TaxTMI 
TaxTMI 
TaxTMI 
2024 (6) TMI 573
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.... 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 76,24,888 10. Subham metal corpn. 12,52,790 11. Champion steel (India) 53,49,993 12. Prakash steel(I....
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....ppeal 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 profit @ 5% as against the 100% addition made by the Assessing Officer on account of bogus purchases of Rs. 5,76,30,455/-, as the profit element embedded in these purchases, overlooking that the alleged suppliers were admittedly eng....
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....rvation 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. 1,09,00,000/- towards interest claimed u/s. 36(1)(iii) of the Act? 7. The learned DR for the appellant/revenue department has submitted that the assessee could not establish the genuineness of the transaction before the assessing officer. Learned CIT(A) has erred in restricting the 100% additions made b....
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....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 depicted in the tabular form at para 5 of the assessment order. The coordinate bench of this Tribunal, as referred above, has observed that in case of ferrous and non ferrous items, the profit is very meagre ranging from 2% to 4%. In the instant case the 100% addition of the total bogus purchases appears to be unreason....
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....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 in Trio Fab India Pvt Ltd. from them Thus the said advances were for commercial expediency for expansion of assessee's business. Further in the subsequent assessment year when the said deal was not materialized the said three parties have paid interest to the assessee amounting to Rs. 12,35,979/- which the assessee has duly disclosed in ....
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....ut 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 the Hon'ble Apex Court in the case of S. A. Builders vs. CIT 288 ITR 1 to argue that where the loans and advances were given out of commercial expediency, no addition is required to be made u/s. 36(1)(iii) of the Act. Considering the facts of the case, I am inclined to agree with the appellant's claim. The relevant sec. 36(1) (iii) reads as under:- "36. (1) The....
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....fer 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 the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. 22. In our opinion, the decisions relating to section 37 of the Act will also be applicable to section 36(1)(iii) because in section 37 also the expressio....