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2024 (6) TMI 573
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....dividual and proprietor of M/s. Raymond Tubes dealing in Ferrous and Non Ferrous Metals. The Assessee filed the return of income for A.Y. 2009-10 on 19.02.2010, declaring total income of Rs. 11,82,684/-. The assessment was completed u/s. 143(3) of the Act, assessing total income of Rs. 11,94,100/-. In exercise of revisional power u/s. 263 of the Act, Commissioner Of Income Tax-15, set aside assessment order passed u/s. 143(3) and directed the Assessing Officer to pass assessment order afresh after verification of facts of genuineness of purchases. Assessee's representative Shri Shubhash Trivedi, CA, participated, in the fresh assessment proceedings. Assessing Officer found that the assessee derived income from business and received purchases from the 25 entities tabulated as under: Sr.No Name of the Hawala Parties Bill Amount 1. Manibhadra Trading Co. 8,87,072 2. Nisha Enterprises 9,06,256 3. Chirag Corporation 9,82,096 4. Monar Impex 13,85,004 5. Naman Enterprises 52,71,089 6. Mahavir Corporatrion 41,74,474 7. Coral trading Co. 12,37,498 8. Shriti Enterprises 10,94,097 9. P m Steel Alloys 76,....
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....sessee. 2.2 Learned Assessing Officer also initiated penalty proceedings u/s. 271(1)(C) of the Act for furnishing inaccurate particulars of income leading to the concealment of income. Assessee preferred an appeal against the assessment order dated 27.03.2015 before Learned CIT(A), who restricted the 100% addition to the extent of 5% only and deleted addition of Rs. 13,08,000/- u/s. 36(1)(iii) of the Act. 3. Aggrieved by the impugned order passed by Learned CIT(A), the Appellant revenue department, has filed this appeal on the following grounds: "1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in reducing the gross profit @ 5% as against the 100% addition made by the Assessing Officer on account of bogus purchases of Rs. 5,76,30,455/-by ignoring the fact that the Sales Tax Department has proved beyond doubt that parties declared as hawala traders were involved in providing accommodation entry of purchases and the assessee was one of the beneficiary of accepting accommodation entry for the purpose? 2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in reducing gross profi....
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....s held that deduction for payment of interest u/s 36(1)(iii) of the Income Tax Act allowable, only if the assessee borrows capital for its own business? 9. Whether on the facts and on the circumstances of the case, the Ld. CIT(A) is right in ignoring he AO's observation that the assessee has failed to establish "Commercial Expediency" of the interest bearing loan/advances given to various parties and failed to prove the nexus between advancing the funds and expansion of own business?" 4. In response to the notice issued by the Tribunal, assessee appeared and participated in the hearing and filed his corss objections. 5. We have perused the material on record and heard learned representatives for both the parties. 6. The main points for determination in this revenue's are: a) Whether learned CIT(A) erred in restricting the addition to 5% of the total bogus purchases of Rs. 5,76,30,455/- as against the addition of 100% of bogus purchases made by the assessing officer? b) Whether learned CIT(A) erred in deleting the addition made by Assessing Officer and allowing the disallowance of Rs. 13,08,000/- @12% of interest free advances of Rs. 1,09,00,0....
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....e of a ferrous and non ferrous items the profit is very meager ranging from 2% to 4% and GP rate as directed by the Ld. CIT(A) appears to be excessive and unreasonable. The co-ordinate benches of the Tribunal have been taking a consistent view that in such type of cases having trade of ferrous and non ferrous steel items, the profit GP can not exceed 3 to 4%. Though the Ld. CIT(A) has correctly followed the Hon'ble Gujarat High Court decision in the case of CIT vs. Simit P. Sheth (supra), however, the rate applied is on the higher side. We are, therefore, of the view that it would be reasonable if the GP rate @ 5% is applied on the said bogus purchases to bring the additional income on bogus purchases to tax which the assessee may have made by purchasing the goods from grey market. Accordingly, we direct the AO to apply a GP of 4% and the order of Ld. CIT(A) is modified to that extent. The appeal of the assessee is partly allowed." 11. It is pertinent to mention that according to the facts of the instant case, assessee also deals in the business of ferrous and non ferrous metals. It is also an undisputed fact that the assessee has made bogus purchases from 25 parties depicte....
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....est free advances of Rs. 1,09,00,000/- and added the same to the total income of the assessee. 4.1. Regarding this issue, the appellant has submitted as under:- "The assessee during the year under consideration has given Interest free loans to the three parties viz. (1) Francis John Rs. 49,00,000/- (2) Haros John Rs 25,00,000/- (3) Mokshi Industries Rs. 35,00,000/- Mumbai amounting to Rs. 1,09,00,000/-. As per the balance sheet of the assessee, the assessee has taken loans from various parties amounting to Rs. 70,53,083/-. Out of the said loans of Rs. 70,53,083/-, three loans amounting to Rs. 23,00,000/- were the only new loans taken during the year under consideration, (loan of Rs. 5,00,000/- taken on 23.06.2008 and two loans of Rs. 18,00,000/- taken on 25.3.2009) The assessee has paid interest on loans to various parties of Rs. 6,33,597/- The assessee explained to A. O. that initially the advances of Rs. 49,00,000/- given to Francis John, Rs. 25,00,000/- given to Haros John and Rs. 35,00,000/- given to Mokshi Industries were trade advances given for commercial expediency as the assessee with an intention to expand his business, wanted to acquire shares ....
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....iven for less than six months while the A. O. has calculated disallowance for entire period of one year." 4.2. I have considered the facts of the case, assessment order and appellant's submissions, The AO observed that the assessee diverted interest bearing funds towards giving interest free advances to three concerned parties. Accordingly, the AO worked out interest disallowable u/s. 36(1)(iii) of the Act at Rs. 13,08,000/- @12% of the Interest free advances of Rs. 1,09,00,000/- and added the same to the total income of the assessee. The appellant has submitted that during the year under consideration, he advanced interest free advances of Rs. 49,00,000/-, Rs. 25,00,000/- and Rs. 35,00,000/- to Mr. Francis John, Mr. Haros John and Mokshi Industries respectively which were nothing but trade advances given for commercial expediency. The appellant has submitted that these three parties paid interest to the assessee amounting to Rs. 12,35,979/- In subsequent year, hence provisions of sec. 36(1)(iii) are not attracted. The appellant has submitted that he paid only interest of Rs. 6,33,597/- against loans and advances taken by him. The appellant has relied on decision of th....
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....he expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business., the expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency. The Court discussed as below regarding this issue:- "19. In this connection we may refer to section 36(1)(iii) of the Income-tax Act, 1951 (hereinafter referred to as the 'Act') which states that "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the Income-tax under section 28 of the Act. 20. In Madhav Prasad dalle v. CIT AIR 1979 SC 1291, this Court held that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression for the purpose of earning, Income, profits or gains", and this has been the consistent view of this Court 21. In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the Income-tax authorities have approached th....