TaxTMI 
TaxTMI 
2025 (6) TMI 1533
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....r in making addition u/s 68 as Bogus Purchase despite transactions with Ankur Chemfood Ltd were termed as Circular Transactions by Ld assessing officer himself and upholding the decision of assessing officer despite direct decision of Ahmedabad ITAT on circular transactions in Pradip Overseas Ltd. ITA No. 790/Ahd/2018 Ahmedabad ITAT. 3. The Learned CIT (A) erred in law and facts in upholding the order passed by Learned assessing officer under section 147 of the Act, despite the Assessee furnishing extensive documentary evidence, comprising 1414 pages, substantiating the genuineness of the purchase transactions. 4. The Learned CIT (A) erred in law and facts in upholding the order of the Learned assessing officer without appreciating that the corresponding sale transactions of Ankur Chemfood Ltd were accepted as genuine by another Assessing Officer in the assessment of Ankur Chemfood Ltd. This inconsistency is contrary to the principles of fairness, justice, and the doctrine of estoppel. 5. The Learned CIT (A) erred in law and facts in upholding the order of the Learned assessing officer without appreciating that an affidavit on oath was submitted by Managing Director of Ank....
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....al of the bank account statement of account no. 10080400000344 held with Bank of Baroda in the name of M/s. Oswal Petrochem, it is noticed that on 03.08.2017, an amount of Rs. 1,24,25,000/- was transferred to M/s. Smita Enterprises (prop. Shri Kamlesh Deoraj Jain). To check the nature of transactions undertaken by M/s. Bhagyalaxmi Brinechem Pvt Ltd, with M/s. Ankur Chemfood Ltd and M/s. Oswal Petrochem, and transactions undertaken by M/s. Oswal Petrochem with M/s. Smita Enterprises (prop. Shri Kamlesh Deoraj Jain), the ledgers in the books of these entities (as provided in the submissions) were cross checked. From perusal of the ledger it was noted by the assessing officer that M/s. Bhagyalaxmi Brinechem Pvt Ltd has purchased Salt from M/s. Oswal Petrochem in Blocks (09.06.2017 to 16.06.2017 only purchase) and the same scenario is seen in the payments (payment on a single date i.e. 03.08.2017). From perusal of the ledger, it can clearly be seen that M/s Bhagyalaxmi Brinechem Pvt. Ltd has sold Salt to M/s. Ankur Chemfood Ltd in Blocks (03.06.2017 to 30.06.2017 only sale) and the same scenario is seen in the payments (payment receipts from 20.07.2017 to 04.09.2017). During the verifi....
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....and through various transporters, and the assessee also submitted the ledger. The assessee also submitted that he has made sale of Rs. 45,19,16,190/-, which is made mostly out of purchases made from M/s Ankur Chemfood Ltd. The assessee also stated that these sales would not have been possible at all, had there been no genuine purchases, made from M/s Ankur Chemfood Ltd. 5. However, the assessing officer rejected the above contention of the assessee and held that assessee is engaged in circular transaction, the findings of the assessing officer to the effect is given in para no.4.5, of assessment order. The assessing officer held that the assessee failed to prove the genuineness of the transaction made by the assessee, with M/s Ankur Chemfood Ltd. It is quite evident that there is a circular transaction made by the assessee along with others without actual movement of salt. The assessing officer observed that since the assessee failed to substantiate his claim of purchases, the total purchase of Rs. 43,53,68,202/-, made by assessee, from M/s Ankur Chemfood Ltd. was treated as bogus purchase and books of accounts were rejected by the assessing officer u/s 145(3) of the Income Tax Ac....
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.... circular transaction, the net profit margin is very low, as compared to addition at the rate of 12.50% of the total circular transactions made by the assessing officer based on the alternatively plea taken by the assessee, during the assessment proceedings. 9. The ld. Counsel further submitted that in the assessee`s case under consideration, the assessing officer made the addition, at the rate of 12.50% treating the bogus purchases, which is not acceptable. In the assessee`s case none of the characteristics of bogus purchase are present, as the assessee has furnished, before the assessing officer, the extensive documentary evidence comprises of total 1414 pages to substantiate the genuine purchase transaction including quantitative details, goods movement, further sale transaction and profit thereon, confirmation from seller party, banking payments etc, clearly justifying that actual purchase transactions have been occurred. Therefore, in assessee`s case, there is no instances of bogus purchase, considering the documentary evidences submitted by the assessee, during the assessment proceedings, however, the transactions of the assessee fall within the ambit of circular transaction....
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....ngs, the assessee, as an alternate plea, has submitted before the assessing officer, that in case of doubt with respect to the genuineness of purchases, then the assessee placed reliance on the judgements of various High Courts, wherein a reasonable profit margin was estimated @ 12.5% of bogus purchases. The case law references given by the assessee, before the assessing officer were: (i) CIT vs. SIMIT P. SHETH, tax appeal no. 553 of 2012, and (ii) CIT vs Satyanarayana P. Rathi, Tax appeal no. 607 of 2012. In both these cases there were bogus purchases and Tribunal restricted the addition to 12.5% of bogus purchases, which was further confirmed by the Hon'ble High Courts. Accordingly, the assessing officer restricted the addition and estimated @ 12.5% of bogus purchases, hence now, there should not be any grievance to the assessee, and therefore estimated addition @ 12.5% of bogus purchases, should be confirmed in the hands of the assessee, as the assessee has himself accepted in his alternatively plea, therefore, further relief should not be given to the assessee. 12. Learned CIT- DR for the revenue, further stated no doubt, these are the circular trading/ circular transactio....
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.... examine the matter on merits, even if, the assessee had conceded earlier or admitted before the assessing officer to tax him at a higher rate. Therefore, we note that such estimated additions are subject to challenge and need to be supported by cogent material and case law. If the assessee, now provides, before the Tribunal, case law, which is favouring to him, or evidence that lower margins or lower additions are justified or no additions are warranted, the Tribunal can accept the same. Hence, the arguments advanced by the ld. CIT-DR for the revenue are here by rejected. 14. We note that assessing officer has himself accepted that assessee is in Circular Transactions. Therefore, we find that Ld. CIT(A) has erred in law and facts in upholding the action of the assessing officer, in making addition u/s 68 of the Act, as Bogus Purchase, despite transactions with Ankur Chemfood Ltd, were termed as, Circular Transactions, by assessing officer himself and upholding the decision of assessing officer despite direct decision of Jurisdictional Tribunal, Ahmedabad, on circular transactions in Pradip Overseas Ltd, vide, ITA No. 790/Ahd/2018. We note that Circular nature of transaction, has ....
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....0,01,200 2450 6,250 1,53,13,725 Total 11,34,318 43,43,68,202 Total 11,34,318 44,26,23,816 Profit earned from these Trading Activities 82,55,614 Having explained the above examples and figures, the ld. Counsel for the assessee pleaded that assessee has shown profit to the tune of Rs. 82,55,614/- noted in above table, which is 0.39% of Sales, and which is more than the addition sustained by the Hon`ble jurisdictional High Court of Gujarat, in the case of KFC Exports Private Limited, 172 taxmann.com 157(Guj), at the rate of 0.02% of sale, therefore, addition may be sustained in the hands of the assessee to the extent of 0.02% of sale. The Hon`ble jurisdictional High Court of Gujarat in the case of KFC Exports Private Limited (Supra) held that transactions of sale and purchases cannot be treated as cash credit under section 68 of the Act, if they are circular in nature. 17. The ld. Counsel for the assessee, also explained the Bench that there are lot of differences between bogus purchase and circular trading/ circular transaction, which is the facts of present case of the assessee under consideration. The table below, submitted by the ld. Counsel explains the difference be....
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....s M/S. Pradip Overseas Ltd, in ITA No. 790/Ahd/2018. The findings of the Tribunal are reproduced below: "Heard both the sides and perused the material on record. During the course of assessment, the assessee has admitted that it was engaged in circular trading wherein the bills/invoices changed hands without movement of physical goods. The Assessing Officer has treated such purchase of Rs. 283,77,87,618/- as not reliable and disallowed 5%of such purchases which worked out to Rs. 14,18,89,380/- and added to the total income of the assessee. During the course of assessment and appellate proceedings the assessee explained the complete modus operandi of circular trading transaction which was carried out to show better turnover. Without reiterating the facts as elaborated in this order, it is undisputed fact that assessee would make payment to the entity from whom it made purchases, who in turn would make consequent payment and the funds would finally reach back to the assessee. In circular trading the payments were made through cheques and profit on circular trading was disclosed by the assessee in its return of income. In the earlier assessment year, the assessee has gone to Settlem....
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....the addition made by the Assessing Officer in respect of the purchases cannot be added under Section 68 of the Act as cash credit as the respondent assessee was involved in circular transactions of sale and purchase. Therefore, submission made by the learned Senior Standing Counsel Mr.Varun Patel justifying the addition made by the Assessing Officer under Section 68 of the Act is contrary to the provisions of Section 68 of the Act itself and therefore, in our opinion, both the CIT (Appeals) and the Tribunal has rightly deleted the entire addition of purchases made by the Assessing Officer under Section 68 of the Act. 10. The Tribunal while upholding the Order of the CIT (Appeals) has considered the findings of fact recorded by the CIT (Appeals) regarding admission of the assessee before the V AT Authorities in the case of the survey carried out in M/s.Biotar Industries Limited to the effect that the assessee has entered into a circular transaction of sales and purchases and accordingly, the difference between the sales and purchases has been considered as an income of the assessee. 11. So far as the reliance placed on behalf of the appellant-Revenue on the decision of this Co....
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....d source of a sum credited in books of accounts - Held, yes - Whether however, transactions of sale and purchases cannot be treated as cash credit under Section 68 if they are circular in nature - Held, yes - Whether therefore, in given facts of case, when there was no activity carried out by assessee except entering into circular transactions of issuing purchase and sales, CIT (Appeals) and Tribunal had rightly made addition of difference between sales and purchase and also making addition of 0.02% of sales by disallowing expenses and therefore, no interference was called for Held, yes [Paras 9 and 12][In favour of assessee] 20. On the identical facts, the Coordinate Bench of ITAT, Mumbai, in the case of M/s Patodia Filaments Pvt Ltd, in ITA No. 5696-5699/MUM/2024 (Mum. Trib.), held as follows: "The court held that it is seen that assessee is dealing in the business of manufacturing of fabrics as well as trading in fabrics. It had made fabric purchases of more than Rs. 49.80 Crores. The only purchases made from these two parties have been doubted on which GP rate has been applied. The assessee to prove the genuineness of the purchases made from both the parties has produced va....