Revenue's appeal dismissed on section 68 addition for unexplained deposits in circular trading case

ITAT Ahmedabad dismissed Revenue's appeal regarding addition under section 68 for unexplained bank deposits involving circular trading. AO added entire amount claiming fictitious transactions through paper concerns. CIT(A) partially deleted addition, sustaining only 0.30% as intermediary charges not for business purpose, following precedent in Pradip Overseas Ltd. ITAT upheld CIT(A)'s finding that assessee provided adequate records demonstrating circular trading conduct, rejecting Revenue's contention that entire expenses were non-business related. Settlement Commission Order cited by Revenue was deemed irrelevant given CIT(A)'s independent assessment.

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Issues:
Assessment of unexplained bank deposits, circular trading transactions, accommodation entries, disallowance of expenses, reliance on Settlement Commission order.

Analysis:
The appeal was filed by the Revenue against an order passed under s. 143 r.w.s 147 of the Income Tax Act, 1961, for the Assessment Year 2013-14. The primary issue raised by the assessee was the disallowance made on account of unexplained bank deposits and withdrawals under s. 68 of the IT Act. The Assessing Officer found that the assessee had taken accommodation entries totaling Rs. 88,83,16,516, which were deemed non-genuine entries. The Revenue contended that the circular trading transactions were not for the purpose of business and were essentially bogus purchases, sales, and expenditures to accommodate the assessee. The CIT(A) partly allowed the appeal of the assessee, reducing the disallowance amount.

The Tribunal considered the nature of circular trading transactions and the involvement of fictitious concerns in the process. The Tribunal observed that the circular trading involved bills changing hands without physical movement of goods, leading to expenses being incurred for circular purchases. The Tribunal in a related case had estimated disallowance at 0.30% of circular trading purchases. In the present case, the Tribunal noted that the Revenue's contention that circular purchases were not for the purpose of business was not tenable as the assessee provided records showing how the circular trading was conducted. The CIT(A) correctly applied the 0.30% disallowance as done in the related case, resulting in the deletion of the remaining addition and sustaining only 0.30% as allowable.

The Revenue argued that the CIT(A) relied on the Settlement Commission order, but the Tribunal found that the CIT(A) had independently assessed the assessee's case and made findings accordingly. Therefore, the Tribunal upheld the CIT(A)'s decision to dismiss the appeal of the Revenue. The Tribunal concluded that there was no need to interfere with the findings of the CIT(A) and pronounced the order in favor of the assessee on 9th December 2024 at Ahmedabad.

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