Bengaluru ITAT Quashes Arbitrary 8% Commission Estimation; Restores Matter for De Novo Assessment in Tender Coconut Agent Case

Case Reference

Hosadurga Lateef Abdulla Vs ITO (ITAT Bangalore)
Assessment Year: 2020-21
Order Date: 20 July 2026

Background and Context

The Bengaluru Bench of the Income Tax Appellate Tribunal recently pronounced an important ruling concerning the estimation of commission income of a licensed commission agent engaged in the tender coconut trade. The case raises fundamental questions about the evidentiary threshold required before an Assessing Officer can substitute an assessee's declared commission rate with an arbitrarily chosen higher figure.

The assessee, an individual operating as a licensed commission agent for tender coconuts, had filed his return of income for Assessment Year 2020-21 declaring a total income of Rs. 6,97,770/-. Reassessment proceedings were triggered under Section 147 of the Income Tax Act, 1961 on account of substantial cash deposits detected in the assessee's bank accounts — specifically Rs. 3,28,58,520/- deposited in an ICICI Bank account and Rs. 2,51,13,920/- deposited in an AXIS Bank account.

Upon receipt of notice under Section 148 of the Income Tax Act, 1961 issued on 26.03.2024, the assessee filed a fresh return on 30.04.2024, again declaring a total income of Rs. 6,97,770/-. In this return, the assessee disclosed an estimated turnover of Rs. 3,28,58,520/- and a profit of Rs. 8,54,856/-, which worked out to approximately 2.6% of the declared turnover.

Nature of the Assessee's Business

A crucial factual aspect of this case is the character of the assessee's business operations. The assessee held a license issued by the Agricultural Marketing Department, Mysore, authorizing him to function as a commission agent. In this capacity, he did not purchase or sell tender coconuts on his own account. Instead, he acted as a conduit between farmers (as consigners) and buyers, dispatching goods to various destinations on behalf of the farmers and deducting commission at the rate of 2% before remitting the balance proceeds to the concerned farmers.

The assessee clarified during assessment proceedings that no separate commission entry was reflected in his bank statements because the gross sale proceeds of the farmers were routed through his accounts and the commission was effectively retained by netting out the amounts before remittance.

Reassessment Proceedings and the Assessing Officer's Action

Recomputation of Turnover

During the reassessment conducted under Section 147 read with Section 144B of the Income Tax Act, 1961, the Assessing Officer ("AO") issued a notice under Section 133(6) of the Act to AXIS Bank. The bank's response revealed additional credits of Rs. 25,15,654/- in one account and Rs. 2,56,205/- in another account that had not been factored into the assessee's own computation. Taking these unaccounted credits into consideration, the AO revised the total turnover upward to Rs. 8,37,22,275/-.

Ad Hoc Estimation at 8%

Despite granting the assessee multiple opportunities to substantiate the 2% commission claim with supporting documentation, the AO found the explanations unsatisfactory. In the absence of corroborative evidence linking the bank credits to actual commission transactions at 2%, the AO proceeded to estimate commission income on an ad hoc basis at 8% of the recomputed turnover of Rs. 8,37,22,275/-.