 on the basis of information received from the Investigation Wing alleging receipt of unaccounted money amounting to Rs. 10,39,69,122 through banking channels during FY 2012–13. Notice under Section 148 dated 30.03.2019 was issued, pursuant to which the assessee filed its return declaring income of Rs. 7,950. During reassessment, the Assessing Officer required the assessee to explain the source of bank deposits. In the absence of satisfactory documentary evidence, the AO treated the entire transactions as accommodation entries and estimated commission income at 5%, resulting in an addition of Rs. 51,98,456. The addition was upheld by the CIT(A)-NFAC.

(i) Whether the reassessment initiated under Section 148 was valid in law due to alleged non-application of mind by the Assessing Officer. (ii) Whether estimation of commission income at 5% of total bank deposits was arbitrary and unsustainable in the absence of any cogent basis or supporting material. (iii) Whether levy of interest under Sections 234A and 234B could survive once the substantive addition was modified.

The assessee contended that the reassessment was initiated mechanically based solely on third-party information without independent satisfaction of the Assessing Officer. On merits, it was argued that the assessee was merely a commission agent earning commission at a marginal rate of about 0.25% to 0.30%, and had already declared commission income of Rs. 2,07,938. The estimation of 5% commission was stated to be without any legal or factual basis.

The Department relied upon the orders passed by the Assessing Officer and the CIT(A), contending that the assessee failed to discharge the onus of explaining the nature and source of large bank transactions, justifying estimation of income.

In cases involving accommodation entries or commission-based transactions, income can be estimated only on a reasonable and rational basis. Arbitrary application of a high commission rate without any comparable cases, industry norms, or supporting material is unsustainable in law. Estimation must have a nexus with facts and surrounding circumstances of the case.

The Tribunal noted that neither the Assessing Officer nor the CIT(A) had provided any justification, comparable data, or reasoning for adopting a commission rate of 5%. It observed that estimation of income cannot be based on pure conjecture. Considering the nature of transactions and in the interest of justice, the Tribunal found 0.5% to be a reasonable rate of commission. The Tribunal also recorded that Ground No. 1 relating to validity of reassessment was not pressed by the assessee during hearing.

The Tribunal directed the Assessing Officer to recompute the commission income by applying a reduced rate of 0.5% on the total transactions, thereby granting partial relief to the assessee. Ground relating to reassessment validity was dismissed as not pressed. Interest under Sections 234A and 234B was held to be consequential. The appeal was partly allowed.

Appeal partly allowed with modification of estimated commission income; reassessment proceedings upheld due to non-pressing of ground; consequential interest to follow revised computation.